Legislature(2001 - 2002)
03/18/2002 01:10 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
March 18, 2002
1:10 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Jeannette James
Representative John Coghill
Representative Kevin Meyer
Representative Ethan Berkowitz
Representative Albert Kookesh
MEMBERS ABSENT
Representative Scott Ogan, Vice Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 393
"An Act relating to unfair and deceptive trade practices and to
the sale of business opportunities; amending Rules 4 and 73,
Alaska Rules of Civil Procedure; and providing for an effective
date."
- HEARD AND HELD
CS FOR SENATE BILL NO. 169(FIN)
"An Act providing that the delinquency laws are inapplicable to
minors who are at least 16 years of age and are accused of
felony crimes against persons directed at victims because of the
victims' race, sex, color, creed, physical or mental disability,
ancestry, or national origin."
- HEARD AND HELD
HOUSE BILL NO. 295
"An Act relating to prohibiting the use of cellular telephones
when operating a motor vehicle; and providing for an effective
date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 393
SHORT TITLE:SALES OF BUSINESS OPPORTUNITIES
SPONSOR(S): REPRESENTATIVE(S)STEVENS
Jrn-Date Jrn-Page Action
02/08/02 2182 (H) READ THE FIRST TIME -
REFERRALS
02/08/02 2182 (H) L&C, JUD
02/25/02 (H) L&C AT 3:15 PM CAPITOL 17
02/25/02 (H) Heard & Held
02/25/02 (H) MINUTE(L&C)
02/27/02 (H) L&C AT 3:15 PM CAPITOL 17
02/27/02 (H) Moved Out of Committee
02/27/02 (H) MINUTE(L&C)
03/01/02 2435 (H) L&C RPT 2DP 5NR
03/01/02 2435 (H) DP: CRAWFORD, HAYES; NR:
ROKEBERG,
03/01/02 2435 (H) MEYER, KOTT, HALCRO,
MURKOWSKI
03/01/02 2435 (H) FN1: INDETERMINATE(LAW)
03/01/02 2445 (H) FIN REFERRAL ADDED AFTER JUD
03/18/02 (H) JUD AT 1:00 PM CAPITOL 120
BILL: SB 169
SHORT TITLE:HATE CRIMES: AUTOMATIC WAIVER OF MINORS
SPONSOR(S): SENATOR(S) DONLEY
Jrn-Date Jrn-Page Action
03/29/01 0859 (S) READ THE FIRST TIME -
REFERRALS
03/29/01 0859 (S) JUD, FIN
04/30/01 (S) JUD AT 4:45 PM BELTZ 211
04/30/01 (S) -- Time Change --
04/30/01 (S) MINUTE(JUD)
05/01/01 1394 (S) JUD RPT 4DP 1NR
05/01/01 1394 (S) DP: TAYLOR, COWDERY,
THERRIAULT,
05/01/01 1394 (S) DONLEY; NR: ELLIS
05/01/01 1394 (S) FN1: INDETERMINATE(COR)
05/03/01 (S) FIN AT 9:00 AM SENATE FINANCE
532
05/03/01 (S) Scheduled But Not Heard
05/03/01 (S) FIN AT 6:30 PM SENATE FINANCE
532
05/03/01 (S) Moved CS(FIN) Out of
Committee -- Time Change --
05/03/01 (S) MINUTE(FIN)
05/04/01 (S) RLS AT 1:00 PM FAHRENKAMP 203
05/04/01 (S) -- Time Change --
05/04/01 (S) MINUTE(RLS)
05/04/01 1485 (S) FIN RPT CS 5DP 1DNP 2NR NEW
TITLE
05/04/01 1486 (S) DP: DONLEY, HOFFMAN, OLSON,
WARD,
05/04/01 1486 (S) LEMAN; NR: KELLY, WILKEN;
DNP: GREEN
05/04/01 1486 (S) FN1: INDETERMINATE(COR)
05/04/01 1506 (S) READ THE SECOND TIME
05/04/01 1506 (S) FIN CS ADOPTED UNAN CONSENT
05/04/01 1507 (S) ADVANCED TO 3RD READING FLD
Y12 N6 A2
05/04/01 1507 (S) ADVANCED TO THIRD READING 5/5
CALENDAR
05/04/01 1493 (S) RULES TO 1ST SUP CALENDAR
5/4/01
05/05/01 1554 (S) ADVANCED TO THIRD READING 5/6
CALENDAR
05/06/01 1566 (S) READ THE THIRD TIME CSSB
169(FIN)
05/06/01 1567 (S) RETURN TO SECOND FOR AM 1
UNAN CONSENT
05/06/01 1567 (S) AM NO 1 FAILED Y7 N12 A1
05/06/01 1567 (S) AUTOMATICALLY IN THIRD
READING
05/06/01 1568 (S) PASSED Y14 N6
05/06/01 1568 (S) LEMAN NOTICE OF
RECONSIDERATION
05/06/01 1569 (S) RECON TAKEN UP SAME DAY UNAN
CONSENT
05/06/01 1569 (S) PASSED ON RECONSIDERATION Y13
N6 A1
05/06/01 1609 (S) TRANSMITTED TO (H)
05/06/01 1609 (S) VERSION: CSSB 169(FIN)
05/06/01 1615 (H) READ THE FIRST TIME -
REFERRALS
05/06/01 1615 (H) JUD, FIN
05/06/01 1615 (H) REFERRED TO JUDICIARY
03/06/02 (H) JUD AT 1:00 PM CAPITOL 120
03/06/02 (H) <Bill Postponed to 03/18/02>
03/18/02 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE GARY STEVENS
Alaska State Legislature
Capitol Building, Room 428
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of HB 393.
CHRYSTAL SMITH, Special Assistant
Office of the Attorney General
Department of Law (DOL)
PO Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: During discussion of HB 393 responded to
questions.
CYNTHIA DRINKWATER, Assistant Attorney General
Fair Business Practices Section
Civil Division (Anchorage)
Department of Law (DOL)
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: During discussion of HB 393 provided
comments and responded to questions.
JOHN W. HESSE, II, Senior Attorney & Director
Government Relations
Direct Selling Association (DSA)
1275 Pennsylvania Avenue, NW, Suite 800
Washington, DC 20004-2411
POSITION STATEMENT: During discussion of HB 393 provided
comments, suggested an amendment, and responded to questions.
BRYAN HARRISON, Corporate Government Affairs
Alticor Inc.
7575 Fulton Street East
Ada, Michigan 49355
POSITION STATEMENT: During discussion of HB 393 provided
comments and responded to questions.
ANNE CREWS, Vice President
Corporate Affairs
Mary Kay Inc.
PO Box 799045
Dallas, Texas 75379-9045
POSITION STATEMENT: During discussion of HB 393 provided
comments, suggested an amendment, and responded to questions.
VALERIE J. DEWEY
PO Box 72757
Fairbanks, Alaska 99707
POSITION STATEMENT: During discussion of HB 393 relayed her
experience as the victim of a business-opportunity scam.
PAM LaBOLLE, President
Alaska State Chamber of Commerce
217 2nd Street
Juneau, Alaska 99801
POSITION STATEMENT: Provided comments during discussion of HB
393.
SENATOR DAVE DONLEY
Alaska State Legislature
Capitol Building, Room 506
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of SB 169.
ROBERT BUTTCANE, Legislative & Administrative Liaison
Division of Juvenile Justice (DJJ)
Department of Health & Social Services (DHSS)
PO Box 110635
Juneau, Alaska 99811-0635
POSITION STATEMENT: Testified in opposition to SB 169 and
responded to questions.
LINDA WILSON, Deputy Director
Public Defender Agency (PDA)
Department of Administration
900 West 5th Avenue, Suite 200
Anchorage, Alaska 99501-2090
POSITION STATEMENT: Testified in opposition to SB 169.
CANDACE BROWER, Program Coordinator/Legislative Liaison
Office of the Commissioner - Juneau
Department of Corrections (DOC)
431 North Franklin Street, Suite 400
Juneau, Alaska 99801
POSITION STATEMENT: During discussion of SB 169 provided
comments.
ACTION NARRATIVE
TAPE 02-31, SIDE A
Number 0001
CHAIR NORMAN ROKEBERG called the House Judiciary Standing
Committee meeting to order at 1:10 p.m. Representatives
Rokeberg, James, Coghill, and Meyer were present at the call to
order. Representatives Berkowitz and Kookesh arrived as the
meeting was in progress.
HB 393 - SALES OF BUSINESS OPPORTUNITIES
Number 0010
CHAIR ROKEBERG announced that the first order of business would
be HOUSE BILL NO. 393, "An Act relating to unfair and deceptive
trade practices and to the sale of business opportunities;
amending Rules 4 and 73, Alaska Rules of Civil Procedure; and
providing for an effective date."
