Legislature(2015 - 2016)BARNES 124
03/14/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB214 | |
| HB194 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 214 | TELECONFERENCED | |
| *+ | HB 313 | TELECONFERENCED | |
| += | HB 194 | TELECONFERENCED | |
HB 194-AK SECURITIES ACT; PENALTIES; CRT. RULES
4:07:16 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 194, "An Act repealing and reenacting the Alaska
Securities Act, including provisions relating to exempt
securities and transactions; relating to registration of
securities, firms, and agents that offer or sell securities and
investment advice; relating to administrative, civil, and
criminal enforcement provisions, including restitution and civil
penalties for violations; allowing certain civil penalties to be
used for an investor training fund; establishing increased civil
penalties for harming older Alaskans; retaining provisions
concerning corporations organized under the Alaska Native Claims
Settlement Act; amending Rules 4, 5, 54, 65, and 90, Alaska
Rules of Civil Procedure; and providing for an effective date."
4:07:53 PM
REPRESENTATIVE HUGHES moved to adopt the proposed committee
substitute (CS) for HB 194, labeled 29-GH1060\E, Bannister,
3/11/16 as the working document. There being no objection,
Version E was before the committee.
4:08:12 PM
KEVIN ANSELM, Director, Division of Banking and Securities,
Anchorage Office, Department of Commerce, Community & Economic
Development, said she would discuss the changes to HB 194.
4:09:54 PM
The committee took an at ease from 4:09 p.m. to 4:10 p.m.
4:10:49 PM
MS. ANSELM paraphrased from the following brief sectional
analysis for the proposed CS for HB 194, Version E [original
punctuation provided]:
SECTIONS 1 - 14 (pp. 1-11) include the corresponding
changes to statutes that refer to former AS 45.55
provisions that have been moved to AS 45.56.
SECTIONS 15 - 24 (pp. 11-24) modify AS 45.55 as
necessary to delete references to statutes that have
no bearing on the Alaska Native Claims Settlement Act
corporations because of the enactment of AS 45.56.
SECTION 25 (p. 14) Proposed new Chapter AS 45.56
Article 1. General Provisions (pp. 14-15)
Sec. 45.56.105. Securities registration requirement -
same as current law (AS 45.55.070). Securities must be
registered before offer or sale unless federally
covered or specifically exempt from registration.
Article 2. Exemptions from Registration of Securities
(pp. 15-29)
Sec. 45.56.205. Exempt securities - generally the same
as current law (AS 45.55.900(a)) with a few additions
including securities issued by an insurance company;
certain options, warrants and rights that are not
federal covered securities; certain cooperatives and
equipment trust certificates.
Sec. 45.56.210. Exempt transactions - similar to
current law AS 45.55.900(b), reorganized with
additions reflecting transactions allowed under the
Uniform Securities Act of 2002 (USA).
Sec. 45.56.220. Small intrastate securities offerings
(referred to as "Crowdfunding") Allows Alaskans to
invest up to $5,000 per person, per offering, in an
Alaskan business. Businesses can raise up to $1
million per offering and requires a notice filing with
the state and certain investor disclosures and
protections. Sec. 45.56.230. Disqualifier - prohibits
persons who have been subject to regulatory action or
participated in certain crimes from using the
available exemptions from the registration
requirement.
Sec. 45.56.240. Waiver and modification - broadens the
administrator's authority to waive or change
requirements or conditions for exemptions.
Sec. 45.56.250. Denial, suspension, revocation,
condition, or limitation of exemptions - same,
although the appeal rights and hearing information is
moved to Article 6.
Article 3. Registration of Securities and Notice
Filing of Federal Covered Securities. (pp. 29-42) No
significant changes to registration provisions from AS
45.55. Material changes are noted by section.
Sec. 45.56.305. Securities registration by
coordination - registration statement must be on file
with the Administrator for 20 days unless reduced by
regulation. 10 days is the current requirement.
References to prompt notice by telegram are deleted.
Sec. 45.56.310. Securities registration by
qualification - adds a new requirement that filers
disclose pending litigation that materially affects
the issuer or litigation that is known to be
contemplated by governmental authorities.
Sec. 45.56.320. Securities registration filings -
allows the administrator to set escrow time by
regulation or order for certain securities issued to a
promoter or to other persons at a price substantially
less than the public offering price.
Sec. 45.56.330. Notice filing of federal covered
securities - allows imposition of late fees.
Sec. 45.56.340. Viatical settlement interests -
combines current AS 45.55.120 and AS 45.55.905(c) to
explain the joint regulation of these interests by the
Securities and Insurance statutes. Sec. 45.56.350.
