Legislature(1997 - 1998)
03/06/1998 01:35 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE JUDICIARY COMMITTEE
March 6, 1998
1:35 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chairman
Senator Drue Pearce, Vice-Chairman
Senator Sean Parnell
MEMBERS ABSENT
Senator Mike Miller
Senator Johnny Ellis
COMMITTEE CALENDAR
SENATE BILL NO. 201
"An Act relating to prohibiting recovery of damages and prohibiting
a remedy to a person in a civil action."
- HEARD AND HELD
CS FOR HOUSE BILL NO. 7(JUD)
"An Act authorizing establishment of community dispute resolution
centers to foster the resolution of disputes between juvenile
offenders and their victims, and providing immunity from civil
suits for youth courts and for members of the boards of directors,
employees, volunteers, and members of youth courts."
- HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SB 201 - See Judiciary minutes dated 10/10/97 and 1/28/98.
HB 7 - See Judiciary minutes dated 2-4-98 and 3-4-98.
WITNESS REGISTER
Mr. Joel Loundsbury
Staff to Rep. Brian Porter
State Capitol
Juneau, Ak 99801-1182
POSITION STATEMENT: Commented on HB 7
Ms. Sharon Leon
Anchorage Youth Court
PO Box 102735
Anchorage, Ak 99510
POSITION STATEMENT: Supported HB 7
Ms. Linda Johnson
Anchorage Youth Court
PO Box 102735
Anchorage, Ak 99510
POSITION STATEMENT: Supported HB 7
Mr. Scott Calder
PO Box 75011
Fairbanks, Ak 99707
POSITION STATEMENT: Commented on HB 7
Ms. Virginia Espenshade
PO Box 1752
Homer, Ak 99603
POSITION STATEMENT: Supported HB 7
Ms. Pat Davidson
Acting Auditor, Legislative Audit
PO Box 13300
Juneau, Ak 99801
POSITION STATEMENT: Commented on SB 201
Mr. Merle Jensen
Legislative Audit
PO Box 113300
Juneau, Ak 99801
POSITION STATEMENT: Commented on SB 201
ACTION NARRATIVE
TAPE 98-14, SIDE A
Number 001
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to
order at 1:35 p.m. and announced SCS for CSHB 7(JUD) as the first
order of business.
HB 7 - VICTIM/JUVENILE OFFENDER MEDIATION
CHAIRMAN TAYLOR noted that the newest version of HB 7 limits
immunity to those who work in a quasi-judicial capacity, mediators,
and those performing a discretionary function.
SENATOR PARNELL moved the adoption of SCS for CSHB 7, judiciary
version "L." Without objection, it was so ordered. SENATOR PARNELL
briefly touched on the two sections of immunity that remained
within the bill and provide discretionary immunity to the board of
directors and mediators. SENATOR PARNELL asked MR. JOEL LOUNDSBURY
if state employees were held liable for discretionary or non-
discretionary functions. MR. LOUNDSBURY did not know and CHAIRMAN
TAYLOR explained that discretionary functions are the decision
making, designing and planning phases of any given thing. Non-
discretionary functions are the resulting actions implementing the
policy or decision of the discretionary function. CHAIRMAN TAYLOR
said there is always debate in the process of determining whether
any given thing falls under the category of a discretionary act.
MS. VIRGINIA ESPENSHADE testified via teleconference from Homer.
MS. ESPENSHADE, the coordinator of the Kenai Peninsula Youth Court,
stressed the court's reliance on a small paid staff and lots of
volunteers. She expressed concern that limited immunity will not
cover these volunteers and will not protect the bulk of the work
that the court does. Ms. ESPENSHADE mentioned that not all youth
courts are run by nonprofit corporations and those that are not
have boards of directors who are the least involved in the actual
operations of the court. She mentioned that out of eight or nine
attorneys present at any given court hearing, only three or four
are acting in a quasi-judicial function. She wanted to be sure the
committee understood how limited the new immunity provisions are.
CHAIRMAN TAYLOR replied that he clearly understood this dilemma,
but knew that discretionary functions are still immunized even if
the blanket immunity previously in the bill no longer exists.
MS. ESPENSHADE asked if the immunity was qualified and CHAIRMAN
TAYLOR said it was qualified by the terms wanton and willful, but
negligence was not included and he believes immunity from
negligence is not good public policy. MS. ESPENSHADE asked the
committee to consider defining the breadth of the immunity in terms
of an individual's actions as they relate to their job at youth
court. CHAIRMAN TAYLOR responded by saying police officers, for
example, are not immunized for negligence. Accidents happen and
fair compensation should be required.