Number 0015
REPRESENTATIVE GARY STEVENS, Alaska State Legislature, sponsor,
said that HB 393 focuses on consumer protection, particularly
with regard to several scams lately discovered. He referred to
a Redbook magazine article in members' packets titled "So you
want to work at home?" that details some of the scams that are
taking place. He noted that advertisements for business
opportunities, sometimes referred to as "biz opps," often use
phrases like "Work at home - earn money"; unfortunately, many of
these are not legitimate businesses. He remarked that HB 393
would have no impact on legitimate businesses, but does try to
control those businesses that are really scams. "What you'll
find here is a pretty comprehensive statute regulating the sale
of these biz opps," he added. All sorts of these biz opps -
from work-at-home schemes such as medical billing and stuffing
envelopes, to the sale of vending machines, greeting card
display racks, "900 numbers," and other products - promise high
earnings, which rarely materialize.
REPRESENTATIVE STEVENS remarked that with the adoption of HB
393, Alaska will join approximately "half of the other states"
that have regulations pertaining to the sale of business
opportunities. House Bill 393 requires "these companies" to
register with the state, to disclose information to buyers, to
use escrow accounts to assure delivery of business assets, and
to provide a 30-day right of cancellation to the buyer. In
addition to these consumer safeguards, he noted that HB 393
provides for civil and criminal penalties for violators. He
indicated that the goal is to prevent these scams from happening
to begin with, rather than spending a lot of law-enforcement
resources on the problem after people have been bilked.
Number 0225
REPRESENTATIVE STEVENS drew attention to Amendment 1 (Revised),
which would extend the disclosure provisions to include
violations of similar laws from other states and of federal
securities-related Acts; Amendment 2, which would alter the
provisions pertaining to escrow account requirements to include
a 30-day restriction on release; and Amendment 3, which would
provide an exemption for registered securities. In response to
questions, he concurred that although the House Labor and
Commerce Standing Committee had discussed the prospect of
raising - from $200 to $500 - the exemption for business
opportunities costing under that amount, it did not do so.
Noting that HB 393 is not intended to impact legitimate
businesses such as Mary Kay [Inc.], Amway [Corporation], or Avon
[Products, Inc.], for example, he said that the exemption found
on page 12, lines 20-21, excludes from the provisions of HB 393
legitimate business opportunities that are sold for less than
$200.
CHAIR ROKEBERG asked whether there are any statutes, currently,
that regulate the sale of business opportunities.
REPRESENTATIVE STEVENS said that "there are laws after the
fact," but HB 393 would require these businesses [that sell
business opportunities] to register with the state beforehand.
He remarked that in other states, similar legislation requiring
registration has stopped a lot of scams from occurring.
"Certainly [there] are laws that protect the consumer ..., but
the problem is [that] it takes a lot of time and you can't find
these businesses - they have no address, they have no principal
figures you can attach any crimes to - so these people go pretty
much unscathed," he noted.
CHAIR ROKEBERG asked for a description of the violations that
would constitute a class C felony and of those that would
constitute a class A misdemeanor.
REPRESENTATIVE STEVENS asked to defer the discussion on that
issue to Department of Law representatives.
REPRESENTATIVE MEYER asked why a $200-cap was picked for the
exemption.
Number 0530
CHRYSTAL SMITH, Special Assistant, Office of the Attorney
General, Department of Law (DOL), said that the $200-cap was
recommended by the [Fair Business Practices] Section of the DOL.
She elaborated:
They looked at the kinds of scams that they saw
happening and the laws in other states that ...
recommended a $200 level. I know there are some
states that have a $500 level, [but] ... when our
consumer protection attorneys spoke with ... their
counterparts in other states, many of them said, "You
don't want it to be as high as $500, there's a lot of
this kind of scam business that falls between the
$350-$300 to $500 range, [and] a lot of pricing them
at $499."
At least two of the states which had a $500 level have
come back ...: one, I believe, ... to a $300 level,
and one to a $250 or ... a $350 [level]. But I know
there's been backward movement. I know there are some
interests out there who are trying to encourage us to
go up to a $500 [level], and I think we just think
that's too high. ... I know you had some concerns
about maybe it should be $100 or $50. I think that we
just kind of settled on a $200 [level], as anything
under that is de minimis in terms of a loss to the
consumer and we just saw it as being [a] bigger
governmental burden than maybe we were prepared to
take on.
REPRESENTATIVE MEYER asked whether leaving the cap at $200
would, in effect, be saying that scams below $200 will be
tolerated.
MS. SMITH said yes, noting that the amount of an exemption cap,
if any, is a policy decision that the legislature has to make.
To the question of whether the amount should be lower than $200,
she replied that there is a cost-benefit issue to be considered.
REPRESENTATIVE JAMES asked whether businesses must obtain an
Alaska business license if in Alaska they sell business
opportunities.
MS. SMITH said that currently, they don't have to be "registered
as a business through a business opportunity and we don't need a
lot of information; I'm not sure whether they need to go through
the [Department of Community and Economic Development (DCED)]
and get a regular business license."
Number 0753
REPRESENTATIVE JAMES opined that requiring such businesses to
get a business license would be a simpler process.
MS. SMITH noted that one of the problems encountered is that
"sometimes you can't find these people." She pointed out that
HB 393 is not intended to put undue burdens on anybody. Rather,
it is to scare "scammers" so that they don't try to operate in
Alaska or, when they do, to allow the state to go directly after
them for failure to register, as opposed to waiting for somebody
to come in and complain, because scam companies often change
names and locations.
REPRESENTATIVE JAMES pointed out that there are provisions in HB
393 that require businesses that sell business opportunities to
obtain a $75,000 bond and pay a registration fee.
MS. SMITH mentioned that the registration fee would be
established by regulation, and it is estimated to be between
$100 and $150.
REPRESENTATIVE JAMES expressed the concern that provisions of HB
393 might be too tough for valid businesses and thus would be
overcorrecting the problem.
REPRESENTATIVE STEVENS reiterated that it is not his intention
to make it hard on legitimate businesses, but rather to "catch
those that are causing the problems for consumers." He
acknowledged, however, that "it's a tough line to figure out
where we should be; we don't want to run away legitimate
business."
CHAIR ROKEBERG asked whether $75,000 surety bonds are available
and, if so, what they cost.
REPRESENTATIVE STEVENS remarked that the DOL has that
information and could respond to that issue.
Number 0959
CYNTHIA DRINKWATER, Assistant Attorney General, Fair Business
Practices Section, Civil Division (Anchorage), Department of Law
(DOL), said that the area of biz opps is a field that frequently
exhibits unfair or deceptive business practices, and 23 other
states have some kind of registration or disclosure
requirements. Most [of those 23] states require registration,
but not all of them. She opined that HB 393 is especially
important because it protects consumers in general and
vulnerable consumers in particular, because often these scams
are targeted at people who don't have options to work outside
the home, such as senior citizens, people with disabilities, or
people with limited education or job skills.
MS. DRINKWATER opined that HB 393 would provide effective
consumer protection by requiring sellers of business
opportunities to make very important disclosures to potential
buyers. Sellers would be required to use [state-developed
written] contracts; would be required "to licensure with
disclosure statements" pertaining to financial and registration
history; and would be required to provide details about the
total amounts involved in the contracts, about the delivery
dates, and about services provided by the sellers. All in all,
she added, HB 393 would allow consumers to make informed
decisions before they "invest" their money.
MS. DRINKWATER noted that from an enforcement perspective,
registration should be required and is important because it
enables the state to contact these companies, should it wish to
pursue actions against them. Via HB 393, the state could gather
information about the nature of the biz opps, how they are being
advertised, and who the sellers are. She said that she
anticipates that there will be a lot of sellers of biz opps that
won't register, because that is frequently the case in other
states, but via the enforcement provisions of HB 393, the state
can write those businesses "cease and desist" letters and, if
necessary, conduct further investigations. She noted that HB
393 would provide for enforcement and protections that mere
business licenses do not afford.
Number 1204
MS. DRINKWATER, referring to the issue of the $200 exemption
threshold, remarked that that amount is a compromise. Many
states have a $500 threshold, below which sellers of biz opps do
not have to register, but a number of other states - at least
nine other states - have a threshold ranging between $200 and
$300; in addition, she pointed out, one of the model Acts has a
$250 threshold. She, too, remarked that according to an
informal survey of the states with similar legislation, almost
all of them recommend having a lower threshold because scam
artists simply adjust the sales price so that it is below any
established threshold and because anything [over $200]
constitutes a substantial amount of money for many people,
though even $200 is a significant amount of money in terms of a
loss to consumers. She also noted that none of the states
polled indicated that a $200 threshold has proven to be an
administrative burden.
