The definition of a "security" Section 25019 was modeled after the definition in Section 2(a)(1) of the Securities Act of 1933, albeit with some notable differences. Both laws broadly define the term and therefore cover a wide variety of economic arrangements. Nonetheless not every offer necessarily constitutes an offer of a security.
In Stauffer v. Orpheus Flow Technologies, LLC, Case No. 21-cv-00567-JD (Feb. 27, 2025), the plaintiff, Job Stauffer, alleged that in exchange for working as "a co-founder and a top manager of Orpheus Flow [the defendant]," he had been offered a compensation package consisting of "a significant portion of the equity of Orpheus Flow" and "monthly earned income. Judge James Donato, however, dismissed his claim under Corporations Code Section 25401 because Stauffer's "compensation package offer was manifestly not a security". Judge Donato found that the plaintiff's compensation package offer failed by a "wide margin" both the Howie [SEC v. W.J. Howie Co., 328 U.S. 293 (1946)] and "risk capital" [Silver Hills Country Club v. Sobieski, 55 Cal. 2d 811 (1961)] as applied by the California courts.
Judge Donato's ruling, however, should not be understood to mean that equity awards such as stock options, stock appreciation rights, and stock purchase rights do not involve the offer and sale of a security.
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