http://www.jdsupra.com/legalnews/did-ethiopian-electric-power-violate-83209/
Did Ethiopian Electric Power Violate California’s Corporate Securities Law?
6/13/2016
by
Keith Paul Bishop
| Allen Matkins Leck Gamble Mallory & Natsis LLP
Last week, the Securities and Exchange Commission announced a $6.5
million settlement with Ethiopian Electric Power, which was described
in the SEC’s order as “a government-owned power utility headquartered
in Addis Ababa, Ethiopia”. According to the order, Ethiopian Electric
Power offered and sold bonds to U.S. residents of Ethiopian origin in
Washington D.C. and other major cities. The bonds were sold to help
finance the construction of the Grand Ethiopian Renaissance Dam on the
Abay River in Ethiopia. These sales were conducted without
registration under the Securities Act of 1933. The SEC’s press
release quoted Stephen L. Cohen, Associate Director of the SEC’s
Division of Enforcement, as saying:
Foreign governments are welcome to raise money in the U.S. capital
markets so long as they comply with the federal securities laws,
including registration provisions designed to ensure that investors
receive important information about prospective investments . . . .
Although the SEC’s order made no mention of offers or sales occurring
in California, it did turn my thoughts to Section 25100(b) of the
California Corporations Code. That statute exempts from the
qualification requirements of the California Corporate Securities Law
of 1968 any security issued or guaranteed a foreign government (other
than Canada) with which the United States currently maintains
diplomatic relations, if the security is recognized as a valid
obligation by the issuer or guarantor. The question of whether
Ethiopian Electric Power may rely on this exemption itself cannot be
answered without asking more questions. First, is Ethiopian Electric
Power a foreign government? Second, does the United States have
diplomatic relations with Ethiopian Electric Power? Third, what does
it mean to “recognize” an obligation or guaranty as “valid”?
Answering the first question is difficult because the CSL does not
define “foreign government”. For example, does a foreign government
include government owned or controlled entities? The CSL also doesn’t
define “diplomatic relations”. Perhaps this should not be surprising
because even theVienna Convention on Diplomatic Relations fails to
define “diplomatic relations”, the very subject of the treaty (Article
2 simply provides that they are established by “mutual consent”).
It should be noted that California’s exemption is similar to, but not
the same as, the exemption found in Section 201(2) of the Uniform
Securities Act. The current version of the USA, unlike California’s
statute, does not make separate provision for securities issued by
Canada. Also, the USA extends the exemption to political subdivisions
of foreign governments.
Received on Mon Jun 13 2016 - 22:09:16 EDT