MS. DRINKWATER, referring to the criminal penalties provided for
on page 12 of HB 393, explained that the felony violations
pertain to the registration requirements, the bond requirements,
the disclosure statements, the escrow accounts, the use of a
written contract, and untrue statements made by the seller. She
noted that this penalty scheme is consistent - though not an
exact match - with other states: 14 have criminal provisions,
and 10 of those have felony provisions.
MS. DRINKWATER, referring to the list of exemptions beginning on
page 12, noted that in addition to the exemption for biz opps
being sold for less than $200, there is an exemption for:
"sales demonstration equipment, materials, or samples for use in
sales demonstrations and not for resale, or product inventory
sold to the buyer at a bona fide wholesale price".
REPRESENTATIVE BERKOWITZ asked how the criminal charges proposed
in HB 393 intersect with existing potential charges located in
AS 11.46.710 - deceptive business practices - and in AS
11.46.180 - theft by deception. He opined that there is some
intersection there that could result in some confusion based on
different standards and definitions.
Number 1611
MS. DRINKWATER said that only the first [paragraph] of AS
11.46.710 could apply to the sale of a business opportunity;
that paragraph refers to making a false statement in an
advertisement or communication to the public. She acknowledged
that there may be some overlap, but pointed out that she has
never seen that statute used for prosecution purposes. She
noted that if the Internet is used in violating AS
11.46.710(a)(1), it is a class C felony; otherwise, it is a
class A misdemeanor. She remarked that AS 11.46.180 simply
allows prosecution of individuals who are involved in biz opp
scams, and whether the penalty is a class A misdemeanor or a
class C felony depends solely on the amount of money or property
involved.
REPRESENTATIVE BERKOWITZ asked whether all statutes thus far
discussed would work in a complimentary fashion, rather than in
opposition to each other.
MS. DRINKWATER indicated that she could not foresee the statutes
conflicting with each other, and that it would not be a problem
to "provide for criminal enforcement" in HB 393. Turning to the
issue of the $75,000 surety bond, she explained that that amount
is on the higher end when compared to other statutorily required
bonds. There are three other states that require a $75,000
bond, but more frequently the bond is $50,000; however, as a
practical matter, she remarked, there is not a huge difference
between those two types of bonds, though requiring a $75,000
bond would provide significantly more protection for consumers.
She explained that the cost of a bond is roughly $20 for every
$1,000 worth of bond protection; thus a $75,000 surety bond
could cost approximately $1,500, and a $50,000 surety bond could
cost approximately $1,000. She opined that for legitimate
businesses, the difference in the cost would not create a "make
it or break it" situation.
REPRESENTATIVE MEYER pointed out, however, that a $75,000 bond
costs 50 percent more than a $50,000 bond, and that is a
significant difference. He said his concern is that some
legitimate businesses will simply decide not to do business in
Alaska. He asked whether requiring a written contract would be
intimidating to people in rural Alaska, and whether it is a
common practice in other states.
Number 1870
MS. DRINKWATER indicated that requiring a written contract is a
common practice in other states. She posited that doing so is
important when considering how these transactions often occur.
One method, for example, involves inviting people to a "seminar"
on how to run an e-commerce business or how to conduct some kind
of business on the Internet, and once consumers get into the
seminar, they are subjected to high-pressure sales tactics and
become convinced that they have to signup right then and there.
And, unfortunately, a lot of them do sign up then, even though
in retrospect, after they are away from that situation, they
often wonder what possessed them to do so. These scam artists
are very skilled at persuading people to act in ways that they
might not otherwise act, had they been given a little time for
reflection. Thus, she opined, a written contract is very
important, especially since it would set out all the important
terms.
REPRESENTATIVE MEYER agreed; a written contract is just good
business. He asked whether, under the provisions of HB 393, a
person could be charged with both a felony and a misdemeanor.
MS. DRINKWATER said yes, though not for the same conduct, just
under different provisions.
REPRESENTATIVE MEYER sought confirmation that a class C felony
can include imprisonment up to five years, and a class A
misdemeanor up to one year.
MS. DRINKWATER confirmed that.
CHAIR ROKEBERG mentioned that under HB 393, Alaska would be
treating scam artists "tougher than moose poachers."
Number 1993
MS. DRINKWATER, referring to Amendment 1 (Revised), explained
that it clarifies what information needs to be disclosed,
including violations of [state and federal] securities laws and
violations of consumer protection laws both in Alaska and in
other jurisdictions. In addition, the state would have the
ability to deny, suspend, or revoke a person's registration in
certain situations. Amendment 1 (Revised) reads [original
punctuation provided]:
Page 2, line 24:
Delete "and"
Page 3, line 2, following "person":
Delete "."
Insert "; and"
Page 3, following line 2:
Insert a new paragraph to read:
"(4) disclosures of criminal convictions,
civil judgments, orders, consent decrees, and
administrative determinations involving
allegations of violations of AS 45.55 (securities
laws) or a law of another jurisdiction with
substantially similar provisions, or violations
of 15 U.S.C. 77a - 77bbbb (Securities Exchange
Act of 1933), 15 U.S.C. 78a - 78lll (Securities
Exchange Act of 1934), or 15 U.S.C. 80a-1 - 80b-
21 (Investment Company Act of 1940/Investment
Advisers Act of 1940)."
Page 5, line 20, following AS 45.66.020(b)(3):
Insert "and (4)"
Page 11, line 15, following "property;":
Delete "or"
Page 11, line 19, following "jurisdiction;":
Insert "or"
Page 11, following line 19:
Insert a new sub-subparagraph to read:
"(iii) violations of AS 45.55
(securities laws) or a law of another
jurisdiction with substantially similar
provisions, or violations of 15 U.S.C.
77a - 77bbbb (Securities Exchange Act of
1933), 15 U.S.C. 78a - 78lll (Securities
Exchange Act of 1934), or 15 U.S.C. 80a-1 -
80b-21 (Investment Company Act of
1940/Investment Advisers Act of 1940);"
Page 11, line 23, following "chapter":
Insert "or a law of another jurisdiction with
substantially similar provisions"
Page 11, line 29:
Following "45.50.561":
Insert " or a law of another jurisdiction
with substantially similar provisions"
Following ";"
Delete "or"
Page 11, line 30, following "AS 45.68":
Insert "or laws of another jurisdiction with
substantially similar provisions"
Page 11, following line 30:
Insert a new sub-subparagraph to read:
"(vi) violations of AS 45.55 (securities
laws) or a law of another jurisdiction with
substantially similar provisions, or violations
of 15 U.S.C. 77a - 77bbbb (Securities Exchange
Act of 1933), 15 U.S.C. 78a - 78lll (Securities
Exchange Act of 1934), or 15 U.S.C. 80a-1 - 80b-
21 (Investment Company Act of 1940/Investment
Advisers Act of 1940); or"
Number 2082
MS. DRINKWATER, referring to Amendment 2, explained that it
clarifies the escrow arrangements and allows any money held in
an escrow account, which is any amount over 20 percent of the
"initial payment", to be held for 30 days, which is the same
amount of time the buyer has in which to cancel the contract.
Amendment 2 reads [original punctuation provided]:
Page 7, line 17:
Delete "seller may not"
Insert "escrow account holder may not"
Page 7, line 18, following "(c)":
Insert "and (d)"
Page 7, line 19, following "shall":
Insert "provide to the escrow account holder a
copy of the signed contract between the buyer and the
seller. The seller shall"
Page 7, line 25, following "provided":
Insert "in (d) of this section or"
Page 7, line 26, following "until":
Insert "30 days have passed since the buyer
signed the contract and"
Page 7, line 27, following "escrow":
Insert "account"
Page 7, line 29, following "escrow":
Insert "account"
Page 7, following line 30:
Insert a new subsection to read:
"(d) Upon notification by the buyer that the
contract has been cancelled under AS 45.66.130,
the escrow account holder shall release the money
held in the escrow account to the buyer."
Page 8, line 11, following "escrow":
Insert "account"
MS. DRINKWATER, referring to Amendment 3, explained that it
merely clarifies the exemption pertaining to the sale of
registered securities. Amendment 3 reads [original punctuation
provided]:
Page 13, line 3:
Delete "regulated"
Insert "registered"
Page 13, line 4:
Delete "regulation"
Insert "registration"
Number 2204
JOHN W. HESSE, II, Senior Attorney & Director, Government
Relations, Direct Selling Association (DSA), testified via
teleconference. He explained that the DSA, a trade association
established in 1910, represents more than 150 companies that
market their products and businesses to consumers. He
elaborated:
They're independent sales people, primarily through
home parties or person-to-person sales. Our member
companies include commercial names that you may be
aware of - Amway, Avon, Mary Kay, Shaklee, to name a
few. Our industry generates $83 billion in worldwide
sales, [$25.5] billion in the United States. We have
a sales force of 11 million people in the United
States, and on average there are 30,000 direct sellers
in every congressional district, and so we estimate
that in Alaska there are approximately 30,000 direct
sellers, [though] that number varies from time to time
because people move in and out of our business on a
monthly, if not a weekly, basis.
