The California Corporate Securities Law of 1968 generally requires that the offer and sale of a security in an issuer transaction must be qualified unless exempt or not subject to qualification (due to preemption).  Cal. Corp. Code § 25110.  Anyone who violates this requirement may be liable for rescission (if they still own the security) or damages (if they no longer own the security).  Cal. Corp. Code § 25503. 

Importantly, a defendant may be liable for violating California's qualification requirement in the absence of any showing of fault on the part of the defendant.  The strictness of the statute is somewhat cabined by a requirement that the plaintiff be in privity with the defendant.  

The importance of privity is illustrated by U.S. District Court Judge Phyllis J. Hamilton's recent ruling in In re Ripple Labs, Inc. Litig., No. 18-CV-06753-PJH, 2024 WL 3074379 (N.D. Cal. June 20, 2024).  Earlier in the case, Judge Hamilton had ruled that the plaintiff had adequately alleged privity but she noted that it was up to the plaintiff to use discovery to identify "actual evidence" of privity.  However, in ruling on the defendants' motion to dismiss, Judge Hamilton found that the plaintiff had failed to adduce a triable issue of fact with respect to privity.  It appears that the best that the plaintiff could show was that he had purchased from market makers, but the market makers were representing multiple sellers and there was no evidence that they were representing the defendants.

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