MS. ESPENSHADE said youth court's activities are limited to certain
hours and again she wanted to convey how limited this immunity is.
She expressed concern that this limited immunity may be interpreted
as an explicit exclusion of immunity for those not covered. She
stressed that youth court is run on volunteers and hopes the state
can find some way to support them. CHAIRMAN TAYLOR said he did this
type of work as a judge, with the help of volunteers, and he could
not escape the potential of civil liability. He said if an accident
occurs, it would be almost impossible to explain this immunity to
the family of the injured victim. MS. ESPENSHADE indicated that the
highest potential for this type of accident would be in the work
service component. She suggested perhaps this component could be
excluded and immunity cover youth court workers only up until the
point of sentencing. She emphasized they were just hoping for more
coverage.
CHAIRMAN TAYLOR said they have tried to break it down to the extent
that the board and any quasi-judicial members are covered. He said
if her logic was extended, it would mean all community service
workers on probation should be covered. MS. ESPENSHADE replied
that, as she reads the immunity now, there is no immunity outside
of the courtroom setting. CHAIRMAN TAYLOR asked for an example of
what type of liability might be incurred in these other phases and
MS. ESPENSHADE could not. MS ESPENSHADE suggested that because she
was unable to come up with a single hypothetical case of liability,
CHAIRMAN TAYLOR should not worry about granting the requested
immunity.
MR. SCOTT CALDER testified via teleconference from Fairbanks and
made some general comments on youth courts and said he feels there
may be too much immunity granted now.
MS. SHARON LEON, Executive Director of the Anchorage Youth Court,
testified via teleconference from Anchorage and said all youth
court activities are supervised by carefully chosen volunteers who
would not be covered until they actually arrive at work. CHAIRMAN
TAYLOR commented that these on-site volunteers would be covered by
worker's compensation and a private insurance policy. CHAIRMAN
TAYLOR asked if they carry liability insurance. MS. LEON replied
yes, and mentioned they also carry Directors and Officers insurance
and auto insurance for employees driving personal vehicles when on
youth court business.
MS. LINDA JOHNSON, a contract attorney for the Anchorage Youth
Court, said the bill's new version was distressing in that the
youth court is not covered as an entity and discretionary
activities by youth court staff are also not covered. MS. JOHNSON
mentioned that the board does not engage in day to day court
activities and do not carry out many of the discretionary functions
of the court. She mentioned that the youth court has all the
components as well as the confines of the legal system. She
believes that excluding the staff does a disservice to the youth
court, which is carrying out the state's work. CHAIRMAN TAYLOR
asked if MS. JOHNSON is aware of any immunity enjoyed by court
system staff and volunteers. MS. JOHNSON replied that court
employees are covered by immunity for discretionary functions and
CHAIRMAN TAYLOR said that was still covered in the bill; the
committee was trying to get at the discretionary functions of the
courts as opposed to the support activities surrounding these
decision-making functions. MS. JOHNSON asked how the discretionary
functions of the board of directors would be different from those
of a staff member. CHAIRMAN TAYLOR said that staff would probably
be covered, along with the person who directed their actions, by
the doctrine of respondeat superior, to the extent that they were
carrying out a legitimate discretionary function as authorized by
the board of directors.
MS. JOHNSON explained that her complaint was specifically that only
board members, and exclusively board members, would be covered by
discretionary immunity.
SENATOR PARNELL commented that maybe they should give the bill some
more thought. CHAIRMAN TAYLOR agreed.
CHAIRMAN TAYLOR announced that SB 201 would be discussed next.
SB 201 - PROHIBIT RECOVERY BY WRONGDOER
CHAIRMAN TAYLOR noted that representatives from Legislative Budget
and Audit were in attendance to present their report on the World
Plus scheme.
MS. PAT DAVIDSON, Acting Auditor, presented to the committee a
verbal overview of the memorandum detailing the critical events in
the World Plus scheme. She said the request she received was for a
time line detailing the financial arrangements of World Plus and
she provided the committee with this time line as well as letters
sent to the Division of Banking, Securities and Corporations (BSC).
CHAIRMAN TAYLOR asked if the letters, received by BSC, were in
response to inquiries made by BSC. MS. DAVIDSON did not believe
that these letters were solicited by BSC but that the owner of the
company or her attorney may have directed these individuals to
submit them. CHAIRMAN TAYLOR asked if, to the best of her
knowledge, these letters were unsolicited by BSC and they were
motivated by someone else. MS. DAVIDSON said yes.
