Legislature(2017 - 2018)BARNES 124

03/24/2017 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved HB 144 Out of Committee
-- Public Testimony --
Moved HB 86 Out of Committee
-- Public Testimony --
Heard & Held
        HB 170-AK SECURITIES ACT; PENALTIES; CRT. RULES                                                                     
3:51:51 PM                                                                                                                    
CHAIR KITO  announced that  the next order  of business  would be                                                               
HOUSE   BILL   NO.  170,   "An   Act   relating  to   securities,                                                               
registration,  exempt  securities, exempt  transactions,  broker-                                                               
dealers,   agents,   investment  advice,   investment   advisers,                                                               
investment adviser  representatives, federal  covered securities,                                                               
federal   covered   investment  advisers,   viatical   settlement                                                               
interests, small intrastate  security offerings, Canadian broker-                                                               
dealers, and Canadian agents;  relating to administrative, civil,                                                               
and  criminal enforcement  provisions, including  restitution and                                                               
civil penalties for violations;  relating to an investor training                                                               
fund; establishing  increased civil  penalties for  harming older                                                               
persons   and  vulnerable   adults;   relating  to   corporations                                                               
organized  under   the  Alaska  Native  Claims   Settlement  Act;                                                               
amending  Rules 4,  5,  54, 65,  and 90,  Alaska  Rules of  Civil                                                               
Procedure,  and Rule  602, Alaska  Rules of  Appellate Procedure;                                                               
and providing for an effective date."                                                                                           
3:52:33 PM                                                                                                                    
KEVIN  ANSELM,  Director,  Division   of  Banking  &  Securities,                                                               
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCCED),  presented  PowerPoint presentation  "Alaska  Securities                                                               
Act, HB  170" and reminded the  committee that she had  spoken to                                                               
the need  to update  the Alaska Securities  Act in  late January.                                                               
While a portion  of the presentation may be a  bit redundant, she                                                               
said  she does  not want  to confuse  anyone by  leaving out  any                                                               
3:53:08 PM                                                                                                                    
MS. ANSELM  turned to  slides 2-3,  and explained  the Securities                                                               
Act  provides  the  legal  framework  for  offering  and  selling                                                               
securities to  Alaskans, including the registration  of firms and                                                               
sales  persons,   registration  or  filing  of   securities,  and                                                               
enforcement.   Currently, the Securities  Act also  regulates the                                                               
Alaska  Native  Claims  Settlement Act  (ANCSA)  Corporation  and                                                               
shareholder proxy  related provisions.  Securities,  she offered,                                                               
is  the  largest  of  the division's  12  programs  and  includes                                                               
registering  and  monitoring  over 95,000  securities  registered                                                               
salespersons,  over 1,000  firms which  are mostly  out-of-state.                                                               
She referred to  HB 170, [Sec. 45.56.900(32), page  103, lines 9-                                                               
31,  and  page  104,  lines  1-8] and  noted  the  definition  of                                                               
security was not changed, it  includes a long list of investments                                                               
including  stocks, bonds,  limited  partnerships, investments  in                                                               
common enterprises, investment contracts, and viaticals.                                                                        
3:54:33 PM                                                                                                                    
MS. ANSELM  turned to slide  4, and  advised that HB  170 updates                                                               
the Alaska  Securities Act  by adopting many  of the  most recent                                                               
model  act   provisions  while   retaining  the   Alaska  centric                                                               
provisions.  The bill proposes  to lift the Alaska Securities Act                                                               
out of  the Native Claims  Settlement Act, the  ANCSA provisions,                                                               
which would  highlight the vast differences  between the programs                                                               
and allow ANCSA constituents a  clear view of the applicable law.                                                               
Also, she  explained, the bill's  new provisions are  included to                                                               
protect   older   and    vulnerable   Alaskans   from   financial                                                               
exploitation  and give  those investment  professionals who  make                                                               
those reports immunity from administrative and civil liability.                                                                 
MS. ANSELM pointed  out that currently, there is  no provision in                                                               
the law  regarding restitution, and  the civil penalty  is capped                                                               
at $25,000.   The  bill asks the  legislature to  designate civil                                                               
penalties funds toward consumer  protection and education because                                                               
currently  there is  no requirement  for continuing  education of                                                               
industry professionals,  and those provisions are  included in HB
3:56:02 PM                                                                                                                    
MS.  ANSELM  turned  to  slide   5,  and  reiterated  that  ANCSA                                                               
provisions  remain unchanged  under AS  45.55.   The new  statute                                                               
would be located  under AS 45.56, the references  to exempt ANCSA                                                               
securities transactions  are also included  in the new  Act under                                                               
AS 45.56.210, Sec. 27.                                                                                                          
