South-Western Legal Studies in Business

Claim of Securities Fraud Must Be Brought Under Securities Statute
Description Appeals court held that a trial court properly dismissed a claim that a company had engaged in unfair and deceptive business practices in the sale of public securities in what was claimed to be a Ponzi scheme. Such a suit must be brought under securities law; the FTC Act and its state counterpart laws do not apply to securities transactions.
Topic Securities Law
Key Words Deceptive Practices; Securities Transaction; Ponzi Scheme
C A S E   S U M M A R Y
Facts Bowen and others sued Ziasun in California state court. Ziasun is a Nevada corporation that was headquartered in San Diego. Bowen alleged that Ziasun sold $365,625 of stock in publicly traded companies to him. He claimed the company made misstatements and omissions of material fact that would have disclosed that Ziasun was engaged in a Ponzi or pyramid scheme to defraud investors. Bowen brought suit under California’s unfair competition statute, which is nearly identical to the Federal Trade Commission Act that holds illegal unfair and deceptive trade practices. The trial court dismissed the suit, holding that the unfair competition statute did not apply to securities transaction. Bowen appealed.
Decision

Bowen and others sued Ziasun in California state court. Ziasun is a Nevada corporation that was headquartered in San Diego. Bowen alleged that Ziasun sold $365,625 of stock in publicly traded companies to him. He claimed the company made misstatements and omissions of material fact that would have disclosed that Ziasun was engaged in a Ponzi or pyramid scheme to defraud investors. Bowen brought suit under California’s unfair competition statute, which is nearly identical to the Federal Trade Commission Act that holds illegal unfair and deceptive trade practices. The trial court dismissed the suit, holding that the unfair competition statute did not apply to securities transaction. Bowen appealed.

Citation Bowen v. Ziasun Technologies, Inc., 2004 WL 414897 (Ct. App., Calif., 2004)

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