Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/19/2018 06:00 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB119 | |
| HB170 | |
| SB38 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 119 | TELECONFERENCED | |
| + | HB 170 | TELECONFERENCED | |
| += | SB 38 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 170-AK SECURITIES ACT; PENALTIES; CRT. RULES
6:56:57 PM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of HB 170. [CSHB 170(JUD) was before the
committee.]
6:57:06 PM
SENATOR MEYER made a motion to clarify that the committee was
considering version O that passed the House.
CHAIR COSTELLO objected for the sake of discussion.
6:58:03 PM
CRYSTAL KOENEMAN, Staff, Representative Sam Kito III, Alaska
State Legislature, Juneau, Alaska, presented HB 170 on behalf of
House Labor and Commerce Committee. She said this was brought to
the House Labor and Commerce Committee by the Department of
Commerce, Community and Economic Development. It amends the
Alaska Securities Act. Security statutes are separated from
statutes related to the Alaska Native Claims Settlement Act
(ANCSA) to facilitate better understanding of both. It deters
investment scams using Alaska entities and harming Alaskans. It
helps protect older and vulnerable adults from financial
exploitation by requiring financial professionals to report
suspected exploitation and giving the reporting professionals
immunity. It enhances penalties against those who harm older and
vulnerable Alaskans. It also updates entity and law references
that currently use notice by telegrams. It is an overall update
of the Securities Act.
6:59:33 PM
KRISTY NAYLOR, Acting Director, Division of Banking and
Securities, Department of Commerce, Community and Economic
Development (DCCED), Anchorage, Alaska, said HB 170 is very
important to the operation of the division in its regulation of
securities in Alaska and also to Alaska consumers. The Alaska
Securities Act provides the legal framework for offering or
selling securities in Alaska or to Alaskans, including
registration of the financial product and sales force, and
enforcement action against those who violate the act. It also
regulates ANCSA Corporation and shareholder proxy provisions.
MS. NAYLOR said securities is one of 12 statutory programs that
the division regulates and is the largest single program area.
Just over 95,000 people are licensed to sell securities in
Alaska. There are also over 1,200 security firms. The growth
over the last few years has been significant.
MS. NAYLOR said HB 170 solves two main problems with current
law. First, the current law is outdated and hasn't kept up with
the industry. The current Alaska Securities Act went into effect
in 1961. The Act has only been changed in any significant way
three times in almost 60 years.
MS. NAYLOR said second, consumer protections and enforcement
provisions are insufficient. Alaskans have been harmed by people
who have violated Alaskan laws and low administrative, civil,
and criminal penalties do not serve as a significant deterrent.
They are low enough to be seen as the cost of doing business.
7:02:23 PM
MS. NAYLOR said the bill solves the problem by modernizing
current law:
• Updates outdated provisions to better align the law
with current industry practices (Current statute
refers to entities that no longer exist, federal
statutes that have changed over time, and allows
notification by telegram.)
• Incorporates the Innovating Alaska Act, which allows
intrastate crowdfunding to help grow Alaska businesses
• Eliminates most filings that must be made with the
Division
• Separates ANCSA from securities, so the two programs
can be regulated separately
• Improves organization
7:04:07 PM
MS. NAYLOR said the bill enhances consumer protection:
• Increases administrative, civil and criminal
penalties, especially for those who harm vulnerable
people (Current enforcement provisions allows a
maximum civil penalty of $25,000 per person who
commits a violation. The division has recently
investigated frauds that involved millions of dollars
of losses. The new law would allow a fine of $100,000
per violation. The fines can be increased if the
victim is a senior or vulnerable adult.)
• Allows for bad actors to be barred from the industry
• Requires brokers and advisers to report suspected
financial exploitation of seniors and vulnerable
adults to the Division and Adult Protective Services
• Improves investor education provisions, allowing for a
portion of collected civil penalties to be deposited
into a fund that the legislature may allocate for
investor education
• Facilitates continuing education for brokers and
advisers
7:06:26 PM
She highlighted the following securities scams in Alaska:
Fortune Oil and Gas, LLC--Texas-based oil and gas scam that
resulted in a $3.1 million loss to Alaskans
J. Randall Gladden--Unregistered salesperson came to Alaska
to give financial presentations to local church communities
after he had been suspended by federal regulator from
acting as a securities agent
Global Arena Capital Corp--Unregistered NY firm and six
employees cited for soliciting then selling junk bonds to a
retired and ailing Alaskan halibut fisherman
Garden State Securities--agent from Global went to Garden
State and attempted to sell risky investments to same
customer without a license in Alaska (The firm was licensed
in Alaska. They withdrew from Alaska and paid the maximum
civil penalty without blinking an eye.)