[The Direct Selling Association (DSA)] and its members
have been involved in the effort to curb fraud in the
sale of business opportunities at the federal and at
the state levels since the late 1970s.... We believe
that business-opportunity fraud undermines vital
public confidence in industries like direct selling,
which utilize and depend upon individual
entrepreneurship. We further believe that clear
distinctions can be draw between direct selling and
business opportunities because [the] investment
required to participate in a direct selling
opportunity is comparatively low.
Number 2295
MR. HESSE continued:
Our issue with the legislation before you - HB 393 -
is that the dollar threshold contained in the
exemption section is too low. And if I could at this
time, I'll just try and address some of the concerns
and [resistance] that has been raised around that
number, and sort of why ... we've been involved since
the late 1970s, beginning with the Federal Trade
Commission's [FTC's] adoption of its trade-regulation
rule on business opportunities and franchises.
Largely our concern in this area is to be good
corporate citizens and to support good public
policies.
And, in that regard, we support clear and distinct
laws that are not only clear for lawyers, but are
clear for individuals - normal citizens - like our
Avon ladies and Mary Kay sales representatives and
Amway distributors. We believe that laws should be
drafted so the government authority is tailored to
address a specific social law. In this case, business
opportunities generally - almost all business
opportunity schemes - represent out-of-state
opportunities that run ads in local newspapers and
then send in salespeople to subject the individuals
who may have responded to the ad to a high-pressure
sale; you give them a short amount of time to close
the sale.
The perpetrators are professionals and they appear to
be legitimate companies. Most are repeat offenders
[from] ... other states. The goal [for] ... these
criminals is to force their victims to make a hasty
decision, to tell them that they have a limited
opportunity or a closed group of people involved, and
they will seek a large, upfront investment, typically
more than the $200, or even the $500 that we think
represents good public policy in this area. Our
concern, not only with the $200 figure, but with the
exemption that was raised - the additional exemption
that's crafted in an attempt to protect us - is that
Avon ladies and Mary Kay distributors and Amway
distributors not only resell the products that they
purchase from the companies, but they also consume
them. Some may purchase products to use as gifts,
either in their circles of friends that they travel
in, or among their families.
Number 2390
MR. HESSE went on to say:
In addition, polling other attorney generals is sort
of like polling police officers on whether or not
search warrants should be required. Of course they're
going to say the dollar threshold should be as low as
possible just like a police officer is going to
complain about the requirement that they obtain a
search warrant before they enter someone's house. The
Federal Trade Commission regulates business
opportunities beginning at $500 and up. The proposal
before you proposes to regulate business
opportunities, we believe, between $200 and $500, and
we're not sure what scams ... are occurring in Alaska
that this particular law would reach that the Federal
Trade Commission rule does not reach.
To be clear, only three states have a threshold as low
as $200, and we believe that it might be a more useful
exercise to focus on prevention efforts: consumer
education, the assistance of your local newspapers in
screening so-called questionable ads, and posting
consumer warnings in the sections where they also post
business-opportunity advertisements. It's unclear to
us that that's actually occurring. In short,
business-opportunity statutes contain thresholds to
restrict strict compliance modes on business
opportunities where people invest a large amount of
money upfront. They focus limited valuable state
resources on situations where people can be seriously
harmed, and they reassure small businesses, like
direct sellers, that they will be protected from
inadvertent coverage.
MR. HESSE concluded by requesting that the "dollar threshold" be
changed to $500, or at least as close to that amount as
possible, and moved from the exemption section and crafted into
the definition of "business opportunity" so that it's clear who
is covered and who is not. In response to a question, he said
the DSA does not have any concerns regarding the amount of bond.
TAPE 02-31, SIDE B
Number 2500
MR. HESSE, in response to a question, explained that when an
Avon lady signs up to be an Avon lady, for example, typically
she believes in the products that they're selling, and that is a
hallmark of the industry. All of the sales reps, presumably,
believe in and use the products that they turn around and sell;
that is how the industry markets its products, and that is what
makes it a successful stream of distribution and differentiates
it from mass advertisers. He elaborated:
Our companies typically start with very low budgets or
very small businesses. Sometimes they're fortunate
enough to grow beyond that, but, by and large, they
don't have the dollars to put into mass advertising
that allows other manufacturers and retailers of the
products to get their products known and purchased by
the general public. And so they rely on a sales force
that's, number one, knowledgeable and, number two,
will be using these products. ... All I was merely
pointing out was that if someone believes in and uses
the product, they're likely to pass it on, and that
person is not a sophisticated individual and they're
not going to know whether or not their activities are
... within whatever legal parameters are drawn. And
that's why we argue for the clear distinction, in as
simple terms as we can get, which would be the dollar
threshold.
CHAIR ROKEBERG mentioned a concern regarding sales
representatives who have to purchase a certain amount of the
product - and then wind up having to use it themselves - in
order to maintain their sales representative status.
MR. HESSE indicated that the industry maintains several
protections against burdening sales representatives with
unwanted inventory; most companies that belong the DSA subscribe
to a code of ethics that requires them to purchase back any
remaining inventory if a distributor or independent sales
consultant decides to leave the business.
CHAIR ROKEBERG asked whether, under the provision regarding the
exemption threshold, independent sales representatives would
have to be registered and bonded if they purchased more than
$200 worth of inventory.
Number 2363
REPRESENTATIVE STEVENS said no. In response to further
questions, he confirmed that the registration and bonding
provisions apply only to the parent companies and only if what
they sell to potential independent sales representatives exceeds
the $200 threshold, unless what is sold qualifies as "sales
demonstration equipment, materials, or samples for use in sales
demonstrations and not for resale, or product inventory sold to
the buyer at a bona fide wholesale price".
MS. SMITH added that companies such as Avon, Amway, and others
that sell kits of sample materials to sales representatives, who
then order items at a wholesale price and resell them to
customers, would be excluded via the aforementioned exemption -
[paragraph] (5) - on page 12. She explained that the kinds of
companies that would be required to be registered - and it would
be the company itself, not the sales person, that is required to
be registered - are those, for example, that offer to help
someone find places for vending machines, or that "sell" the
opportunity to stuff envelopes, or that have seminars which
"teach" certain computer/Internet skills. She mentioned hearing
from an individual who had bought software that was supposed to
turn the individual into a medical transcriber.
REPRESENTATIVE JAMES noted that the ads she has seen on
television and in the paper don't mention any price; they simply
say to call an "800 number." How would one know whether the
initial cost is going to be under the $200 threshold? A company
could just suck its victims in, $25 at a time. Scams can do
damage even at a $50 level, she noted. She opined that there
ought not be any threshold exemption, since HB 393 is not
intended to affect the sellers of legitimate business
opportunities.
Number 2183
BRYAN HARRISON, Corporate Government Affairs, Alticor Inc.,
testified via teleconference. He explained that Alticor is the
parent company of Amway and Quixtar Inc., both of which are
direct selling companies. He indicated that he agreed with Mr.
Hesse's comments. He added that although a $200-threshold may
not pose a great administrative burden from a governmental
perspective, it could prove to be too great a burden on the
individual who is trying to go into direct sales. He noted that
direct sales is not a get-rich-quick scheme, rather it is a
supplementary income, and $1,500 for a bond could equal the
entire annual income of many who participate in direct sales.
He expressed the concern that HB 393, as currently written,
could strongly discourage people from entering into a direct-
sales type of enterprise. With regard to the dollar level at
which schemes are perpetrated, he observed that most of the
problem occurs at a higher level, which is why other states and
the FTC set a $500 threshold.
CHAIR ROKEBERG asked whether, in pyramid-type companies such as
Amway, the provisions of HB 393 could affect those individuals
that rise to the distributor level.
MR. HARRISON opined that there is that potential in the sense
that many legitimate companies have multilevel marketing, and so
it's possible that the cost of entering into one of those types
of businesses could break the $200 threshold.
REPRESENTATIVE JAMES opined that because the $200 threshold
would apply only to companies selling a business opportunity, HB
393 would not affect companies such as Amway, Avon, or Quixtar
that use direct sales to market products.
CHAIR ROKEBERG remarked that "there seems to be some crossover
with product value."
REPRESENTATIVE STEVENS assured members that any bonding
requirement or administrative burden engendered by HB 393 would
never be on the person doing the selling; it would never be on
the Avon, Amway, Shaklee, or Quixtar distributor. He reiterated
that the exemption regarding product inventory being sold at a
bona fide wholesale price ensures that direct sales
representatives would be excluded from the requirements of HB
393.
