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Using Proceeds for Undisclosed Purposes

Using Proceeds for Undisclosed Purposes

When a broker-dealer, investment firm, registered investment advisor, registered representative, sponsor, or promoter uses investment proceeds for an undisclosed purpose, they have committed securities fraud. California law prohibits fraud in the offer and sale of securities. Corporations Code Section 25401 makes it illegal to offer, sell, or purchase securities based on untrue statements or omissions of material facts.

If you have been misled and proceeds for your investment were used for an undisclosed purpose, you have the right to sue to for damages or rescission. California law does not require the investor to prove that he or she actually relied upon untrue statements or material omissions. This is an important benefit for defrauded investors.

However, in order for a securities fraud claim to be governed by California Corporate Securities Law, the offer to sell or buy must have emanated from California. The investor does not have to be a California resident to sue under the California Corporate Securities Law of 1968.

It’s important to note that relief claims for securities fraud are governed by a statute of limitations. This statute requires the case to be filed within five years of the violation, or within two years after the violation was discovered by the plaintiff.

Consequences of Using Proceeds for Undisclosed Purposed


Punishments for security fraud exchange can be extremely harsh. If you are convicted for using proceeds for an undisclosed purpose, you will face imprisonment, fines, or both. While prison sentences can range between two to five years, fines for a security fraud conviction can be as high as $25 million.

Speak with our Legal Team Today. Call (424) 622-0062

Whether you are dealing with broker-dealers, financial institutions, promoters, sponsors, or ponzi scheme operators, we have the legal skills that you need to successfully defend your case. Our investment fraud lawyers have recovered millions of dollars in hundreds of cases for thousands of individuals and institutions. Let us put our successful track record and 60+ years of combined legal experience to work for you.


Contact our California team of investment fraud attorneys to get started on your case evaluation.


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