MS. ANSELM turned to slide 6,  pointed to the top four highlights                                                               
in HB 170,  and advised as follows:  the  bill eliminates filings                                                               
for  all   Alaska-based  exemptions  from   registration,  except                                                               
crowdfunding; updates  entity and  law references;  includes "bad                                                               
actor"  disqualifiers  (coughing)  basically states  that  anyone                                                               
with certain types  of crimes such as dishonesty  or theft cannot                                                               
be licensed  as an Alaska  salesperson; and  improves enforcement                                                               
and investor protection and education provisions.                                                                               
3:57:27 PM                                                                                                                    
MS. ANSELM  turned to  slide 7, and  explained the  slide depicts                                                               
the general articles of the Alaska  Securities Act.  The first 14                                                               
pages  of the  bill would  change  the statute  number and  other                                                               
statutes  that  reference the  Securities  Act;  and Secs.  15-24                                                               
repeal and modify  statutes under AS 45.55 relating  to the ANCSA                                                               
Corporations and proxy solicitations.                                                                                           
MS.  ANSELM turned  to slides  8-10, and  reminded the  committee                                                               
that the  division does take  enforcement actions: in  FY2016, it                                                               
issued 36  final orders, and  17 of those orders  were securities                                                               
related.  She explained most  of the division's orders are posted                                                               
online, and the division is in  the process of making sure all of                                                               
its  orders are  posted  "back to  the beginning  of  time."   In                                                               
calendar year 2016,  the division issued 27 final  orders, and 13                                                               
of those orders were securities related.                                                                                        
MS. ANSELM  turned to slide  9, and  explained some of  the scams                                                               
and  subsequent orders.   Mr.  Michael  Scow took  money from  an                                                               
Alaskan for  his Arizona-based insurance  firm, wherein  an order                                                               
for $25,000  was issued  by the  division, and  Mr. Scow  has not                                                               
paid the  Alaskan or  the division.   She  advised that  when she                                                               
discussed the  Fortune Oil and  Gas scam during her  testimony in                                                               
January, at  that time the  division was awaiting a  court order.                                                               
She  reminded  the  committee  that people  from  Texas  came  to                                                               
Alaska,  sold  Alaskans  approximately   $3.1  million  worth  of                                                               
worthless  limited partnerships.   The  division issued  an order                                                               
for the maximum amount possible  of $25,000, the judge agreed and                                                               
issued  his order  in March  of 2016,  granting $25,000  in civil                                                               
penalty on losses of $3.1 million.   She commented, "We're out of                                                               
date."  The  SOS Disasterplan.com scam and the  Troy Stafford and                                                               
Patrick Williams scam were two  different sorts of scams, wherein                                                               
SOS  Disasterplan.com  had  a website  and  issued  approximately                                                               
$540,000 in  worthless securities, again, with  the maximum civil                                                               
penalty limit  being $25,000.   She related  that it is  the same                                                               
with Troy Stafford and Patrick  Williams, except their scam was a                                                               
bit  different  because they  were  in  Alaska and  sold  another                                                               
Alaskan a business opportunity with  an employment opportunity in                                                               
a  bogus Alaska  company.   Subsequent to  the division  speaking                                                               
with  the two  men,  the men  agreed to  rescind  and return  the                                                               
money, except they did not return  any money.  She explained that                                                               
there are  provisions in the new  HB 170 that would  resolve some                                                               
of those issues.                                                                                                                
4:00:57 PM                                                                                                                    
MS. ANSELM advised  that the Global Arena Capital Corp.  is a New                                                               
York firm that found Mr. Burk,  a retired halibut fisherman, on a                                                               
call list,  called him at  home, and sold  him junk bonds.   This                                                               
firm  had advised  Mr. Burk  that  he would  make 16-18  percent,                                                               
except he did not.  The division  was able to get his money back,                                                               
but the maximum penalty was $25,000, she said.                                                                                  
4:01:40 PM                                                                                                                    
MS. ANSELM presented  oral testimony from Mr. Burk  who had since                                                               
passed, and noted that, ultimately, the case was settled.                                                                       
[Mr.  Burk's oral  testimony 4:01:40  through 4:03:41.  See pages                                                               
13-15 of the PowerPoint presentation for written testimony.]                                                                    
4:03:41 PM                                                                                                                    
MS.  ANSELM advised  that the  division took  action against  six                                                               
individuals and was able to get  Mr. Burk's money back because it                                                               
found  a  salesperson with  a  conscience.   Stronger  tools  are                                                               
necessary  in order  to deal  with bad  actors and  this type  of                                                               
