Legislature(2003 - 2004)
03/09/2004 08:01 AM House STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 527-ALASKA SECURITIES ACT Number 1015 CHAIR WEYHRAUCH announced that the next order of business was HOUSE BILL NO. 527, "An Act relating to the Alaska Securities Act, including reports, proxies, consents, authorizations, proxy statements, and other materials, civil penalties, refunds of proceeds from violations, restitution, and investment adviser representatives; and providing for an effective date." Number 1020 MARK DAVIS, Director, Division of Banking, Securities & Corporations, Department of Community & Regional Development (DCED), testified on behalf of DCED to outline three things [HB 527] would accomplish that the division thinks are important. He continued as follows: First, we are proposing lowering the jurisdictional threshold for the reporting (indisc.) corporation "proximators," from 500 shareholders to 250 shareholders, and [eliminating] the assets threshold of $1 million. Currently, the book value of the corporations is somewhat at issue, and we're proposing just going on the number of shareholders. We've received some complaints from smaller corporation shareholders that they are not sensitive to shareholder rights. We're proposing lowering the threshold to bring those smaller corporations within the division's proxy jurisdiction. I would emphasis, however, that it only affects proxy matters. MR. DAVIS, in response to a question from Representative Gruenberg, clarified that [the corporations being discussed] are only Native corporations. He continued his testimony as follows: Second, the bill would raise the maximum level of fines the division has the authority to impose under the Alaska Securities Act. Presently, the upper limit of fining authority is $25,000 for multiple knowing offences, and we're proposing an increase to $100,000. That would bring it in line with the federal law, which is 15 U.S.C. 771(a), which allows for a maximum fine of $100,000. I would note that the states are all over the map on this issue. One state - Montana - shows $5,000. Other states, such as Missouri, are as high as a half a million dollars. But we're proposing $100,000 so that we're in line with the federal securities law. There's been no change to the civil penalties since 1988, and we would be able to bring more significant enforcement actions, we think. We have added investigators to the division, and we are in line with doing more investigations in conjunction with the SEC [U.S. Securities and Exchange Commission]. Number 0901 CHAIR WEYHRAUCH noted that Eliot Spitzer, the attorney general of New York, often "leads the curve" on corporate misdeeds and wrongdoing investigations. He revealed that Mr. Spitzer's aggressive advocacy for consumers and residents of New York, in bringing to light misdeeds by mutual funds and other corporations, has effected his own personal decisions on how he invests his money. He also expressed outrage that "some of these activities occurred." He asked Mr. Davis if there is an incentive for the attorney general of New York to bring those kinds of enforcement actions - because of the enforcement penalties that he may bring to bear - that could benefit Alaska and provide an incentive for Mr. Davis's office or [an incentive for] the attorney general's office to be the kind of attorney general that Mr. Spitzer seems to be. Number 0818 MR. DAVIS responded, "Well, I really can't speak for General Spitzer, but I ... think that if we have the ability to make significant fines, that if we fine violations, then we can make something stick." He stated that [Alaska] suffered from the World Plus Ponzi scheme several years ago, and that case was brought by the SEC. He said he would have preferred that it had been brought by state authorities. He indicated that the goal is for aggressive state enforcement. MR. DAVIS continued as follows: That dovetails with this other part of this bill, which is restitution. Federal securities laws in most states have restitution, and restitution orders are an important part of getting the money back to the victims' pockets. There's been criticism in the ... business press of the SEC settlement Act - and that includes [Attorney] General Spitzer - that the SEC put the money back in the federal treasury and not into the pots of the investors. So, our goal here is to add more "enclosurement" and put the money back. Number 0772 CHAIR WEYHRAUCH said he wonders if [the legislature] could give [the division] any tools to do what needs to be done to anticipate problems that would benefit the Alaska consumer, as well as benefit the state treasury. MR. DAVIS responded that certainly greater fines would be useful for the treasury. He noted that three employees have been added to the "security section" since he's been appointed. He added, "And I think that we obviously would welcome oversights of our budgetary process." CHAIR WEYHRAUCH emphasized, "If I can increase the fines and penalty enforcement actions available to the State of Alaska and the state receives a positive revenue benefit from that, while absolutely punishing these people, I'm going to look for every possible way to do it." REPRESENTATIVE GRUENBERG said he echoes that. He said he thinks [HB 527] is a marvelous bill, and he would like the committee to consider what it can do to provide some "tough on crime protection," particularly for the Alaska consumers. He asked Mr. Davis if his division has authority over the Alaska Takeover Bid Disclosure Act. MR. DAVIS replied he doesn't know. Number 0667 VINCE USERA, Senior Securities Examiner, Division of Banking Securities & Corporations, Department of Community & Economic Development (DCED), in response to Representative Gruenberg's question, said, "We do." REPRESENTATIVE GRUENBERG offered his recollection that [Alaska's] Takeover Bid Disclosure Act is unconstitutional under a U.S. Supreme Court decision. He asked Mr. Usera if he is aware of that decision. MR. USERA answered yes and added that he agrees with that assessment. Number 0605 REPRESENTATIVE GRUENBERG said he would like to work with "these folks" and see if an amendment to the bill could be made to cure the constitutional problem with a new Alaska Takeover Bid Disclosure Act. MR. USERA responded that he would be pleased to work with Representative Gruenberg. Number 0566 FRED TRIEM, Attorney at Law, testifying on his own behalf, told the committee that his practice focuses almost exclusively on representing individual Alaska Natives who sue their