CHAIR ROKEBERG asked whether the provisions in HB 393 would
apply to those sales representatives that reach the level of
wholesaler.
Number 1935
MR. HARRISON acknowledged that according to the explanations
given by the sponsor and the DOL representatives, it would not.
REPRESENTATIVE JAMES asked whether someone going door-to-door
selling meat, for example, would be considered a direct seller.
MS. SMITH said yes. The sale of a business opportunity is the
sale to the person who is going to market [a product]; thus it
is "company bogus 'X'" - which is probably located out of state
and which has been trying to sell its bogus product or bogus
business scheme to people throughout the United States - that
has to register as selling a business opportunity. She
elaborated:
If you decide that you're going to go to the seminar
and buy "bogus scheme 'X,'" then you don't have to
register or ... do anything, you just have to buy it,
and [HB 393] is intended to protect you from being
taken advantage of by "company bogus 'X.'" If they
did not register, we can get them right away because
they're not registered. If they did register, and
then it turns out that they have violated certain
things or they didn't tell us that they were arrested
in four other states for ... scamming people, then we
can go after them that way. But it's not the person
who's coming to your door to sell you something, it's
the "recruiter of those people" I guess is how you
define it.
REPRESENTATIVE JAMES asked whether HB 393 would apply to
companies that "sell" the knowledge of how to make money from
real estate transactions.
MS. SMITH pointed out that industries which are already
regulated under federal or state statutes, such as real estate,
securities, and franchises, are exempted from HB 393.
Number 1758
ANNE CREWS, Vice President, Corporate Affairs, Mary Kay Inc.,
testified via teleconference. She noted that Mary Kay has sales
force members - independent beauty consultants - operating in
Alaska, and that the Mary Kay career offers a great, casual
income-earning opportunity for women, enabling them to come in
and out of the business according to their personal needs. She
elaborated:
One of the attractions of a Mary Kay career not only
is the relatively low startup costs, but also the lack
of red tape. And if a Mary Kay career was ever
determined to be a business opportunity - to require
bonding, escrow, registration, and all the other
requirements - you would probably see a mass exodus of
women from the career. We want to echo [the] DSA's
emphasis that we need to draw as clear a line as we
can between the casual direct selling opportunities
and business opportunities. I did want to emphasis
that Mary Kay [Inc.] and [the] DSA and its member
companies are champions of good consumer protection,
and we applaud the state in trying to deal with the
fraudulent schemes, which you all are grappling with.
However, I think this discussion has brought out all
sorts of important issues including the confusion of
... who and what this law would really cover. We
think, as we read it right now, corporations like Mary
Kay, as well as our independent individual beauty
consultants, would be covered. You're ... working
with a balancing act here: How do you catch the truly
significant risks without capturing the legitimate
opportunities and perhaps driving them out of the
state because of all the requirements.
I'd like to speak to a couple of specific things
regarding the exemption, which you mentioned, [that]
would exclude direct selling from the coverage. It
would be a partial exemption, if you will, for direct
selling. Some direct selling perhaps would charge a
startup fee, some direct selling opportunities would
perhaps require purchase of inventory and the purchase
may not be at a wholesale sale; so, ... there's just a
lot of confusion. And we respect the conversation
that you all have had so far, and think that ... the
solution would be to ... raise the threshold to $500,
which would clearly exempt the direct selling
opportunities.
MS. CREWS noted that she would be faxing the committee written
comments from two of Mary Kay's independent sales directors
located in Alaska, both of whom support a $500 threshold. In
response to the question of how a $500 threshold would benefit
her cliental, she explained that it would be large enough to
exclude the cost of purchasing the startup kit - a sales kit -
which is required of women who want to enter into a Mary Kay
career. In response to the question of whether the startup kit
is sold at a wholesale price, she relayed that the kits are sold
at a "not for profit" price, so there is a small markup.
Number 1520
EUGENE E. DAU, State Legislative Committee, AARP, noted that
members have in their packets a letter from AARP supporting HB
393. He relayed that many seniors on fixed incomes tend to be
susceptible to the promise of being able to earn money while
staying at home; unfortunately, when they respond, they often
wind up losing money. He remarked that he has seen many of the
different ads promoting fraudulent business opportunities, none
of which bother to mention the name of the company. He pointed
out that legitimate businesses such as Mary Kay and Avon, for
example, wouldn't run that type of nameless ad. He reiterated
that the AARP supports HB 393, and surmised that its passage
would eliminate a lot of the misleading ads. In response to a
question, he said that the ads for fraudulent biz opps don't
state how much money is required as a startup fee; they just
promise that those who respond will make a lot of money. He
indicated that he would like to see such advertisements stopped.
Number 1339
VALERIE J. DEWEY testified via teleconference, and relayed her
experience as the victim of a business-opportunity scam. She
explained that for the past couple of years, she has been
working with the Better Business Bureau in Fairbanks and with
the Office of the Attorney General, in both Alaska and
California, in an effort to resolve the problems that resulted
from her becoming ensnared in a fraudulent business opportunity.
The business opportunity that she became involved in was touted
as one in which she could make money on the Internet by
purchasing bulk inventory at a wholesale price and reselling it
at a retail price, with a portion of the profits going to her
and the remaining going back to the company that sold her this
"business."
MS. DEWEY explained that she had attended a seminar in which she
was led to believe that by signing up, she would receive
everything she'd need to operate this business from her home,
including a computer, the software with which to run it, and the
training to get her started, none of which, unfortunately,
actually materialized. At the seminar, she paid $300 initially
and signed paperwork allowing the company to withdraw $69.95 per
month directly from her bank account. Without her knowledge,
however, the company actually withdrew [approximately $2,900].
As a result, her former AAA credit rating has been destroyed and
she has had to deal with creditors calling her at all hours of
the day and night. She concluded by asking the committee to
continue funding the Better Business Bureau, particularly in the
Fairbanks area.
CHAIR ROKEBERG asked Ms. Dewey what the contractual obligation
was that she had signed up for.
MS. DEWEY said that she could not recall the specific details,
but reiterated that she has lost a total of $3,200 and has had
her credit rating spoiled. She indicated that her reason for
testifying today is to try to help keep this sort of situation
from happening to other Alaskans.
CHAIR ROKEBERG asked Ms. Dewey whether she has pursued any civil
action against those that defrauded her.
MS. DEWEY said that that is probably going to be her next step,
and although she has talked to a local attorney, she has not yet
done anything formally. She indicated that she is still working
on getting her credit rating cleared up.
CHAIR ROKEBERG advised her to get a letter from the Office of
the Attorney General so that she could present it to any
collection agencies that are still seeking money from her. He
added, "You have the right to have that removed from your credit
record."
Number 0844
PAM LaBOLLE, President, Alaska State Chamber of Commerce, said
her organization feels that it is important to have legislation
[regulating] business opportunities, and would like to see
unfortunate situations such as occurred to Ms. Dewey eliminated.
She acknowledged, however, that the direct sellers have a
concern regarding the definition of business opportunities and
how "it could be fixed," and surmised that the main problem
revolves around clarifying the threshold issue. She referred to
Ms. Crews's comments regarding the Mary Kay sales kits, and
suggested that it should be clarified that such kits would be
exempted from the provisions of HB 393.
MS. LaBOLLE referred to comments made regarding a model Act that
sets the threshold at $250, and said that currently, three
states use a $200 threshold, six states use between a $250 and a
$300 threshold, and fourteen states use a $500 threshold. She
opined that the concerns regarding HB 393 would be resolved by
adopting a $250 to $300 threshold and changing the definition of
what a business opportunity is; "we're so close to having
everyone be happy with this, if we could just have the
definition be clearer and the threshold raised even as much as
$50 or $100 above what it is now."
REPRESENTATIVE JAMES said that although she is not clear how HB
393 will be implemented, it appears to her that the people who
are worried about the threshold amount are not the people who
are going to be affected by this bill.
MS. LaBOLLE surmised that those who are worried feel that
portions of HB 393 need clarification to ensure that it will not
affect them.
REPRESENTATIVE JAMES asked whether direct sellers are required
to have an Alaska business license.
MS. SMITH said that certainly the distributor - the company - is
required to have a business license.
CHAIR ROKEBERG mentioned that so are the individuals who are
selling the products.
REPRESENTATIVE JAMES surmised, then, that those people - those
direct sellers - would not fall into the category affected by HB
393.