Waiver and modification - administrator allowed waiver
authorities consolidated from other sections.
Sec. 45.56.360. Denial, suspension, and revocation of
securities registration - adds requirement to
establish regulations explaining what conduct may be
fraud upon purchasers; unreasonable discounts,
compensation, profits (including options, etc.) and
terms that are unfair, unjust or inequitable.
Article 4. Broker-dealers, Agents, Investment
Advisers, Investment Adviser Representatives, and
Federal Covered Investment Advisers. (pp. 42-66)
Firm, salesperson, and adviser registration
(licensing) provisions are reorganized into one
article, making it more user-friendly than current
law. Notable changes are listed below.
Sec. 45.56.405. Broker-dealer registration requirement
and exemptions - includes a new "snowbird exemption"
to facilitate ongoing broker-customer relationships
with customers who have established a second or other
residence and clarifies the number of transactions a
broker-dealer may effect annually (3) if not
registered in Alaska.
Sec. 45.56.410. Limited registration of Canadian
broker-dealers and agents - changed annual renewal to
December 31 from December 1.
Sec. 45.56.420. Registration exemption for merger and
acquisition broker - this new provision exempts
mergers and acquisitions brokers from registration
(licensing) requirements because these transactions
are typically between knowing parties with adequate
legal counsel and scrutiny. The exemption is not
available if the broker actually handles the
securities exchanged in the transaction or otherwise
represents an issuer or public shell company, or is
subject to Securities and Exchange Commission action.
Sec. 45.56.430. Agent registration requirement and
exemptions - the rewrite of this section includes a
statement of the types of business covered here
instead of in a definitional section.
Sec. 45.56.435. Investment adviser registration
requirement and exemptions - includes a new "snowbird"
exemption that matches the broker-dealer exemption in
Sec. 45.56.405.
Sec. 45.56.440. Investment adviser representative
registration requirement and exemptions - these
provisions mirror the broker-dealer agents in Sec.
45.56.430.
Sec. 45.56.445. Federal covered investment adviser
notice filing requirement - these provisions are not
separately stated in the current law.
Sec. 45.56.450. Registration by broker-dealer, agent,
investment adviser, and investment adviser
representative - combines provisions in current
statute and regulations and extends the automatic
registration from 30 to 45 days unless the
registration is denied.
Sec. 45.56.455. Succession and change in registration
of broker-dealer or investment adviser - clarifies
that an organizational change can generally be
completed by amendment instead of a new registration
(for instance a sole proprietorship moving to a
limited liability company).
Sec. 45.56.460. Termination of employment or
association of agent and investment adviser
representative and transfer of employment or
association - requires the registrant file a
notification with the division. Allows for an
immediate temporary effective registration with a new
firm when there is no new disciplinary information
added.
Sec. 45.56.465. Withdrawal of registration of broker-
dealer, agent, investment adviser, and investment
adviser representative - extends the effective date of
registration withdrawal up to 60 days and allows a
revocation proceeding to commence within one year.
Sec. 45.56.470. Filing fees - are established and may
be paid through a designee by regulation.
Sec. 45.56.475. Post registration requirements -
allows establishing continuing education by
regulation.
Sec. 45.56.480. Denial, revocation, suspension,
withdrawal, restriction, condition, or limitation of
registration - in addition to current provisions,
allows the administrator to bar registration and
includes actions taken by other regulators. Civil
penalty for registrants is increased from $2,500-
$10,000 per violation to up to $100,000 per violation.
Article 5. Fraud and Liabilities. (pp. 66-69)
Sec. 45.56.505. General fraud - same as current AS
45.55.010. Sec. 45.56.510. Prohibited conduct in
providing investment advice - allows administrator to
define prohibited conduct by regulation.
Sec. 45.56.520. Misleading filings - same as current
AS 45.55.160.
Sec. 45.56.530. Misrepresentations concerning
registration or exemption - same content as AS
45.55.170.
Sec. 45.56.540. Evidentiary burden - same content as
AS 45.55.900(c).
Sec. 45.56.550. Filing of sales and advertising
literature - same content as AS 45.55.150.
Sec. 45.56.560. Qualified immunity - 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. This provision encourages full disclosure
to the administrator.
Article 6. Administration and Judicial Review. (pp.
69-89)
Sec. 45.56.605. Administration - allows the
administrator to develop and implement investor
education initiatives and accept grants or donations
for investor education.
Sec. 45.56.610. Administrative files and opinions -
requires the administrator keep records according to a
retention schedule and outlines publicly disclosable
documents.
Sec. 45.56.615. Public records; confidentiality -
clarifies and specifies record confidentiality.
