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The U.S. Securities and Exchange Commission on Thursday issued its opinion that California’s IOUs should be treated as securities under federal securities law.
Under that opinion, holders of the notes, which carry a 3.75 percent interest rate, are protected by securities laws that prevent fraud. And it means that people who attempt to make a market in buying and selling the notes may have to be registered as “brokers, dealers or municipal securities dealers, or as alternative trading systems or national securities exchanges.”
The SEC did not make any determination on whether California has the authority to issue or repay the registered warrants.
“The SEC has sent a pretty clear warning to folks who plan to profit by buying and reselling IOUs: If you’re not registered as a municipal securities broker-dealer, you run the risk of violating federal law,” said Tom Dressler, spokesman for California state Treasurer Bill Lockyer. “The recipients of IOUs also should understand that if they sell their IOU to anyone who is not a licensed broker-dealer, they could well have no remedy under federal law if they get victimized by a con artist. So, they should check before selling.”
Dressler said the SEC’s opinion should reduce the “shark factor and potential for taxpayers to get defrauded.”
On the other hand, he said the decision might make it more difficult for IOU recipients to get cash for IOUs if their bank or credit union won’t take them.
The SEC’s opinion is available at: http://www.sec.gov/news/press/2009/2009-154.htm
Most major banks initially said they would cash in the IOUs, which the state started issuing on July 1, but only through July 10. Some also placed a 10-day hold on the warrants. As of Thursday evening, the banks have not extended that deadline.
More than 60 credit unions, however, said they would continue to accept IOUs. An updated list of credit unions accepting IOUs can be found at www.ccul.org.
Under that opinion, holders of the notes, which carry a 3.75 percent interest rate, are protected by securities laws that prevent fraud. And it means that people who attempt to make a market in buying and selling the notes may have to be registered as “brokers, dealers or municipal securities dealers, or as alternative trading systems or national securities exchanges.”
The SEC did not make any determination on whether California has the authority to issue or repay the registered warrants.
“The SEC has sent a pretty clear warning to folks who plan to profit by buying and reselling IOUs: If you’re not registered as a municipal securities broker-dealer, you run the risk of violating federal law,” said Tom Dressler, spokesman for California state Treasurer Bill Lockyer. “The recipients of IOUs also should understand that if they sell their IOU to anyone who is not a licensed broker-dealer, they could well have no remedy under federal law if they get victimized by a con artist. So, they should check before selling.”
Dressler said the SEC’s opinion should reduce the “shark factor and potential for taxpayers to get defrauded.”
On the other hand, he said the decision might make it more difficult for IOU recipients to get cash for IOUs if their bank or credit union won’t take them.
The SEC’s opinion is available at: http://www.sec.gov/news/press/2009/2009-154.htm
Most major banks initially said they would cash in the IOUs, which the state started issuing on July 1, but only through July 10. Some also placed a 10-day hold on the warrants. As of Thursday evening, the banks have not extended that deadline.
More than 60 credit unions, however, said they would continue to accept IOUs. An updated list of credit unions accepting IOUs can be found at www.ccul.org.
We certainly don't want people getting paid in IOUs to get "defrauded."
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