California-based companies beware: An appeals court in that state has held that California’s plaintiff-friendly insider trading law can be applied to a company that is incorporated in Delaware.
Typically, a principle called the “internal affairs doctrine” protects companies in California that are incorporated elsewhere from being subjected to the Golden State’s securities laws. The theory of the doctrine is that a company’s internal affairs are regulated by the state where it is incorporated, and allowing another state to simultaneously regulate such matters would create confusion (see box below, left).
