Kamen

At issue in this action is the applicability of Corporations Code sections 25400 and 25500 to defendants who did not both 1) sell and/or offer to sell, or buy and/or offer to buy securities, and 2) make misleading statements for the purpose of inducing the purchase or sale of a security. We hold that a defendant must have engaged in both activities in order to be liable under section 25500.

Factual and Procedural Background

S3 Incorporated (S3 or company) supplies high-performance multimedia acceleration hardware and software for personal computers. Its stock is traded through the NASDAQ national market system. Defendants Carmelo J. Santoro, John C. Colligan, and Robert P. Lee were members of the company’s board of directors. Defendant Harry L. Dickinson served as senior vice-president of sales after April of 1995. Defendant Dale R. Lindly served as S3’s corporate controller prior to March 4, 1997, and chief financial officer after that date. Defendant Deloitte & Touche LLP (Deloitte) is a firm of certified public accountants that was engaged by S3 to provide accounting and auditing services.

According to the consolidated amended class action complaint against S3 and…