Salas

Corporations Code section 25110 prohibits the sale of unregistered securities. [1] Violation of this prohibition is a crime, punishable by incarceration for up to three years and a fine up to $1 million. (§ 25540, subd. (a).) But not all securities must be registered. There are many grounds of exemption from the registration requirement, and sale of an unregistered but exempt security is not a crime.

Here, defendants Javier O. Salas and Stephen Patrick, charged with selling unregistered securities, claimed they believed in good faith that the securities they sold were exempt from registration. The trial court instructed the jury that this good faith belief was irrelevant to their criminal culpability, and defendants were convicted. The Court of Appeal, however, held that guilty knowledge—meaning either knowledge of the security's nonexempt status or criminal negligence in failing to determine its status—is an element of the crime of selling an unregistered security. [2] It concluded that the trial court erred in failing to so instruct the jury, and that the error was harmless as to defendant Salas but prejudicial as to defendant Patrick.

Like the Court of Appeal, we…