SEC Puts Calif. IOUs Under Federal Securities Law

Law360, New York (July 10, 2009, 12:00 AM EDT) -- IOUs issued by the state of California to cover a cash shortfall are securities under federal law, the U.S. Securities and Exchange Commission has determined.

Fraud provisions of federal securities law will apply to holders of the IOUs, and may restrict third-party sales of the notes to registered dealers, the commission said in a statement released Thursday. The IOUs themselves do not have to be registered with the SEC, though, because they are municipal securities.

The decision does not impact the right of the state to...
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