Sec. 45.56.620. Uniformity and cooperation with other
agencies - expands opportunity for cooperation and
sharing with governmental units, regulatory
organizations for collaborative efforts including
regulation, enforcement and coordination to reduce the
burden of raising capital by small business.
Sec. 45.56.625. Securities investor education and
training fund - Creates a securities and investor
education and training fund within the general fund to
provide funds for investor education. 33% of the money
received in civil penalties may be used for investor
education and training if so appropriated by the
legislature.
Sec. 45.56.630. Service of process - same as current
AS 45.55.980.
Sec. 45.56.635. Applicability of the chapter - same as
current AS 45.55.980.
4:30:59 PM
REPRESENTATIVE JOSEPHSON returned attention to proposed Section
45.56.625 and asked whether licensees could pay for their
education and training, instead of the state, as do members of
the Alaska Bar Association.
MS. ANSELM said those who violate the Alaska Securities Act
should pay for investor education through one-third of the civil
penalties they are assessed, and that is the source of the
funds.
REPRESENTATIVE COLVER asked what is currently being collected in
fines.
MS. ANSELM advised that there are two kinds of securities cases:
consent orders result when the division negotiates with parties
in violation, and civil penalties are assessed; non-consent
securities fines imposed from 2012-2015, under the current law,
totaled $525,000. She noted that the maximum penalty for a
violation is currently $25,000; if the limit was removed, the
potential fines would total $7.7 million and $3.4 million in
restitution. In further response to Representative Colver, she
confirmed that the revised fines are part of the proposed
statute, which would increase the maximum from $25,000 for total
violations, to $100,000 per violation.
REPRESENTATIVE COLVER observed that the regulation changes and
increase in revenue are not reflected in the fiscal note
[document not identified].
MS. ANSELM stated that enforcement actions are unknown to the
division; in fact, there are times when few actions are taken,
thus revenue to the division is indeterminate.
REPRESENTATIVE COLVER suggested that if the fiscal note
reflected more revenue the legislature would be more amenable to
regulatory reform. The business community seeks less
bureaucracy and to increase productivity, and he encouraged the
legislature to support the business sector as the state heads
for "a bit of bad weather, and anything we can do to keep our
corporations healthy is, is something we need to be working on."
4:36:58 PM
MS. ANSELM agreed to further discuss the bill's fiscal note.
REPRESENTATIVE JOSEPHSON surmised that in addition to $100,000
per violation, through criminal proceedings the division could
recapture losses and collect restitution.
MS. ANSELM explained that it is difficult to collect any amount,
and she described three pending cases in the court system:
Fortune Oil and Gas, a Texas corporation, caused a loss to
Alaskan investors of over $3 million, and orders from the
division have been ignored; Global Arena Capital Corporation, a
New York firm, cold-called and pitched an investment to an
elderly resident who lost $16,000, and who only recovered
$10,000; two Alaskans formed a firm and collected $40,000 from a
fellow Alaskan for the new company, which subsequently
dissolved, and an agreement for rescission was reached, but the
investor was never paid.
4:42:45 PM
REPRESENTATIVE LEDOUX asked for an idea of how many "bad actors"
have money to pay the state or their victims, and how many are
judgement-proof.
MS. ANSELM answered that many are judgement-proof, but there is
money behind the three aforementioned perpetrators. In further
response to Representative LeDoux, she advised that civil
penalties are paid to the general fund and a provision in the
bill directs restitution to the investor, and penalties for
violations to the state. Ms. Anselm returned to the sectional
analysis [original punctuation provided]:
Sec. 45.56.640. Regulations, forms, orders,
interpretative opinions, and hearings - 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.
Sec. 45.56.645. Investigations and subpoenas - similar
to existing AS 45.55.910 and allows broader
cooperation with other regulators.
Sec. 45.56.650. Administrative enforcement - time for
a respondent to make a request for hearing after an
action is taken is extended from 15 days to 30 days.
Civil penalties are increased from $2,500 for a single
violation and $25,000 for multiple violations to a
maximum of $100,000 for a single violation with no cap
for multiple violations. If a victim is an "older
person" (a person over 60 years old), the respondent
is subject to treble damages. Restitution and actual
costs of investigation may be ordered. The
administrator may deny the use of securities
exemptions under Article 2 and registration
(licensing) exemptions under Article 4 if a person
violates the Act. The administrator may petition the
Superior Court to enforce a final order and the Court
may hold a person in contempt for violating an order
of the administrator, punishable by up to $100,000 per
violation, in addition to any administrative penalties
that were originally assessed.
Sec. 45.56.655. Civil enforcement - the administrator
may seek remedies such as asset freezes, an order of
rescission, restitution, and civil penalties of up to
$100,000 per violation, and all damages may be trebled
if the victim is an "older person" (person over 60
years of age).