Native corporation on account of mistreatment. He noted that he is involved in a case in Juneau today which involves an impairment of shareholder voting rights. MR. TRIEM stated he supports [HB 527], but with two qualifications. He stated his first concern that the proposed legislation is underinclusive and will leave behind a large number of Native people simply by virtue of the arbitrary cutoff of 250 shareholders. He suggested the committee expand the scope of the legislation and protect everybody. He opined that a corporation with 250 shareholders is no more deserving of having its shareholders protected than another corporation with 50-100. He revealed there are some outrageous things that happen in Alaskan Native corporations, for which there is no present protection. He offered an example involving the Tetlin Native Corporation, near Tok, where the land was conveyed from the Native village corporation to the local tribal council, reducing ownership from 125 to 60 people. MR. TRIEM explained that, "under the current scheme," individual shareholders are not really able to protect their interests, because, "under the doctrine of rationale shareholder apathy, a lot of shareholders - each owning a ... small fraction of the corporation in stock that cannot be alienated ... - have no way to pay for reinforcement action if it's brought privately." They cannot hire an attorney because their stock is worth so little and produces so little income that "a rationale shareholder would be apathetic." MR. TRIEM suggested that the only protection that "these people" can have is through the Division of Banking Securities & Corporations. He opined that it's arbitrary to cut off the corporations that have fewer than 250 shareholders. For the record, he noted that there are about 270 Alaska Native corporations. The number was approximately 310, but some of them have coalesced by mergers, either among those corporations or between village corporations and the regional corporations, of which there are 12 in Alaska. Number 0327 MR. TRIEM turned to his second suggestion for amending the proposed legislation, which he said focuses on the issue of penalties. He told the committee about a corporation that held an annual meeting, at which some shareholders brought a petition to recall the directors. He opined that it was a stroke of genius when the directors printed the ballot without any boxes on it; therefore, there was no way for the shareholders to vote yes or no on the recall. He said they almost got away with it, but some shareholders complained. The division found that the conduct was intentionally wrong and "fined them a couple thousand dollars." He first asked the committee to guess who paid the fine, then revealed that it was the shareholders that paid it. He explained that "they" got the corporate treasurer to write the check. He concluded that, by foiling the recall election, the directors managed to get the corporation to pay for their wrongdoing so they could stay in office. He revealed that that is the theme of the case in which he is presently involved. MR. TRIEM suggested that the legislation include a provision to allow the division to directly fine the wrongdoers. He asked the committee to consider the salaries made by the directors. He noted that the [U.S.] Census data shows that the average Alaska Native has a cash income of approximately $10,000-$11,000 a year. In comparison, he noted that the top three officers at Cook Inlet Region, Inc. have each averaged compensation in excess of $ 1 million, for the years 1999-2001. He posited that the directors have the money to pay for the crimes themselves if only the law would allow it. He indicated that there should be a "big limit." He added, "We don't want to ... stick with the little one that we've got now, because it has no teeth." Number 0120 CHAIR WEYHRAUCH emphasized that [HB 527] was not introduced to target Native corporations, shareholders, or officers and directors. He told Mr. Triem, "We want to have as much objective testimony as possible, as well as addressing the concerns that you've raised that sound serious." Number 0072 REPRESENTATIVE HOLM stated he is curious as to Mr. Triem's concept of unpaid members of boards of directors and their "ability to pay." He opined that those who do not get compensation - unpaid members of boards - certainly should not be fined at the same level as those [who] are enriching themselves. He asked for Mr. Triem's comments. TAPE 04-34, SIDE A Number 0001 MR. TRIEM said he doesn't think the division would impose heavy fines on unpaid volunteer directors. Conversely, he clarified that he is suggesting that when the directors do have the financial ability to pay fines, those fines should be in proportion to their personal wealth. He said the current Martha Stewart case is a widely publicized example of balancing financial penalties with wealth. Number 0069 REPRESENTATIVE BERKOWITZ said that corporate malfeasance seems to be a universal problem. He said he doesn't think any suggestion that it is particular to Native corporations was intended. He said he wants to raise an issue for the committee to address as it contemplates the bill, which is that the penalties, in some ways, when tied just to a straight fine or numerical amount, "don't get to the potential benefit of committing the crime." He suggested some kind of disgorgement of the profits or the benefits ought to be required as part of the criminal penalty. He added, "I don't know how it works in the federal system; I haven't looked around it." REPRESENTATIVE BERKOWITZ concurred with Mr. Triem's suggestion to hold officers individually liable for acts and allowing for someone to look at securities issues that are "ultra vires." He said, "If you want to deter wrongdoing, then you need to hold people accountable. It's unfortunate when people act outside of the scope of their responsibility and rely on the corporate structure to protect individual wrongdoing, and anything we can do to get at that, we ought to do." Number 0194 MR. TRIEM suggested the committee could amend the legislation in another way, which would be to allow the division to sanction directors for their misconduct, not just with a monetary fine, but also to remove them from office, or to prevent them from serving on the board. He added that the SEC has that regulation, and the superior court can do that, because there is a statute that allows it. However, he clarified that there is no administrative authority.
| Document Name | Date/Time | Subjects |
|---|