Number 0450
MS. SMITH agreed. The people who are selling products to the
consumer, who are selling door-to-door, who are having the Amway
parties or the Tupperware parties, are not the ones who would be
required to register under the provisions of HB 393. If anybody
were to be required to register, she added, it would the Mary
Kay corporation, for example; however, under the exemptions
beginning on page 12, not even those parent companies would be
required to register. To clarify, she said that the exemption
states: "This chapter does not apply to a sale of or an offer
to sell ... (5) sales demonstration equipment, materials, or
samples for use in sales demonstrations and not for resale, or
product inventory sold to the buyer at a bona fide wholesale
price". She opined that this exemption already includes sales
kits. In response to a question, she said that companies like
Amway that advertise for sales representatives would not be
required to register either, because they are selling sales
kits.
MS. DRINKWATER said that she concurs with that interpretation.
She added that almost all the other states that have this type
of legislation also have this exemption, and it is one that is
supported by the DSA in comments made to the FTC. She noted
that the goal of that exemption is to preclude direct sellers
and their distributors from the provisions of HB 393.
REPRESENTATIVE JAMES suggested if that is indeed the case, and
direct sellers and their distributors are exempted via the
aforementioned language, then perhaps there is no need for a
threshold exemption of any amount.
CHAIR ROKEBERG remarked that the current language is ambiguous
and should be clarified.
REPRESENTATIVE STEVENS expressed a willingness to work on a
committee substitute (CS) that would include the amendments
discussed and clarify the exclusion of legitimate companies such
as Amway, Avon, and Mary Kay, for example.
CHAIR ROKEBERG announced that HB 393 would be held over.
SB 169 - HATE CRIMES: AUTOMATIC WAIVER OF MINORS
TAPE 02-32, SIDE A
Number 0020
CHAIR ROKEBERG announced that the last order of business would
be CS FOR SENATE BILL NO. 169(FIN), "An Act providing that the
delinquency laws are inapplicable to minors who are at least 16
years of age and are accused of felony crimes against persons
directed at victims because of the victims' race, sex, color,
creed, physical or mental disability, ancestry, or national
origin."
Number 0072
SENATOR DAVE DONLEY, Alaska State Legislature, sponsor, said
that SB 169 would amend existing statute in order to
automatically waive juveniles over 16 years of age to adult
court when charged with a violent felony against a person
because of that person's race, sex, color, creed, physical or
mental disability, ancestry, or national origin. He noted that
the language being added to AS 47.12.030(a) [defining the
foregoing attributes of victims] comes directly from AS
12.55.155(22), which is an aggravating factor when sentencing
adults. He opined that because the juvenile [justice] system
(JJS) is closed off from public accountability, waiving
juveniles to adult court when they commit violent hate crimes is
justified; by prosecuting these crimes out in the open, the
deterrent effect will be enhanced and society in general will
know that justice has been done.
SENATOR DONLEY said he thinks it is certainly a higher level of
"crime against society" when the motivation behind a violent
crime is some sort of hate, based on the [statutory] definition.
He noted that there have been major efforts over the last few
years to toughen the criminal justice laws as they pertain to
juveniles, as well as proposals to utilize a dual sentencing
scheme as an alternative to mandatory waiver to adult court.
But unfortunately, to date, the dual sentencing law has never
been utilized; the one time it might have been used, "it was
turned down," and thus it is not a viable option, he opined. "I
think when these kind of crimes do occur, the better public
policy is to put them out before the public so the public knows
... that they've occurred and knows what the final resolution of
the criminal justice process involving those crimes is," he
stated.
SENATOR DONLEY mentioned that another point of concern he'd
heard regarding SB 169 is that when minors are waived to adult
court, they end up incarcerated in adult facilities. He pointed
out, however, that it is against both federal and state law to
incarcerate a juvenile in an adult facility without some sort of
segregation. He acknowledged that although his sponsor
statement mentions that there has never been an incident of a
juvenile being abused while in an adult facility, he did hear of
one possible incident that might have occurred last year, but he
has not been able to confirm that information.
Number 0337
SENATOR DONLEY reiterated that hate crimes rise to a higher
level of significance and concern to society, and that SB 169
would assure society that justice would be done with regard to
someone over 16 years of age who commits a violent hate crime.
He remarked that he is very sensitive to the concerns of folks
who are opposed to "thought crime" legislation; however, because
violent hate crimes pose a great threat to society, he thinks
that [SB 169] creates a better public policy.
CHAIR ROKEBERG asked for a description of the dual sentencing
law, which was passed in 1998.
SENATOR DONLEY explained:
The dual sentencing proposal simply said that for
certain types of juveniles, you could sentence them
both as adults and as juveniles for certain types of
crimes, and that if they failed in the juvenile
system, then they would go to the adult system and ...
be subject to punishment under the adult system.
CHAIR ROKEBERG asked: "So how is that applicable, the way your
bill is drafted now?"
SENATOR DONLEY replied that it was only applicable in the sense
that during the Senate hearings on this legislation, dual
sentencing was offered as an alternative: the administration
preferred dual sentencing to automatic waiver. He opined,
however, that the dual sentencing law simply hasn't worked
during the two years since its enactment. In response to a
question, he said that he did not know why that provision has
never been utilized; he was simply told that it had not been
utilized.
CHAIR ROKEBERG noted that in the "paintball incident" that
occurred last year in Anchorage, one of the individuals was
tried as an adult and the other two as juveniles. He asked
whether that incident provided the impetus for SB 169.
Number 0589
SENATOR DONLEY replied that although that incident certainly
raised the public consciousness regarding hate crimes, SB 169
neither was created in response to that incident nor is being
offered as a solution to the problem. He noted that in that
incident, there was the question of whether that crime rose to
the level of a felony, and since SB 169 would only apply in
felony situations, it would not have affected the two juveniles
involved had they only been charged with a misdemeanor. He
opined that SB 169 stands on its own merit; if someone who is at
least 16 years of age is indeed charged with a felony hate
crime, it is perfectly appropriate to extend the existing
automatic waiver to those crimes. In response to a question, he
mentioned that in members' packets is a handout detailing the
differences between class C felony and class A misdemeanor
crimes against a person.
REPRESENTATIVE BERKOWITZ remarked that the list in SB 169 that
pertains to victims' attributes does not include sexual
orientation. He asked why that was left out.
SENATOR DONLEY reiterated that the list in SB 169 comes directly
from and is identical to AS 12.55.155(22), the existing
aggravator for adult sentencing.
REPRESENTATIVE BERKOWITZ asked: "Do you think that this would
be strengthened by adding sexual orientation?"
SENATOR DONLEY replied: "I don't have a strong opinion on it
other than that I believe that it's absolutely consistent with
existing law; it's the only other place in law that I found in
the sentencing laws where this kind of ... criteria was adopted.
And [it] seemed appropriate for this measure also."
REPRESENTATIVE BERKOWITZ asked: "If we were to add sexual
orientation here, would you think it'd be appropriate to add it
in the aggravator section as well?"
SENATOR DONLEY remarked that doing so would require a title
change.
REPRESENTATIVE BERKOWITZ noted that that was not impossible.
SENATOR DONLEY acknowledged that it would not be impossible to
change the title, but argued that he wouldn't support it because
there is a strong philosophical opinion [against adding sexual
orientation to the list] and because he thinks that SB 169 has a
much better chance of success if the language stays the way it
is, consistent with existing law.
Number 0819
REPRESENTATIVE JAMES asked whether the term "creed" includes
religion.
SENATOR DONLEY said that because he has not performed an
exhaustive search to determine whether "creed" is statutorily
defined and, if so, how it is defined, he could only hazard a
guess as to its meaning.
REPRESENTATIVE MEYER asked whether currently, the "hate
aggravator" could be applied to a juvenile.
SENATOR DONLEY explained that first it would be up to the
prosecutor to decide whether to "ask for that as an aggravator,"
and then it would be up to the judge to decide whether to
"assess it as an aggravator."
REPRESENTATIVE MEYER remarked that SB 169 has a zero fiscal
note. He asked whether this means that it would cost the same
to incarcerate a juvenile in an adult facility as it would in a
juvenile facility.
SENATOR DONLEY clarified that the [Department of Corrections
(DOC)] submitted an indeterminate fiscal note because there is
no way of knowing how many cases SB 169 might apply to.
CHAIR ROKEBERG opined that it would probably be a rare
occurrence. In addition, after reading from an unspecified
source, he noted that "creed" is defined as: "a [formal]
statement of religious belief - confession of faith."
REPRESENTATIVE KOOKESH said that although he appreciates the
intent of the legislation, it seems as though SB 169 doesn't
really do anything to change the statutes with regard to "crimes
related to bias or hate." He asked Senator Donley what he
thinks SB 169 accomplishes.
Number 1014
SENATOR DONLEY, in response, reiterated some of his earlier
comments regarding how detrimental hate crimes are to society
and how minors are currently treated in the JJS. He opined that
automatically waiving minors 16 years of age and older to adult
court for committing violent hate crimes is a significant change
to the statutes and would be good public policy on multiple
levels.