7:10:20 PM
SENATOR STEVENS asked why it is necessary to separate ANCSA from
other securities.
MS. NAYLOR explained that the regulation of corporate proxy
solicitations is a securities function that the SEC [Securities
and Exchange Commission] provides for publicly traded
corporations. Alaska is the only state that regulates proxy
solicitations. Ordinarily the SEC would regulate them. ANCSA
corporations are outside of federal regulations and not covered
by SEC regulations. It makes sense to separate them and deal
with them as a unique Alaska entity. If changes need to be made
to either the Securities Act generally or ANCSA provisions, that
can be done more appropriately if they are separated.
SENATOR STEVENS asked if they would still be regulated but
separately.
MS. NAYLOR said yes.
SENATOR GARDNER noted that when she described the Global Arena
Capital Corporation fraud, she mentioned that the division could
not order restitution. It had to be a negotiated process. She
asked why it had to be negotiated.
MS. NAYLOR said no provision in the enforcement section of the
current law allows the division to order someone to pay
restitution. HB 170 has a provision to allow them to order
restitution.
SENATOR GARDNER asked how a securities agent differs from a
stockbroker or investment advisor.
MS. NAYLOR said they're the same.
SENATOR MEYER said he was looking for a definition of securities
in the bill but might have missed it. He assumes securities are
stocks, bond, life insurance, and banking CDs.
MS. NAYLOR directed attention to page 103 of the bill. They
include stocks, bonds, limited partnership interests,
certificates of deposit. It's a long list. It's the same as in
current law.
SENATOR MEYER asked if the state has jurisdiction over the
internet or if that is a federal issue.
MS. NAYLOR said they have jurisdiction over offers and sales of
securities over the internet. Anything coming or going into the
state would be within their jurisdiction.
SENATOR MEYER asked if he can report an internet solicitation to
invest in an oil well in Russia.
MS. NAYLOR said yes.
7:16:40 PM
SENATOR MICCICHE referred to the civil penalties on page 83,
line 20. He asked why there isn't a percentage of the damages
when there could be millions in losses. He asked how far the
bill can go in recovering those losses.
MS. NAYLOR said the $100,000 is the civil penalty that the bad
actor would pay the state for violating the statute. Adding in a
restitution provision means they could order up to 100 percent
restitution of the loss.
SENATOR MICCICHE observed that the statutory civil penalty can
range from $100,000 to $300,000 and the restitution could
include 100 percent of the loss.
MS. NAYLOR said that's correct.
7:19:35 PM
LEIF HAUGEN, Acting Chief, Enforcement and Securities, Division
of Banking and Securities, Department of Commerce, Community and
Economic Development (DCCED), Anchorage, Alaska, provided the
following sectional analysis for HB 170:
Article 1. General Provisions - p. 15
Same as current law. Securities must be registered before
offer or sell, unless federally covered or exempt.
Article 2. Exemptions from the Registration of Securities
p. 15
• Incorporates the current statute regarding small
intrastate security offerings that are known as
crowdfunding.
• Adds provisions allowing the division to prohibit
persons who have committed crimes or regulatory
violations from using exemptions from registration and
provides the administrator the authority to waive or
change exemption requirements.
Article 3. Registration of Securities and Notice Filing of
Federal Covered Securities p. 30
• Changes would require registration statements to be on
file with the administrator for 20 days.
• Increases fees for late filings.
• Explains the joint regulations of viatical settlement
interests by the Securities and Insurance statutes.
• Requires the administrator to establish regulations
explaining what conduct may be fraud upon purchasers.
SENATOR GARDNER referred to Article 3 Section 45.56.305,
"registration statement must be on file with the Administrator
for 20 days (may be reduced by regulation)." She questioned
putting something in statute that may be reduced in regulation.
MR. HAUGEN acknowledged that was not taken into consideration.
7:21:12 PM
At ease.
7:21:24 PM
CHAIR COSTELLO reconvened the meeting.
SENATOR GARDNER said maybe someone could answer that in due
course.
7:21:44 PM
MR. HAUGEN continued the sectional for HB 170.
Article 4. Broker-dealers, Agents, Investment Advisers,
Investment Adviser Representatives and Federal Covered
Investment Advisers p. 42
Firm, salesperson, and adviser registration (licensing)
provisions are reorganized into one article, making it more
user-friendly than current law.
• Includes a new exemption for broker-dealers and
agents, as well as investment advisors and
representatives, to facilitate on-going broker-
customer relationships with customers who have
established a second or other residence in other
states.
• Changes annual renewal to December 31 from December 1
for easier state and firm processing.
• Adds a provision that exempts merger and acquisition
brokers from registration.
• Includes, within Article 4, the types of business
covered regarding agent registration requirement and
exemptions instead of in the definition section.