PAT DAVIDSON mentioned that, due to the ongoing civil and criminal
litigation surrounding this case, only public information was used
in the compilation of this report. She said they used information
from the Department of Commerce and Economic Development, court
documents and newspaper accounts for this report. MS. DAVIDSON
identified Ms. Raejean Bonham as the owner/operator of World Plus
Inc. (WPI) and Mr. Hompesch as her attorney as well as attorney to
WPI.
MS. DAVIDSON stated that the memorandum had one recommendation,
that being that the Attorney General (AG) should consider asking a
special prosecutor to determine if any additional state, civil or
criminal charges should be pursued. She said the AG has left the
prosecution of these matters to the federal U.S. Attorney due to
the involvement of some of his own staff, and to avoid any conflict
of interest. She said the auditor's office believes that someone at
the state level should also look at the case and determine if the
charges that have been filed in this matter are sufficient.
MS. DAVIDSON explained that a ponzi scheme is a type of structure
that uses money from subsequent investors to pay off the initial
investors. She said these schemes can be kept up for a while but
generally fall apart under their own weight.
MS. DAVIDSON explored the time line, beginning in April 1991 when
a certificate of incorporation for WPI was issued to Ms. Bonham,
and gave the following testimony:
In September 1992, Ms. Bonham contacted BSC, saying she did not
know that her program notes were considered securities. She stated
at this time that she had 15-20 investors who seldom changed.
However, according to court documents at that time, she continued
to sign investment contracts. In November 1992, Mr. Hompesch
submitted a letter to BSC requesting a notice of exemption, he
enclosed a list of contracts and identified 35 active investors
with a total investment amount of $560,000. According to court
records, at that time, WPI had approximately 500 contracts with an
outstanding aggregate balance of $8.6 million. Mr. Hompesch also
submitted 24 letters to BSC expressing satisfaction with WPI. These
letters comprise attachment B of the report. MS. DAVIDSON commented
that a copy of WPI's tax returns would have provided a better
picture of their financial situation. In February 1993 another
schedule was provided by Mr. Hompesch to BSC intending to
demonstrate that all investors as of 1992 had been paid off or were
in the process. Court records indicate that, in fact, there were
259 investors with contracts totaling $4.8 million outstanding.
Again Mr. Hompesch indicated to BSC sales of new contracts worth
$300,000, within the limit of $500,000 imposed on WPI by BSC by
that time . Again, court document indicate outstanding contract
total about $16 million.
MS. DAVIDSON noted that BSC had taken steps to limit WPI's
contracts by May of 1994, reducing the number of allowed investors
to 15 with contracts to total no more than $250,000. Again, court
records show contracts far exceeding these limits. In January 1995,
the IRS seized the records of WPI.
In July 1995, Mr. Hompesch again submitted records to BSC showing
WPI was within their limits. Again, court records showed this to be
false. December 1995 found Mr. Hompesch notifying BSC that he was
withdrawing his representation of WPI. WPI was dissolved in the
same month and entered into bankruptcy, initially trying to claim
chapter 11, but having that claim rejected, moved to chapter 7
bankruptcy.
In February 1996 Attorney General Bruce Bothelo indicated he was
going to allow the federal prosecutor to pursue the criminal
aspects of this investment scheme. In April 1996, the federal
Securities and Exchange Commission (SEC) filed a civil suit against
Ms. Bonham and WPI for $2.1 million. By September 1996, the
bankruptcy trustee had begun filing cases against investor seeking
the return of illegal profits. In October 1997 the Attorney General
stated a potential conflict of interest and declined prosecution of
the case. In this same month, Ms. Bonham was indicted by a federal
grand jury on 53 counts of mail fraud, 8 counts of money
laundering, and 18 counts of monetary transaction violations. MS.
DAVIDSON reported that this is the picture to date. She said that
on page 4 of the report, they identify the lawsuits that have been
filed against Ms. Bonham, Mr. Hompesch and certain WPI investors.
Additionally, a lawsuit has been filed against the state,
specifically BSC, regarding actions taken or not taken on behalf of
some investors, according to MS. DAVIDSON.
SENATOR WARD commented that the presentation was very thorough. He
asked if the Attorney General had put in writing why he was not
pursuing the case. MS. DAVIDSON repeated that, due to ongoing
litigation, she could not talk about some things. She did say that
the AG stated publicly that, due to a conflict of interest, he was
allowing the federal court to pursue legal action.