REPRESENTATIVE KOOKESH asked what was being done with regard to
how adults who commit violent hate crimes are treated. After
acknowledging that SB 169 is not intended to be a comprehensive
"hate crimes bill," he said that there are still areas that need
to be addressed, and asked Senator Donley for his assurance that
he will assist in those efforts. He noted, for example, that
Representative Berkowitz raised the issue of sexual orientation,
and said that that is a segment of the population that still
needs to be protected. He asked: "How do we intend to do that?
Or do we?"
SENATOR DONLEY replied that he could not speak for either the
entire Senate or the entire House, but thinks that SB 169 is a
good, stand-alone change in existing law, that it makes good
public-policy sense, and that it is consistent with existing
laws. He said that he would treat other proposals on the basis
of their merits, as they are brought forth.
REPRESENTATIVE BERKOWITZ asked Senator Donley to estimate how
many cases SB 169 might apply to on an annual basis.
SENATOR DONLEY offered that one case is too many and he hopes
that there won't be any; however, as illustrated by the DOC
fiscal note, the number of cases is not something that can be
determined at this time. He noted that if the provisions of SB
169 are used even once, it will have a significant effect on
society, particularly in small communities.
Number 1205
REPRESENTATIVE COGHILL opined that the felony behavior that
would bring a minor into adult court would have to be "more
significant than is written here." He remarked that youths
involved in the JJS are more apt to be nurtured than are
individuals involved in the adult correctional system. He said
he is wondering whether waiving juveniles into the adult system
would simply be "creating a felony before we really get there"
and thus creating more problems down the road. He noted that
because "every one of us" is subject to some form of hate crime,
according to the list in SB 169, he did not know that anybody
needed special protection.
SENATOR DONLEY noted that "the cutoff" for a class C felony is
assault in the third degree, which is when a person "(1)
recklessly ... (B) causes physical injury to another person by
means of a dangerous instrument. He also noted that there is
[extensive] case law defining "dangerous instrument". When a
person intends to place another person in fear of death or
serious physical injury by using a dangerous instrument, he
remarked, it becomes a pretty significant crime. He opined that
society should take such behavior seriously, and that SB 169
constitutes a "reasonable public policy call."
REPRESENTATIVE COGHILL remarked, however, that "we're taking a
tool away from the judge, [in] this particular case, because
we're making it a mandatory [waiver to adult court]." He
indicated that he is not sure that he "can go that way just
yet."
REPRESENTATIVE MEYER asked whether the waiver to adult court
could be optional rather than mandatory. He offered that there
are some 16-year-olds who are a danger to society; with regard
to hate crimes, however, the problem may not stem so much from
the kids but rather from their parents. He expressed the
concern that if someone is automatically waived to [adult court
and thus to] an adult facility, there won't be much hope for
his/her rehabilitation.
SENATOR DONLEY offered that there is not a mandatory minimum
sentence for a class C felony; therefore, incarceration in an
adult facility would not be mandatory.
Number 1482
ROBERT BUTTCANE, Legislative & Administrative Liaison, Division
of Juvenile Justice (DJJ), Department of Health & Social
Services (DHSS), said that Alaska should not, under any
conditions, abide acts of hate. Hate must be confronted and
corrected at every level and at every opportunity. He
continued:
I understand that there is a special need to look at
hate crimes separate from regular crimes, because when
a person acts against another person on the basis of
some hate category, not only is the victim impacted by
that, but the group to which the victim belongs is
also impacted by that act. So I think it is proper
that this body does discuss these issues. On behalf
of the Department of Health & Social Services, I want
to be on record, however, in opposition to Senate Bill
169. We see this bill as ineffective, with the
potential for significant detrimental impact to the
welfare of the public good, for four reasons.
One, it is incomplete in terms of its inclusion of
bias categories. Two, it includes crimes that do not
rise to the level of this type of punishment or
response. Three, the current waiver laws on the books
now are sufficient to address the most egregious acts
of juveniles by waiving them into the adult system.
And four, there are a multitude of better options
available to respond to crimes of hate and bias than
what is proposed in [SB 169].
MR. BUTTCANE elaborated:
Number one, any bias crime that does not include the
categories of sexual orientation and economic
disadvantage is simply incomplete. Whatever you may
feel about the governor's tolerance commission of this
last year, over and over and over that group heard
from people throughout this state who were living on
the street, who are impoverished, who say that they
have been subjected to the acts of other people,
because of their poverty; not to include economic
disadvantage is [an] error. Aside from racial issues,
in our high schools the second most common biasing
category a student will express against another
student is either their actual or perceived sexual
orientation.
The state does not include these items in the
aggravating factors under the sentencing statute of
Title 12, nor do we give our [State Commission for
Human Rights] authority over sexual orientation cases.
We have hidden ourselves from a problem that is
present in our schools and in our communities. To
exclude these [categories] perpetuates a deficiency in
the current statute, and while this bill would be
consistent with current statute, it is incomplete
nonetheless.
Number 1646
Number two, this bill extends automatic juvenile
waiver into adult court for crimes that do not warrant
this extreme response. It does include [class] B and
C felony crimes against persons. When you look in the
sentencing statutes of Title 12, a [class] B felony
can receive imprisonment up to ten years. That's the
maximum. When you look at an assault in the third
degree, that can be up to five years' [imprisonment].
Now, admittedly, for a first-time [offense], a 16-
year-old appearing in front of an adult sentencing
judge for one of these offenses is not at all likely
to get the maximum imprisonment sentence; I grant
that.
But when you look [at] a [class] B felony as including
the types of crimes where you take property from
another by force - not involving a weapon, but taking
property from another by force - what do you do with
those 16- and 17-year-olds that we get every
Halloween, who have bullied sacks of candy away from
kids? They utter some type of racial or ethnic slur
in that act, and now they will be subject to a [class]
B felony - robbery in the second degree - in the adult
court. It is likely, at a [class] B felony level,
they would get some prison time to serve.
MR. BUTTCANE:
Assault [in the third degree involving a] dangerous
instrument - I have personally processed case
referrals from law enforcement where kids have gotten
angry at parents, they pick up broom handles and
toilet plungers, they waive them at the parents, and
they say, "I am going to kill you"; and in that
moment, they mean it. They have committed an assault
in the third degree, have been arrested by law
enforcement and charged with that offense. Should
[they], in those circumstances, utter some type of
racial or some type of bias slur, that would subject
them to the penalties of the adult system. Now, are
the penalties of the adult system proper? If you look
at the reality that the most someone could get for
waiving a toilet plunger at someone, with a racial
slur, would be five years in jail - if you were 16
years old, you got five years - do the math: they're
out at 21.
There is an article that was submitted by the
Coalition for Juvenile Justice in March of 2001 that
characterizes national statistics that state two-
thirds of the children sentenced to adult prisons in
this country are released before they are 21, and more
than 90 percent are released before age 30. Upon
release, these people re-offend earlier and more
seriously than those who were processed in the
juvenile system. That's the research that is
supported over and over again.
Number 1760
Waiver of juveniles into the adult system is
significantly a detrimental public policy. It is one
that will cost us. If you can imagine a 16-year-old
going into jail for five years, should it ever happen:
he's graduated from crime school, he's still young,
he's still virile, [and] he is now more hateful, more
angry, and more predatory on our communities and our
safety and our public. This is bad public policy.
MR. BUTTCANE continued:
Number three, waiver for the most egregious offenses
is already in existence. When a child 16 and 17 years
of age commits an act of homicide - an unclassified or
a class A felony - against anyone in this state, they
are treated as an adult offender. For those crimes,
they are typically receiving sentences of 20, 30, 50,
80 years; they will not be released immediately on the
community again, so they don't pose that risk of being
released more quickly. In 1995, the governor convened
a group of citizens, business people, care providers,
legislators, and others - law enforcement people -
from around the state, who met through a series of
meetings in what was called the Governor's Conference
on Youth and Justice. One of the 100-plus
recommendations out of that body that crossed both the
political boundaries [and] social boundaries was that
there would be no expansion of Alaska's automatic
waiver.
It was argued on the Senate floor, ... when this bill
was passed out of the Senate, that a juvenile, by law,
cannot serve time in an adult prison. That is true:
juveniles may not, by law - both state and federal law
- be placed in adult prisons. Alaska's automatic
waiver law, however, removes the category of minority
from 16- and 17-year-olds who are charged with these
crimes. If you go to the bill and you go to page 1,
lines 11, 12, and 13, [there] is the sentence: "The
minor shall be charged, held, released on bail,
prosecuted, sentenced, and incarcerated in the same
manner as an adult." That is the current law of our
waiver statute. Someone 16 and 17 years old, simply
charged with one of these crimes after having injected
an element of bias or hate, would be subject to all of
the response and sanction of the adult system - bad
public policy.