• Includes investment adviser registration requirement
and exemptions mirroring a broker-dealer agent
requirements in Article 4.
• Extends time, unless the registration is denied, for
automatic registration of broker-dealers, agents,
investment advisers, and investment adviser
representatives.
• Clarifies process for an organizational change for
broker-dealers and investment advisers.
• Requires that broker-dealers or investment advisers
file a notification of termination of employment of
agent or representative with the administrator.
• Extends time of the effective date of registration
withdrawal.
• Adds provision allowing filing fees to be established
by regulation.
• Adds provision allowing the administrator to set
continuing education requirements by regulation.
• Adds provision adding model legislation to protect
vulnerable adults from financial exploitation.
• Adds provision allowing the administrator to bar a
person or firm from registration including for actions
taken by other regulators.
• Increases civil penalty for registrants from $2,500-
$10,000 per violation to up to $100,000 per violation.
7:23:22 PM
Article 5. Fraud and Liabilities p. 70
• Allows administrator to define prohibited conduct by
regulation.
• Adds a citation to affirmative defense in criminal law
regarding the evidentiary burden.
• Clarifies that registered persons are not liable to
other registered persons, under state defamation laws,
for statements contained in disclosure records
required to be filed with the administrator for
purposes of licensing and potential discipline.
Article 6. Administration and Judicial Review p. 72
• Adds a new provision allowing the administrator to
develop and implement investor education initiatives
and accept grants or donations for investor education.
• Requires the administrator keep records according to a
retention schedule and outlines publicly disclosable
documents.
• Clarifies and specifies record confidentiality.
• Expands opportunity for coordination with governmental
units, regulatory organizations for collaborative
efforts including regulation and enforcement to reduce
the burden of raising capital by small business.
• Creates an investor education and training fund within
the general fund.
• Combines existing AS 45.55.950 and 45.55.970 and
clarifies that GAAP compliant financial statements may
only be required as allowed by federal law.
• Separates out and clarifies administrative, civil, and
criminal enforcement provisions.
• Increases to 30 instead of 15 the number of days
respondents can request to review a final order.
7:24:45 PM
SENATOR GARDNER asked what "registered persons are not liable to
other registered persons under state defamation laws for
statements contained in disclosure records required to be filed
with the administrator for purposes of licensing and potential
discipline" in Article 5 meant.
MR. HAUGEN said FINRA [Financial Industry Regulatory Authority]
has a system called CRD (Central Registration Depository), where
the division reviews the registrations of all agents seeking
registration in Alaska. In other states firms felt they couldn't
be candid about an agent termination or investigation of an
agent. California and New York have adopted absolute immunity.
This would give qualified immunity to disclose so other firms
will know before hiring an agent and the state will know as
well.
SENATOR STEVENS asked for the definition of a vulnerable adult.
7:26:51 PM
DEB ETHERIDGE, Deputy Director, Senior and Disability Services,
Department of Health and Social Services (DHSS), Juneau, Alaska,
said they are seniors and adults with disabilities who lack the
capacity to protect themselves from harm.
SENATOR MICCICHE observed that both are defined in statute.
MS. ETHERIDGE said that's correct.
7:28:47 PM
MR. HAUGEN continued the sectional for HB 170.
Article 7. Miscellaneous and Additional General Provisions
(includes definitions) p. 93
• Expands recovery of expenses from current AS 45.55.915
to cover all examination expenses including staff
time, travel and per diem.
• Facilitates filing of electronic records and
signatures.
• Contains new definitions.
7:29:20 PM
CHAIR COSTELLO opened public testimony on HB 170.
7:29:31 PM
KEVIN ANSELM, representing self, Matanuska-Susitna Valley, said
she is a former director of the Division of Banking and
Securities. She related that one of the primary reasons for
passing HB 170 is to separate ANCSA provisions from other
securities provisions. Much of the current Alaska Securities Act
does not apply to ANCSA issues and when any changes are proposed
there is concern that there will be unintended consequences. The
bill also modernizes the statutes, lessens the burden of dual
state and federal regulations, streamlines the registration, and
protects investors.
7:33:52 PM
CHAIR COSTELLO closed public testimony on HB 170 and held the
bill in committee.
SENATOR MEYER asked who would opposed the bill.
MR. HAUGEN said other than scammers nobody is opposed to it.
SENATOR MICCICHE asked if it's clear when fraud is committed.
MR. HAUGEN said the fraud the division has seen involves someone
approaching the investor and the investor doesn't see the return
promised. Upon investigation, the division has discovered that
there was no product or investment. The division has tools to
identify when fraud has occurred as opposed to when an
investment was a poor choice.
[HB 170 was held in committee.]