fraudulent  activity should  make  everyone in  the state  angry.                                                               
She then  described Mr. Burk as  angry and smart because  when he                                                               
received  another  call from  someone  trying  to sell  him  Bio-                                                               
Technology stock, he called the division,  and it was able to put                                                               
another firm in  a different state out of business  and take away                                                               
its license.   As far as fines, she reiterated,  that the maximum                                                               
fine was  $25,000, and the only  way to hurt the  firms that hurt                                                               
Alaskans is usually  in the pocketbook.  She stressed  that it is                                                               
the  division's hope  the legislature  help the  division through                                                               
enacting the new Alaska Securities Act, HB 170.                                                                                 
4:05:00 PM                                                                                                                    
REPRESENTATIVE  STUTES   asked  how  the  Alaska   Native  Claims                                                               
Settlement Act (ANCSA) Corporations feel about the separation.                                                                  
MS.  ANSELM responded  that the  corporations  have advised  they                                                               
have no objection to separating the statutes.                                                                                   
4:05:27 PM                                                                                                                    
REPRESENTATIVE KNOPP  referred to  the Troy Stafford  and Patrick                                                               
Williams scenario, and asked how it falls under securities.                                                                     
MS. ANSELM  answered that  the two men  were selling  the Alaskan                                                               
stock in  a company  and the gentleman  would become  part owner;                                                               
therefore,  it was  a common  enterprise.   She said  that for  a                                                               
while he was  not directly involved in that  enterprise, but part                                                               
of the fraud was that he would be a manager of the company.                                                                     
REPRESENTATIVE KNOPP referred to slide  4 and the last two bullet                                                               
points,  noting  concern  about   the  creation  of  an  investor                                                               
education fund,  and asked why it  is the role of  state agencies                                                               
to educate  the public in investments.   He referred to  the last                                                               
bullet point  requiring continuing  education, and  asked whether                                                               
it means the state is  not providing the continuing education for                                                               
investment  advisors.    He  further   asked  whether  there  are                                                               
investment  advisors  registered in  Alaska  who  do not  perform                                                               
continuing education.                                                                                                           
4:07:21 PM                                                                                                                    
MS.  ANSELM  responded  that  as  far as  education,  it  is  not                                                               
required  in  Alaska  currently,  and   there  are  a  number  of                                                               
representatives that do not  perform continuing education whether                                                               
they  are stock  brokers or  investment advisors.   The  division                                                               
would like  to be more synthesized  with the rest of  the nation,                                                               
and the division  would require the continuing  education and not                                                               
provide the continuing  education.  As to why  the division would                                                               
want to  have investor education,  she responded that it  is part                                                               
of the division's mission which read is to:                                                                                     
     Protect  consumers of  financial  services and  promote                                                                    
     safe and  sound financial  systems.  The  division also                                                                    
     supports  the   department's  mission,  which   is  to:                                                                    
     Promote a healthy  economy, support strong communities,                                                                    
     and protect consumers in Alaska.                                                                                           
MS. ANSELM  explained that the  division's mission is  to protect                                                               
consumers  of  financial services,  and  promote  safe and  sound                                                               
financial systems.   In supporting the  department's mission, the                                                               
department  is promoting  a  healthy  economy, supporting  strong                                                               
communities, and protecting consumers  in Alaska.  Therefore, she                                                               
said, when protecting consumers, they  must be given the tools to                                                               
protect  themselves, and  the Investor  Education Funds  would be                                                               
set up  so approximately one-third  of the civil  penalties could                                                               
be put into  another account which would  have consumer education                                                               
on  the  account.    However,  she noted,  it  would  be  at  the                                                               
legislature's behest whether  or not the funds would  be spent on                                                               
consumer education  because the legislature controls  the budget.                                                               
Currently, consumer  education is  performed in  partnership with                                                               
other   states  and   sometimes  federal   organizations.     The                                                               
Securities and  Exchange Commission came to  Alaska and performed                                                               
joint  outreach  events  with  the  division  for  the  military,                                                               
government  workers, and  the  public.   There  have been  joint-                                                               
"scam-jams"  with  the  Department of  Justice,  U.S.  Attorney's                                                               
Office, FBI, Better  Business Bureau, and others to  reach out to                                                               
