Legislature(2015 - 2016)BARNES 124
02/01/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB194 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 194 | TELECONFERENCED | |
HB 194-AK SECURITIES ACT; PENALTIES; CRT. RULES
[Contains discussion of SB 108]
3:19:21 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 194, "An Act repealing and reenacting the Alaska
Securities Act, including provisions relating to exempt
securities and transactions; relating to registration of
securities, firms, and agents that offer or sell securities and
investment advice; relating to administrative, civil, and
criminal enforcement provisions, including restitution and civil
penalties for violations; allowing certain civil penalties to be
used for an investor training fund; establishing increased civil
penalties for harming older Alaskans; retaining provisions
concerning corporations organized under the Alaska Native Claims
Settlement Act; amending Rules 4, 5, 54, 65, and 90, Alaska
Rules of Civil Procedure; and providing for an effective date."
3:19:54 PM
KEVIN ANSELM, Director, Anchorage Office, Division of Banking
and Securities, Department of Commerce, Community & Economic
Development (DCCED), informed the committee HB 194 seeks to
update the Alaska Securities Act. She noted that supplemental
documents included in the committee packet are: a table of
contents that is a guide to the bill and its substantive
changes; a draft of the [Alaska Native Claims Settlement Act of
1972 (ANCSA)] Alaska Native Claims Settlement Act Corporation
Proxy Solicitations which is the part of the current securities
Act that will remain in AS 45.55; and a securities enforcement
comparison that reveals the differences between civil penalties
under current law and the proposed legislation. Ms. Anselm
directed attention to a PowerPoint presentation entitled,
"Updating the Alaska Securities Act HB 194," dated 2/1/16, and
explained the reasons to update the securities Act are:
recognize and incorporate current industry terms and standards,
which has not been done since 1999; synthesize with the laws in
other states to assist businesses, entrepreneurs, and investors
to understand their rights, responsibilities, and opportunities
in Alaska; consider opening equity crowdfunding opportunities to
Alaskans; deter investment scams using Alaska entities or
harming Alaskans; enhance penalties for those who harm older
Alaskans; separate the securities statutes from ANCSA statutes
to reduce confusion and improve understanding for both Acts
[slide 2]. At this time, the Alaska Securities Act provides the
legal framework for offering or selling securities within Alaska
or to Alaskans, including requirements for the registration of
various types of securities, requires business plan disclosures,
and provides for exemption from certain registration
requirements. The Act also requires the registration of the
sales force that sells securities to Alaskans; and enforcement
[slide 3]. The ANCSA provisions remaining in AS 45.55 include
references to exempt ANCSA securities transactions currently in
AS [45.56.210], and enforcement and administration of this
chapter. Ms. Anselm said all other references that are
confusing to ANCSA shareholders and to others, are removed
[slide 4].
REPRESENTATIVE JOSEPHSON asked for clarification of provisions
related to ANCSA.
MS. ANSELM explained that the current Act references stocks,
bonds, and other securities that have no relevance to ANCSA
issues.
REPRESENTATIVE LEDOUX asked whether the only remaining ANCSA
provisions are related to proxies.
MS. ANSELM said no. She directed attention to the
aforementioned document found in the committee packet entitled,
"Draft - Chapter 45.55 upon effectiveness of HB 194/SB 108," and
pointed out that also included are sections related to
misleading filings, reports of corporations, and administration
of the chapter. She said, "And so it has been modified to fit
only the ANCSA corporations and not all of the other securities
pieces."
REPRESENTATIVE LEDOUX asked:
If somebody is subject to the [U.S.] Securities and
Exchange Commission, are they still subject to the
Alaska securities law or is this special for entities
that are not subject to ... the federal [Securities
Exchange Act]?
MS. ANSELM advised there are certain federal-covered securities
and activities over which the state has no authority; the
National Securities Markets Improvement Act of 1996 took some of
the registration of securities responsibilities away from the
state, although all broker-dealers and salespersons must still
be licensed in the state. In fact, there is a dual regulatory
system: the U.S. Securities and Exchange Commission (SEC), and
a self-regulatory organization, the Financial Industry
Regulatory Authority (FINRA). She further explained that SEC
oversees investment advisors who handle accounts of $100 million
or more, and "anything under a hundred million dollars is the
state's responsibility." Crowdfunding intrastate is state
regulated, however, crowdfunding crossing state borders will be
under the jurisdiction of SEC when available. Ms. Anselm
offered to provide a graph illustrating state, federal, and
shared responsibilities. She stated that ANCSA provisions are
specific to Alaska and suggested the committee review the draft
document that was provided.
3:29:02 PM
MS. ANSELM, returning to the benefits of HB 194, said the bill
would improve organization of topics, would be easier to
understand, and would eliminate filings for all exemptions from
registration, except rescission offers and crowdfunding. In
addition, the bill updates entity and law references, and
includes bad actor disqualifiers.
REPRESENTATIVE LEDOUX questioned whether bad actors are
forbidden forever.
