California Code of Regulations
Title 10 - Investment
Chapter 3 - Commissioner of Financial Protection and Innovation
Subchapter 2 - Corporate Securities
Article 12 - Advertising Securities
Section 260.302 - Standards Relating to Advertisements

Universal Citation: 10 CA Code of Regs 260.302

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

Any advertisement of securities (other than a tombstone advertisement) should disclose, fairly and accurately, such relevant facts concerning the nature of the securities, their terms and conditions, and the nature and financial condition of the business enterprise as are necessary to make the advertisement not misleading. Normally, any advertisement should comply with the following standards:

(a) An advertisement should not contain any statement or inference that an investment in the security is safe, or that continuation of earnings or dividends is assured, or that failure, loss, or default is impossible or unlikely.

(b) An advertisement (other than a tombstone advertisement) should disclose all relevant details relating to promotional shares, options, warrants and rights issued or proposed to be issued by the company.

(c) Any statement in an advertisement (other than a tombstone advertisement) relating to the financial condition of the issuer should comply with the following:

(1) Any statement relating to the current or past financial condition of an issuer should be clear, intelligible and reasonably complete.

(2) A statement purporting to show the current financial condition of an issuer should be prepared as of a date reasonably close to the time at which the advertisement is used and should disclose the date on which it was prepared and the date to which the issuer's financial condition is reflected therein.

(3) A statement purporting to show the past financial condition of an issuer should be accompanied by a current financial statement prepared in accordance with Clause (2) of this Subsection.

(4) A statement purporting to show the average earnings of an issuer for a period of more than one year should be accompanied by a statement of the earnings for each of the individual years within the period covered if there are any significant variations within such period.

(5) No "Pro Forma" financial statements should be used in an advertisement except in connection with recapitalizations or reorganizations.

(6) No statement of estimated future earnings should be made unless (i) it is based on a past earnings record, (ii) it projects future earnings for a reasonable period only, and (iii) it is substantiated by data which clearly supports such estimate.

(d) Any advertisement which refers to the qualification of the sale of the securities under the law of the State of California shall contain in capital letters of not less than 10-point type the following legend, printed in contrasting color or type:

"THE COMMISSIONER OF BUSINESS OVERSIGHT OF THE STATE OF CALIFORNIA DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES."

(e) Any advertisement which refers to an exemption from or reduction in taxation under any law should be based on an opinion of counsel, and the name of such counsel should be stated in the advertisement.

(f) An advertisement should normally contain the name and address of the person using the advertisement.

(g) If the advertisement contains any endorsement or recommendation of the securities by any public figure, whether express or implied (for example, by the inclusion of such person's photograph or name in the advertisement), full disclosure shall be made of any compensation or other benefit given or promised by the issuer or any person associated with the issuer to such person, directly or indirectly. The disclosure required in this Subsection (g) shall be made in the same document containing the advertisement or, if such advertisement is presented on radio or television, as a part of the same program, without any intermission or other intervening material.

(h) Any advertisement relating to securities of an open-end management company registered under the Investment Company Act of 1940 which complies with the Statement of Policy of the Securities and Exchange Commission (Investment Company Act Release No. 2621, November 5, 1957, as amended) will not be disapproved.

(i) Any advertisement of debt securities which states the rate or amount of interest and the date at which interest payments will cease by reason of the final maturity of the principal obligation, shall also disclose the right if reserved by the issuer, to avoid payment of such interest by redemption prior to final maturity.

1. New subsection (i) filed 11-23-70 as an emergency; designated effective 11-23-70 (Register 70, No. 48).
2. Certificate of Compliance Sec. 11422.1, Gov. Code, filed 12-9-70 (Register 70, No. 50).
3. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).
4. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).
5. Change without regulatory effect amending subsection (d) filed 8-13-2014 pursuant to section 100, title 1, California Code of Regulations (Register 2014, No. 33).

Note: Authority cited: Section 25610, Corporations Code. Reference: Sections 25300 and 25302, Corporations Code.

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