Number 1913
Last, there are options. There [are] better options
that have been proffered around the country as this
nation has tackled the issue of hate. The Sentencing
Project out of Washington, D.C.; the American Youth
Policy Forum; the Community Relations [Service]
section of the U.S. Department of Justice; the Office
of Juvenile Justice and Delinquency Prevention; the
Anti-Defamation League; indeed, even the Alaska
[Federation] of Natives have put forward proposals
that are considerably more progressive and responsive,
to confront and address hate crime behaviors, than
what [SB 169] does. The options that are proffered as
best-practice responses to hate crimes focus on
families. So, not only are we addressing the
behaviors of individual youth, but we include
interventions that involve parents.
A response to hate crimes should always include some
kind of diversity tolerance training for the juvenile
and the parent. This bill does not do that. It is
also recommended that mediation and conflict
resolution be used as preventative and responsive
actions to hate crimes, to heal that separateness,
that judgment, that bias that we hold against
ourselves and one another. Howard Zhare (ph), a
national authority on restorative justice, states that
the most effective sanction that one can impose
against an offender is where the offender takes
personal responsibility for the repair of the harm to
their victim. In the juvenile system, when we receive
a crime of bias, that is our expectation, that the
young offender take personal responsibility and work
to repair the harm that was caused to their victim,
the victim's group, and the victim's community.
Number 1998
MR. BUTTCANE concluded:
Putting someone in the adult penal system, in a prison
in Lemon Creek or Spring Creek, is a limited response.
It serves no public good. It isolates an individual.
It presupposes that a 16-year-old will self-correct in
one of the most segregated, isolated, crime-infested
areas - our prisons - that we have. It's the wrong
response. It is not individual; the juvenile system
provides an individual response. It does not include
the parent; the juvenile system does. It does not
make amends to the community; it simply gives the
community some retribution for that act. It doesn't
make an amends to the victim, in terms of any kind of
understanding of the group; it doesn't develop any
levels of tolerance or understanding or appreciation.
For these reasons, the [Department of Health & Social
Services] is opposed to the proposal before you this
day.
REPRESENTATIVE MEYER asked what the rate of recidivism is at a
juvenile detention center like the McLaughlin Youth Center.
MR. BUTTCANE said that this year's DHSS "missions and measures"
[statement] shows a 55-percent "non-reoffense rate" following
release from a juvenile institution. He added that juveniles
are followed for two years after their release, even into the
adult system. He mentioned that the McLaughlin Youth Center has
had close to a 60-percent success rate - or non-reoffense rate.
He confirmed that the national study of which he spoke earlier
indicates that when those who go into the adult system at the
age of 16 are released, they are more likely to re-offend and
the offenses tend to be more serious. He also noted that
members' packets contain a handout highlighting some of the
national statistics regarding juvenile waivers.
REPRESENTATIVE MEYER asked whether, in rural Alaska, it is
always possible to segregate juvenile offenders from adult
offenders.
MR. BUTTCANE said no; although every effort is made keep them
separate, it is not always possible in small, rural jails. "It
is not unheard of that an adult offender will be released from a
jail holding facility so that a juvenile can be held until such
time that they could be transported to a juvenile facility for
processing," he added.
Number 2153
LINDA WILSON, Deputy Director, Public Defender Agency (PDA),
Department of Administration, testified via teleconference,
noting that the paintball incident from last year focused a lot
of attention on the criminal justice system as it pertained to
hate crimes and the treatment of juveniles. It was a very
disturbing crime, she remarked, and it generated a close
examination, which was a good and productive thing. One of the
results of this exam was the formation of the governor's
tolerance commission, which held extensive meetings out of which
a report and recommendations ensued.
MS. WILSON said that in light of that, the PDA strongly opposes
SB 169 as a way to address "these" concerns. She remarked that
notwithstanding a misperception that the juvenile [justice]
system in Alaska has failed, it is not a failure; rather, it is
"alive and well and doing wonderful in terms of addressing
offenses committed by juveniles." It is much better to keep
youthful offenders in the juvenile [justice] system than to put
them into the adult system, she opined, remarking that it was
[nearly] a hundred years ago, in 1909, that the juvenile
[justice] system was started because of problems resulting from
putting kids in adult jails.
MS. WILSON indicated that children in adult jails are preyed
upon, are far more likely to be assaulted, and have a higher
rate of suicide. And - notwithstanding any perception to the
contrary - children who are automatically waived under the
provision being amended by SB 169 do not get segregated from
adults. These children are sharing cells with adults. Children
are only segregated when they are in the juvenile [justice]
system. If a child is charged under AS 47.12.030(a), he/she
will immediately be arrested and put in with the adult
population, and, upon conviction, will also serve his/her
sentence there. She pointed out that when children are
incarcerated with adults, there is the additional problem of
criminal adults becoming the moral mentors of impressionable
children; thus the higher rate of recidivism should come as no
surprise.
Number 2253
MS. WILSON opined that kids who commit hate crimes are probably
the best suited for the treatment available in the juvenile
justice system. In the juvenile system, the whole family can
become involved - and is sometimes even required to become
involved - in the solution and disposition of a case. This is
certainly not the case in the adult system, she remarked. The
situation in Alaska doesn't need to be fixed, she opined,
because in serious cases, the department can protect the public
and can have these minors institutionalized up to their 19th
birthday. The department can work with the minor and his/her
family for a much longer period of time. She pointed out that
the department currently has the ability to seek a waiver in
cases where the minor is not amenable to treatment, or can elect
to waive in serious situations. Notwithstanding these
possibilities, in the majority of situations it is much better
to keep juveniles in the [juvenile] system. The automatic
waivers in Title 47.12 are narrowly prescribed, she noted, and
should not be expanded.
MS. WILSON suggested that when considering the expansion of the
criteria for automatic waiver, the committee should also think
ahead to what is going to happen to the juvenile when he/she
gets out of jail. That person would then be a convicted felon
and, as such, his/her future will be very restricted and
uncertain. It could be very hard for these offenders to
overcome the moniker of being convicted felons; they could have
difficulty getting jobs, serving in the military, or getting
educations. And although many juveniles have done horrible,
stupid things and need to be held accountable, this can be
accomplished in the juvenile [justice] system; they do not need
to automatically go to the adult system. In conclusion, Ms.
Wilson suggested that the committee give consideration to other
pending legislation as alternatives to SB 169.
REPRESENTATIVE JAMES, after remarking that she has had
experience with reform schools, commented that because of the
differences between children ages 14-15 and children ages 16-17,
the younger children in that environment would be better off if
they are not exposed to the 16- and 17-year-olds.
Number 2420
CANDACE BROWER, Program Coordinator/Legislative Liaison, Office
of the Commissioner - Juneau, Department of Corrections (DOC),
concurred with Mr. Buttcane and Ms. Wilson that when juveniles
are waived into the adult system, they are integrated into the
adult population. She elaborated:
When someone is arrested as a waived juvenile, they go
to an adult facility. We make every effort that we
can to ... protect the safety of the juveniles that
come before us, but one of the things that we do, that
we don't do for other offenders, is we evaluate each
and every juvenile for a period of time and
segregation to try [to] determine whether or not
they're safe to go into ... general population.... If
it's determined that they're not safe to go in, then
they have to remain segregated for the duration of
their ... incarceration or until they go to another
facility and are deemed able to go into [general]
population. That creates quite a bit of work and
hardship for our staff as well as for the juveniles
that are waived.
MS. BROWER remarked that going into adult prison is a very
serious thing, and contended that if a juvenile is waived into
an adult facility because of a hate crime, he/she will only
emerge more hateful as a result of being integrated into the
adult population.
TAPE 02-32, SIDE B
Number 2489
MS. BROWER mentioned that [there have been] instances of adult
offenders' assaulting juvenile offenders, and recounted that in
the mid-80s, the state had to pay a $1-million lawsuit for just
such an incident, which occurred in Ketchikan. Therefore,
although the DOC tries very hard to prevent such assaults, they
do occur, and reducing the level of offense will only increase
the number of children - and, in particular, more vulnerable
children - who get waived into the adult system, she remarked.
"Sixteen-year-old kids are kids, regardless of how mature they
might want to be; they're still kids and they are at risk," she
pointed out, and they will put an additional burden on the DOC
as it strives to protect them from the adult population. In
conclusion, she, too, suggested that the committee should
consider other pending legislation as it strives to deal with
the issue of hate crimes.
CHAIR ROKEBERG announced that SB 169 would be held over.
ADJOURNMENT
Number 2412
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:33 p.m.
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