MS. ANSELM was unsure, and said she would provide further
information. Finally, the bill improves enforcement and
investor education provisions [slides 5 and 6]. She continued
with an overview of HB 194: Articles 1 through 7 [further
discussion follows] [slide 7]. Article 1, Sections 2 through 35
cover all of the changes that need to be made to the other laws,
and the changes to ANCSA provisions in AS 45.55. Ms. Anselm
advised that the first provision in the law is that a person may
not offer or sell a security in the state unless it is a
federally-covered security, the person is registered under this
chapter, or the security or transaction is exempted from
registration [slide 8]. She directed attention to the
aforementioned document found in the committee packet entitled,
"Comparison of SB 108/HB 94 to Existing Alaska Securities Act
(AS 45.55)," and described how to use the document to search for
information related to HB 194. Article 2 includes the same
registration and transactional exemptions as the current Act and
adds a crowdfunding exemption, also known as small intrastate
securities offerings. Equity, or debt, crowdfunding allows an
investor to invest in a business and share in its earnings
[slide 9]. Provisions of crowdfunding in Alaska include:
issuer must be an Alaska business; purchasers must be Alaska
residents; and issuer must have some evidence proving residency
[slide 10]. The bill differs from other forms of crowdfunding
in that an Alaskan investor can profit from the business.
3:36:28 PM
REPRESENTATIVE LEDOUX gave an example of a group that was
soliciting funds to open a brewery and asked whether that type
of activity is subject to Alaska securities laws.
MS. ANSELM responded yes and no. If investors in the brewery
did not expect a return, the transaction would not have been
subject to the Alaska Security Act; however, up to 25 friends
and family could invest after an exemption to the security Act
was filed. In further response to Representative LeDoux, she
said the friends and family exemption is not being eliminated,
but the filing and fees for a friends and family exemption will
no longer be required.
MS. ANSELM returned to the topic of crowdfunding, and said no
commission can be paid unless the salespeople are licensed in
Alaska, notice filings are required under certain time limits
and provide pertinent information, and the issuer cannot resell
unless the securities are exempt or are registered. Crowdfunded
securities are illiquid [page 10].
REPRESENTATIVE LEDOUX asked whether the proposed legislation
affects "buying into a business" and she gave an example.
MS. ANSELM stated investors buying into a business could be
subject, if there were a general solicitation. In further
response to Representative LeDoux, she answered that friends and
family can sell their interest only if the security is otherwise
exempt or registered. She further clarified that a security is
similar to a property title: proper paperwork and a clean title
is necessary to allow a business to be transferred or sold.
3:42:09 PM
REPRESENTATIVE JOSEPHSON recalled there was a previous bill
related to securities exemptions.
MS. ANSELM offered to provide information on previous related
legislation. She then directed attention to Article 4, which
improved licensing provisions, added a new registration
exemption for mergers and acquisitions brokers in order to
promote business within the state, and added a new exemption
also for "snowbirds" with two residences [slide 11].
REPRESENTATIVE LEDOUX stated that one who has a residence in
Arizona, and who wanted to purchase stock from Alaska, would
have to have a broker licensed in both states.
MS. ANSELM said yes, unless other exemptions apply, or if the
other state has reciprocal agreements. In further response to
Representative LeDoux, she said the state has jurisdiction over
salespersons living in the state, and SEC oversees the firms.
For a transaction within a state without reciprocal agreements,
she suggested that de minimis exemptions may apply in a certain
number of cases.
3:47:45 PM
REPRESENTATIVE HUGHES inquired as to why reciprocity is required
from both of the states involved in order for a former Alaska
resident to acquire an exemption.
MS. ANSELM advised that a number of provisions need to apply
such as whether both states have jurisdiction in case of
wrongdoing, and that there is no problem with the investors'
rights. She added that this is a Uniform Securities Act
provision and her division would provide more information in
this regard.
3:50:39 PM
CHAIR OLSON requested that Ms. Anselm provide the information to
committee staff for distribution.
MS. ANSELM directed attention to Article 6, which permits the
division to develop and implement investor education initiatives
through collaboration and also to accept grants or donations for
that specific purpose. Additionally there is an initiative to
establish an investor education fund, using one-third of the
money received in civil penalties; however, the legislature can
appropriate these funds for investor training, or for other
purposes. The final administrative change is that variable
annuity transactions will be subject to applicable provisions of
the securities Act such as sales practices, although concern
about this provision has been expressed by the insurance
industry [slide 12]. Regarding enforcement, basic provisions
are carried over from the current laws, but the language has
been reorganized and expanded, including increasing civil
penalties up to $100,000 per violation - with no maximum limit
per case - and treble damages when the victim is over 60 years
of age [slide 13].
REPRESENTATIVE LEDOUX asked whether the penalty for a single
violation could be $100,000.
