01/28/1998 02:00 PM Senate JUD

            SB 201 - PROHIBIT RECOVERY BY WRONGDOER                            
                                                                               
                                                                               
CHAIRMAN TAYLOR said one of his main concerns was that in a hearing            
held in Anchorage regarding the largest fraud case in Alaska, he               
could not tell people why not a single charge was filed. He said               
that until an explanation was provided by the attorney general, he             
thought these people deserved an apology.                                      
                                                                               
DEAN GUANELI said he was prepared to give a response if the                    
committee so desired and CHAIRMAN TAYLOR replied that it seemed                
relevant to him.                                                               
                                                                               
DEAN GUANELI gave a bit of background, saying in the mid 1980's                
there was an audit done of the finances of the North Slope Borough             
which revealed widespread fraud and corruption involving public                
officials. As a result of the initial investigation, it was decided            
that the scope of the case and the fact that federal officials were            
already investigating necessitated that the case be turned over to             
the federal prosecutors. The federal prosecutor successfully                   
prosecuted the case and jail sentences were imposed. DEAN GUANELI              
said in reference to this particular case involving a travel agency            
revealed to be a classic "ponzi scheme," there is already a federal            
investigation going on. The perpetrator's attorney has left the                
country but the case is ongoing. The case involves 1,100 victims in            
several states from all over the country and DEAN GUANELI said                 
there are both legal and practical reasons why the state is not                
pursuing charges. MR. GUANELI said by the time state prosecutors               
were advised of the scam, there was already a federal bankruptcy               
and an IRS investigation going on and it was clear the case would              
be taken over by the feds. He said he personally sat down with the             
U.S. Attorney and it was obvious  they would take over since they              
clearly had better laws and sentencing provisions. He said if there            
are any assets left anywhere the federal authorities are in a                  
better position to collect them and provide restitution to the                 
victims, as they have more money and more investigative resources.             
DEAN GUANELI said one legal reason why the state would not                     
investigate is the fact that parallel investigations are not a good            
idea. The IRS had many of the documents and does not share                     
information with state investigators. Also, with parallel                      
investigations going on, each runs the risk of ruining the case for            
the other if they are not aware and informed of one another.                   
                                                                               
Number 511                                                                     
                                                                               
DEAN GUANELI said the other legal issue under consideration was the            
fact that the federal authorities had already granted immunity to              
one of the participants in the case, which, under a court ruling at            
that time, also translated into blanket state immunity. He                     
explained "use immunity," means immunity for the use of a person's             
testimony, vs. "transactional immunity" which means complete                   
immunity from prosecution. The federal authorities use the former              
type, whereas the State of Alaska uses the latter. He explained                
that they were in a position of going forward with the                         
investigation blindfolded and said it was not appropriate. Not                 
until after this decision had been overturned by the Court of                  
Appeals would the state have been able to prosecute that person at             
all. The later ruling of the Court of Appeals determined that                  
federal immunity only granted comparable immunity in state court,              
but that was not the case at the time.                                         
                                                                               
MR. GUANELI continued with the risks faced in proceeding with state            
prosecution. He said the different rules of state and federal                  
discovery allow for complete discovery in a state case and only                
partial discovery in a federal case. This would mandate the state              
turn over all its information to the defendant but a federal                   
prosecutor would only have to turn over some information. He gave              
the opinion that this would have permitted the state to convict                
only on a class B felony. He said these were part of the whole host            
of legal and practical reasons why it was inappropriate for the                
state to be involved. He said the one the papers picked up on was              
that there were several individuals at the Department of Law who               
had been involved as investors. He stated this created a perception            
of impropriety, even if the department had appointed a special                 
prosecutor. So, because of these problems and at the request of the            
U.S. attorney, the department did not get involved and instead                 
there is a federal indictment and the trial is scheduled for the               
summer. He said he believes these to be sound legal and practical              
reasons  and if they were not adequately communicated he is sorry.             
                                                                               
SENATOR PEARCE asked if any of the Department of Law employees are             
under indictment.                                                              
                                                                               
MR. GUANELI replied no.                                                        
                                                                               
CHAIRMAN TAYLOR assured DEAN GUANELI he was sure there were reasons            
for why it happened this way and said the headlines were                       
unfortunate. He also said he thinks there is a feeling of betrayal             
on the part of the victims and remarked that one of the biggest                
beneficiaries of this scheme was one of our state's employees. He              
believed this raises serious questions and creates poor public                 
perception. No state prosecution has been brought on any charge                
when citizens of the state brought bad checks and showed them  to              
the troopers. He knew the State of Idaho had prosecuted this woman             
since she was on probation when she came to Alaska. He wondered if             
our state talked to the State of Idaho. He thought computers kept              
track of all kinds of things and wondered why they could not be                
used to protect Alaskans. He hoped things did happen the way DEAN              
GUANELI said and added he would be having additional hearings on               
this matter.                                                                   
                                                                               
CHAIRMAN TAYLOR said it was his understanding that the IRS has not             
prosecuted this woman and it has been suggested that they held off             
in order to receive more taxes and is actually prosecuting the                 
victims right now on their tax returns. He reminded those present              
that  some of these people came out well ahead and some were state             
employees. He believed this justified a stronger, swifter response.            
He expressed concern about the lengthy time period elapsed from the            
first mention of the issue and about the letters written by state              
employees who were in fact winners in the scheme.                              
DEAN GUANELI agreed that regarding public perception the ball was              
dropped and his office could have done a better job providing all              
the reasons.                                                                   
                                                                               
CHAIRMAN TAYLOR said as a judiciary committee they had to                      
investigate these subjects but feared this might further enhance               
the state's liability. He said that liability may be of some                   
magnitude. He appreciated MR. GUANELI'S response and said he truly             
believed in the right of non-prosequitur. He also believed he was              
the only person who wanted to retain the right of an individual to             
bring a criminal charge of prosecution when the state failed to do             
so. That law was eliminated eleven or twelve years ago when people             
were using it as a tool of harassment. He still believes there                 
should be an avenue for victims to be heard in the absence of                  
prosecution and maybe this bill will do that.                                  
                                                                               
SENATOR MILLER moved CSSB 219(JUD) out of committee with individual            
recommendations and CHAIRMAN TAYLOR told committee members the                 
final CS would be brought to them before signing the committee                 
report. There were no objections and the bill moved from committee.