Sec. 45.56.660. Civil liability - outlines instances
where the seller is liable to the purchaser and
potential remedies (actual damages including interest
as determined by the court); also describes instances
where the buyer may be liable to the seller. Sec.
45.56.665. Rescission offers - outlines the rescission
offer process, including a new requirement that the
offeror must demonstrate the ability to pay and then
actually pay as promised.
Sec. 45.56.670. Criminal enforcement - knowing
violations of the Act and fraud are punishable as
class C felonies punishable under AS 12.55.125.
Unknowing violations are punishable as class A
misdemeanors and fine of not more than $100,000.
Individuals who alter or destroy evidence are guilty
of a class C felony and a fine of not more the
$500,000 or both.
Sec. 45.56.675. Judicial review - appellants have 30
days to request review of a final order.
4:49:01 PM
REPRESENTATIVE LEDOUX returned attention to proposed Section
45.56.670 [text previously provided] and asked for an example of
an unknowing violation.
MS. ANSELM explained that if a person can prove that they were
unaware of securities laws, even when they should have been
aware, a lesser fine is assessed. She returned to the sectional
analysis [original punctuation provided]:
Article 7. Miscellaneous and Additional General
Provisions. (pp. 89-100)
Sec. 45.56.710. Reimbursement of expenses incident to
examination or investigation - same as AS 45.55.915.
Sec. 45.56.720. Electronic records and signatures -
facilitates filing of electronic records and
signatures. Consumers must consent and have the option
to withdraw such consent.
Sec. 45.56.730. References to federal statutes - a
list of all federal statutes referenced in the Act.
Sec. 45.56.740. References to federal agencies - notes
that a reference to an agency of the United States is
also a reference to a successor agency.
Sec. 45.56.900. Definitions.
- Updates federal citations
- New definitions include:
- Disqualifier
- Filing
- Institutional investor (reflects federal law)
- Insurance company
- Insured
- International Banking Institution
- Offer to purchase
- Older person - a person that is age 60 or older
(from AS 47.65.290(6))
- Price amendment
- Record
- Self-regulatory organization
- Sign
Sec. 45.56.995. Short title. This chapter may be cited
as the Alaska Securities Act.
SECTIONS 26 - 28 (pp. 101-105). Citations are modified
to reflect Chapter 45.56 in place of Chapter 45.55
references; federal law citations are updated.
SECTION 29 (p. 105) - Repeals statutes that are no
longer needed in AS 45.55 because they do not apply to
Alaska Native Claims Settlement Act corporation proxy
solicitations.
SECTION 30 (p. 105) - Amends indirect Court Rules
relating to changes in AS 45.56.
SECTION 31 (pp. 105-106) - Allows the department to
adopt transition regulations.
SECTION 32 (pp. 106-107) - Amends the law to effect
transition and application of AS 45.55 for existing
proceedings, existing rights and duties.
SECTION 33 (p. 107) - Reviser's instruction to rename
AS 45.55 to Alaska Native Claims Settlement Act
Corporations Proxy Solicitations and Initial Issuance
of Stock.
SECTION 34 (p. 107) - Conditional effect of certain
provisions upon constitutionally required vote of each
house. SECTION 35 - July 1, 2016 effective date.
4:54:06 PM
REPRESENTATIVE LEDOUX returned attention to proposed Section 45.
56.305 [text previously provided], and asked whether email was
substituted for prompt notice by telegram.
MS. ANSELM said yes.
REPRESENTATIVE LEDOUX directed attention to proposed Section
45.56.310 [text previously provided] and recalled a proposed
change that would require disclosure of any litigation, whether
or not contemplated by a government authority.
MS. ANSELM agreed to make this change.
REPRESENTATIVE LEDOUX directed attention to proposed Section
45.56.560 [text previously provided], and confirmed that
qualified immunity would not be granted if there is reckless
disregard of the truth, or a known untruth.
MS. ANSELM said absolutely.
REPRESENTATIVE JOSEPHSON directed attention to proposed Section
45.56.670 [text previously provided], and asked whether there
are [Alaska Statutes] Title 11 crimes that could be filed in
addition to the class C felony in the proposed statute.
MS. ANSELM deferred to the Department of Law.
REPRESENTATIVE JOSEPHSON surmised that the impetus for the
proposed bill was that the pertinent legislation was outdated,
and asked whether HB 194 was based on a model.
MS. ANSELM said the bill is a combination of a 2002 model act,
modifications from other states, experiences in Alaska, and an
increase in investor protection.
[HB 194 was held over.]