MS. ANSLEM gave an example of a group of Alaskans who lost $3
million to an oil and gas scam. Currently, the maximum civil
penalty that could be charged for all of the civil violations in
that case is $25,000; in further response to Representative
LeDoux, she said that HB 194 would possibly allow a $100,000
penalty for each count in a case, and the maximum would be
$100,000 against one person in one case.
3:56:14 PM
REPRESENTATIVE JOSEPHSON inquired as to how the bill could
educate, or be a deterrent to bad conduct.
MS. ANSELM opined increased penalties are a deterrent because
they raise "a cost of doing business" beyond the previous
maximum exposure of a $25,000 penalty, no matter how many
millions of dollars were stolen. She returned attention to
significant enforcement changes in HB 194 and noted that
restitution may be ordered by the division as administrator, and
there is a provision that superior court can hold a person who
is in violation of a final administrative order in civil
contempt, and subject to a potential $100,000 fine per violation
[slide 14].
REPRESENTATIVE JOSEPHSON observed that currently, one seeks
restitution by suit, unaided by the government.
MS. ANSELM explained there is an administrative process wherein
if one does not agree with an order from the division, the
matter goes to the Office of Administrative Hearings, Department
of Administration, and then through the court system.
REPRESENTATIVE LEDOUX inquired as to whether the amount of
restitution can be equal to the amount that was lost.
MS. ANSELM said absolutely. She continued the presentation,
advising that the following significant changes have been
proposed to civil enforcement: injunctions; asset freezes and
receivership; additional penalties where the victim is an older
Alaskan; order of rescission or disgorgement; restitution; and
repayment of prejudgment or post-judgement interest [slide 15].
Ms. Anselm turned to civil liability, advising the bill
separates civil liability from rescission - which is when a sale
or purchase of a stock or bond was a violation and should be
rescinded. Other circumstances include when salespeople in
violation are liable to their clients; in these cases, the
statute of limitations is generally three years from the date of
sale, unless there is fraud.
CHAIR OLSON recalled a federal case in Anchorage and asked how
the proposed changes in HB 194 would have affected the penalties
assessed in that case.
MS. ANSELM said she would provide that information. She
continued, in HB 194, rescission offers are generally the same
except for the following: an aggrieved party has 30 days to
accept a rescission offer; the offeror must demonstrate the
ability to pay; the recession offer must be delivered in a way
that ensures receipt; and the offeror must actually pay as
promised [slide 17]. Regarding criminal enforcement,
significant changes are that "knowing violations" are considered
a class C felony, and a violation of securities law is
considered a class A misdemeanor in a criminal prosecution.
4:03:48 PM
CHAIR OLSON asked when the CS for HB 194 would be finalized.
MS. ANSELM expressed her understanding that the division will
finalize the CS as soon as possible, and will present no
material changes. In further response to Chair Olson, she
stated that she will notify the chair of changes on [2/2/16].
REPRESENTATIVE LEDOUX directed attention to the proposed CS for
HB 194, labeled 29-GH1060\W, on page 34, [paragraph (12)] which
read:
(12) a description of any pending litigation, action,
or proceeding to which the issuer is a party and that
materially affects the issuer's business or assets and
any litigation, action, or proceeding known to be
contemplated by governmental authorities;
REPRESENTATIVE LEDOUX questioned why the foregoing provision is
limited to an action contemplated by government authorities,
rather than litigation that "is contemplated by anybody ... so,
for example, if you've gotten a demand letter from an attorney
or a private party ...."
MS. ANSELM said she was unsure. In further response to
Representative LeDoux on her question as to whether the
foregoing provision applies to a formal litigation action or
proceeding, she suggested changes may be made by regulation, and
that she would review Version W.
REPRESENTATIVE JOSEPHSON asked for the source of the ideas for
the bill.
MS. ANSELM responded that the division looked at the [Uniform
Securities Act (USA)] for ways to provide relief to
entrepreneurs and businesses, while still protecting the public.
Some ideas came from the North American Securities
Administrators Association, such as more protection for seniors.
Also, experiences with enforcement and that the division is
unable to deter activities in Alaska and by entities based in
Alaska. She stated the division sought to maintain Alaska-
centric provisions in the current law, and also to incorporate
other benefits from the Uniform Securities Act and elsewhere.
4:11:08 PM
CHAIR OLSON noted HB 194 has a zero fiscal note, and opined the
bill is long overdue.
MS. ANSELM said she welcomed inquiries.
[HB 194 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB194 Fiscal Note-DCCED-DBS-01-25-16.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Supporting Documents-Crosswalk.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Supporting Documents-Draft Chapter AS.44.55.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Supporting Documents-DBS Presentation.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Supporting Documents-Enforcement Comparison.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Supporting Documents-Table of Contents.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Ver A.PDF |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Transmittal Letter.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Sectional Analysis.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Draft Proposed Blank CS ver W.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |
| HB194 Legal Services Memo CS ver W.pdf |
HL&C 2/1/2016 3:15:00 PM |
HB 194 |