Background

• Plaintiffs purchased $200,000 of Economic Inventions stock (El) and allege securities fraud and related claims.
• Wasserman, a former El employee who helped solicit the investment, did not sell the stock to plaintiffs and did not receive funds from them.
• El granted an exclusive, perpetual NexTrade license, allegedly harming El and externalizing risk to defendants; plaintiffs claim non-disclosure and misrepresentation about Wasserman’s involvement and NexTrade terms.
• The trial court granted summary adjudication and then nonsuited plaintiffs on the securities fraud claim, ruling rescission was the sole remedy and privity required.
• Because plaintiffs still own the El shares, the only remedy would be rescission, which requires a contract between the parties; Wasserman was not in privity as she did not sell the stock or receive purchase funds.
• The court held that privity is required for rescission under Corporations Code sections 25504 and 25504.1 and affirmed the nonsuit against Wasserman.

Issues

Key Cases Cited

• Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir. 1981) (remedy usually limited to privity or fiduciary duties in rescission contexts)
• Pinter v. Dahl, 486 U.S. 622 (S. Ct. 1988) (rejects broad expansion of 'seller' beyond actual sellers)
• McFarland v. Memorex Corp., 493 F. Supp. 631 (N.D. Cal. 1980) (rescission requires direct privity in §12(2) context)
• Lennerth v. Mendenhall, 234 F. Supp. 59 (N.D. Ohio 1964) (cited by plaintiffs; rejected by later Pinter framework)
• Sherman v. Lloyd, 181 Cal.App.3d 693 (Cal. Ct. App. 1986) (control group liability under §25504 distinguishable and not privity-based rescission here)