the public  so it knows  what is going  on and can  be forewarned                                                               
and  forearmed.   She  said  that Alaska  was  able  to use  some                                                               
investor  protection funds  from the  Investor Protection  Trust,                                                               
which  came from  a settlement  with some  large stock  brokerage                                                               
firms in the 1990s.  Those  funds are almost depleted, and Alaska                                                               
used those  funds primarily  to partner with  AARP and  perform a                                                               
series  of  instructive  television  shows on  360  North.    The                                                               
instructive television  shows were on various  topics relating to                                                               
seniors and everyone  in the state in order to  understand how to                                                               
protect themselves  when working  with investments,  knowing what                                                               
they  needed  to know  about  social  security and  other  issues                                                               
affecting  their livelihood.   She  said the  division speaks  in                                                               
schools, speaks at  civic organizations, and will  do pretty much                                                               
anything when  it can  advise people about  how they  can protect                                                               
themselves and hold onto their hard-earned money.                                                                               
REPRESENTATIVE KNOPP acknowledged  that Alaska's aging population                                                               
are targets, and as the economy tightens up people get creative.                                                                
4:11:31 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  asked whether there  was a draft  of HB
170, or  some type  of reform in  the [Twenty-Ninth  Alaska State                                                               
MS. ANSELM  responded that within the  [Twenty-Ninth Alaska State                                                               
Legislature] House Bill  194 and Senate Bill 108  were similar to                                                               
HB  170,  there  were  a   couple  of  additions,  including  the                                                               
vulnerable    adult    provisions   for    reporting    financial                                                               
4:12:15 PM                                                                                                                    
REPRESENTATIVE  WOOL  noted  his   surprise  that  the  education                                                               
programs  are  performed through  the  Department  of Health  and                                                               
Social  Services   (DHSS)  and   asked  Ms.  Anselm   to  explain                                                               
navigating  through  the  healthcare  system,  but  also  through                                                               
securities fraud.   He  asked whether the  same people  offer the                                                               
training on health issues and securities fraud.                                                                                 
MS.  ANSELM  explained that  the  new  provision, protection  for                                                               
vulnerable and older Alaskans, read  that if there is a suspicion                                                               
of financial exploitation, a report  is required to be filed with                                                               
the division or  Adult Protective Services.  She  deferred to the                                                               
Division of Senior and Disabilities Services.                                                                                   
4:14:20 PM                                                                                                                    
DEB  ETHERIDGE,  Deputy  Director, Central  Office,  Division  of                                                               
Senior  and  Disabilities  Services, Department  of  Health,  and                                                               
Social  Services  (DHSS),  opined that  Representative  Wool  was                                                               
asking  how  the  system responds  to  allegations  of  financial                                                               
exploitation currently.                                                                                                         
REPRESENTATIVE WOOL  said she was  correct within  the discussion                                                               
of investor education and prevention of fraud.                                                                                  
4:15:23 PM                                                                                                                    
MS.  ETHERIDGE   answered  that   the  Division  of   Senior  and                                                               
Disability Services  oversees the adult protection  unit, and the                                                               
authority and  requirement in adult protection  is to investigate                                                               
all allegations  of financial exploitation.   She explained there                                                               
are  civil investigations,  partnering  with  law enforcement  if                                                               
there is  a crime,  but the adult  protection unit  also receives                                                               
reports of  financial exploitation from a  mandatory reporters or                                                               
citizens, family members, or neighbors.   In the event the person                                                               
is  deemed  a  vulnerable  adult,  through  that  reporting,  the                                                               
division  performs investigations  and makes  findings, and  also                                                               
performs  protective services.   Oftentimes,  she said,  when the                                                               
division receives these reports the  money has already been spent                                                               
and  the  division is  actually  cleaning  up,  and "this  is  an                                                               
opportunity to receive the reports prior to."                                                                                   
CHAIR KITO opened public testimony on HB 170.                                                                                   
[HB 170 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB170 DCCED Presentation 3.23.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB170 Fiscal Note DHSS-SDSA 3.17.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB170 Fiscal Note DCCED-DBS 3.13.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB170 Repealers List 3.21.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB170 Sectional Analysis 3.21.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB170 Sponsor Statement 3.21.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB086 ACPE Response HLAC 3.23.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 86
HB141 DOLWD Response HLAC 3.10.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 141
HB170 DCCED Whitepaper 3.20.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170
HB170 DCCED Presentation 3.23.17.pdf HL&C 3/24/2017 3:15:00 PM
HB 170