CHAIRMAN TAYLOR noted that the federal U.S. Attorney had recused
some of their people ho had been involved in the scheme and put new
people on to pursue the investigation. CHAIRMAN TAYLOR said it
apparently went even further than that when the Justice department
took over the prosecution form the U.S. Attorney. MS. DAVIDSON
agreed and introduced MR. MERLE JENSEN for further comment.
MR. JENSEN also agreed with CHAIRMAN TAYLOR, saying the U.S.
Attorney's office started the investigation but, because they had
a staff attorney who was involved with the scheme, the Department
of Justice recused everyone on the case and began their own
investigation. CHAIRMAN TAYLOR was glad someone had followed the
required ethics. He asked why the state, through either the
Attorney General or the Division of Banking, Securities and
Corporations could not do the same thing as the Justice Department,
meaning recruse the people involved and bring in new prosecuting
district attorneys. MR. JENSEN said he would feel uncomfortable
addressing that issue in its entirety, but could say there was no
reason why it couldn't have been done, in his opinion. He was not
able to comment on what had been done, but did say what the U.S.
Attorney did was the appropriate thing to do.
CHAIRMAN TAYLOR asked MS. DAVIDSON to review violations of state
laws. MS. DAVIDSON pointed to page eight of the report and
enumerated several violations to title 11 and title 45 of the state
statutes. she said it appears these charges could be brought
against Ms. Bonham. CHAIRMAN TAYLOR interjected that testimony he
heard from Fairbanks alleged she had written at least $1.5 million
in bad checks and she had not even been brought up on a bad check
charge.
MS. DAVIDSON indicated that Mr. Hompesch might possibly be liable
for knowingly providing false information to BSC. CHAIRMAN TAYLOR
clarified that Mr. Hompesch was the person who sent the unsolicited
letters and the one who was continually submitting information to
BSC saying WPI was within it's established limits. MS. DAVIDSON
replied yes. CHAIRMAN TAYLOR commented that someone must have
relied upon this information or would have done a more thorough
investigation. MERLE JENSEN noted that it is the practice of BSC to
rely on counsel for information regarding securities.
PAT DAVIDSON said other people providing endorsements could be
open to prosecution and any of these people who are state employees
may be subject to ethics violations as well. Attorneys involved
might be subject to actions by the bar association. She said none
of this has been done to date and they believe that if the AG had
obtained a special prosecutor, and their decision making process
could be made public, a lot of questions could be cleared up.
CHAIRMAN TAYLOR noted that several state employees had provided
written support to BSC, which may be a violation under the ethics
act in addition to title 45, yet no public accusations have been
filed with the Alaska Personnel Board. He asked how these people
could supply these apparently fraudulent endorsements to BSC and
escape even a mention of it in their personnel files. MS. DAVIDSON
said, to the extent that an investigation had uncovered anything,
it would have been filed with the personnel board, but that has not
occurred.
CHAIRMAN TAYLOR remarked that he was initially shocked by the scope
of this fraud, and more so after holding a hearing in Fairbanks and
listening to people who had sought help from the district attorney
and troopers to no avail. CHAIRMAN TAYLOR stated he has never seen
an audit like this that recommends, "the Attorney General is not
sufficiently independent to make this determination and therefore
should obtain assistance from a independent prosecutor to make
recommendations."
CHAIRMAN TAYLOR thanked the auditors for the thoroughness of their
work and asked if they were aware of other confidential information
the committee should see in reviewing this matter.
CHAIRMAN TAYLOR replied that this was simply a time line, an audit
had not yet been conducted but could be and would afford access to
all materials. She suggested the committee would want to talk to
Mr. Kirkpatrick (Director of BSC) and either Attorney General
Bothelo or a member of his staff, who might be able to provide a
more comprehensive picture. She indicated that because of ongoing
lawsuits, this likely would have to be done in executive session.
CHAIRMAN TAYLOR again thanked the auditors for their excellent work
and mentioned he would speak with Mr. Kirkpatrick and Mr. Larry
Carroll and, to reassert some level of public trust in our judicial
system and the banking and securities division, take the necessary
steps to find out what happened here. CHAIRMAN TAYLOR concluded
that if their recommendation proves to be the bottom line, it is
incumbent upon the committee to notify the Attorney General he
should appoint an independent prosecutor because he is too
conflicted to do the work.
With no further business to come before the committee, they were
adjourned.
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