Legislature(2003 - 2004)
04/01/2004 08:02 AM House STA
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* 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 0450 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." CHAIR WEYHRAUCH informed the committee that he had invited Warren Buffet, Berkshire Hathaway, Inc., to testify and Mr. Buffet's office responded with issues related to the bill. He indicated that the issues that were brought forth were those relating to the tension between corporate governments, the desire to maintain a flourishing capitalist system in [the United States], and the role of state government in the oversight of corporations. CHAIR WEYHRAUCH expressed the need to ensure that Alaska maintains a healthy oversight through its public policies enacted by the legislature and a system of laws that invite participation by the private sector into the state. Conversely, he expressed the need to ensure that those corporations doing business in Alaska do so in an honest and ethical way that profits both the corporation and the people of Alaska. He also indicated the need to ensure that the State of Alaska has the appropriate tools to enforce the public policies it enacts and exact some sort of retribution to cover the cost of state government's action in enforcing its laws while ensuring that those harmed by improper corporate actions are fully compensated. CHAIR WEYHRAUCH mentioned communicating through the office of New York's attorney general, Elliot Spitzer. He noted that Mr. Spitzer is known for his aggressive activities in enforcing state policies against mutual funds and other corporations that have charged exorbitant or hidden fees, for example, and for attempting to recover those [fees]. He opined that some of the actions of that attorney general's office have been admirable. Chair Weyhrauch noted that the first person to testify was associated with the New York attorney general's office. Number 0689 GARY R. CONNER, 1st Deputy Bureau Chief, Investment Protection Bureau, Office of New York State Attorney General (AG) Elliot Spitzer, indicated he would explain the New York statutory scheme and describe some of the approaches and corporate responses. He revealed that he is not familiar with Alaska statutes and would only be addressing the New York system, which he characterized as "somewhat different than most all states." MR. CONNER stated that New York has never adopted the "Uniform Security Tax"; therefore, it does not hold administrative hearings or issue orders. He noted that the State of New York's securities laws were enacted in 1921, well before the federal statutes. He said, "We issue the issuers of securities, not the securities themselves." He offered examples. Mr. Conner explained that the statute is largely an anti-fraud statute, designed to prevent fraud in the offer of securities and commodities. New York's definition of fraud is: "Any act tending to deceive or mislead the purchasing public." The Act, which is to be construed liberally, is designed to protect the inexperienced investor. MR. CONNER said, "One of the advantages we have in New York is that, in any civil action we may bring - or misdemeanor prosecution, we do not have to show intent, ... proof of a sale, [or] ... damages. It's a per se liability statute, meaning a violation - whether knowing or not - can get you in jeopardy in terms of a civil action." Mr. Conner noted that the statute also provides that any violation may result in either a criminal or civil penalty. He explained the distinction between the two. He said that the main tool [the New York AG's office] uses is its ability to issue subpoenas and request information prior to bringing any action. The penalty for refusing to respond, testify, or show up is a misdemeanor. MR. CONNER said that the investigations can be conducted based on any source of information, as well as based on any allegation of fraud or merely because it's in the public interest. He noted that the basic investigations [the AG's office] conducts are kept confidential. He explained, "Although we are investigating something, we do not know at the beginning whether or not there actually is wrongdoing, so we believe that those we are looking at need protection there." He offered examples. At the end of the investigation, he said, a choice can be made in how to proceed: "One way is civil, one way is criminal, or we can do both." MR. CONNER noted that one of the tools [the AG's office] has is to obtain ex parte orders from the court, prior to commencing an action. Those orders direct the witnesses to appear and to produce documents. He added, "And we can also get ex parte injunctive relief, based upon a standard of what is proper and expedient." He clarified that it's not the normal preliminary injunction standard, but is a much lower standard. The ex parte orders result in public testimony; the public can attend and hear whatever is being said by the witnesses. Because it is an investigation, there is not cross-examination. MR. CONNER said that if the decision is made to bring a civil action, the remedy in that civil action is a permanent injunction from the securities business. He said, "The statute is all or nothing; a judge has no discretion." He offered an example. He continued, "In those actions we can also get restitution, we can get damages, and we can have receivers appointed, as well as other types of creative injunctive relief." Mr. Conner noted that the criminal provisions prohibit fraud, deception, and concealment, among other things. He offered examples. He said, "If we have any criminal violation that we are proceeding on, we can also use the state's penal laws ...." MR. CONNER stated that, besides the main securities laws, New York has other statutes. For example, under the state's business corporation law, directors can be removed from offices in corporations. There is also a broad statute under the executive law, in which any fraud or illegality in the course of business is actionable. Number 1098 MR. CONNER stated that he would next offer a brief overview of analyst and IPO [initial public offering] investigations, as well as talk about the mutual fund investigation. He noted that 30 years ago, [the New York AG's office] began an investigation of Merrill Lynch, based upon newspaper articles indicating that research reports by analysts for the various companies were not really accurate. He noted that it was a difficult subject to address, because it's a complex financial analysis that the analysts go through. He offered two cases, both of which were covered by a man named Henry Blodgett (ph) at Merrill Lynch. In the first case, the stock was propped up with high ratings while the stock prices plummeted, and the ratings were kept high until a merger and acquisition deal was consummated. In another instance, the ratings for the stock were downgraded on the day it was publicly announced that Merrill Lynch would not be the banker for the deal. Mr. Conner related that through investigation, e-mails "revealed a corporate culture where the analysts and many other people at Merrill Lynch were very much aware that the ratings were not accurate." He offered further details regarding the e-mails. He stated that the heart of the case was that the public was told one thing about what the ratings meant, while Merrill Lynch knew that information was inaccurate. MR. CONNER said that the AG could have brought a criminal prosecution. However, the AG was clear that he did not want to bring Merrill Lynch down. He clarified that what the AG was trying to achieve was not so much punishment as trying to get the system to work - to be honest. The solution was to ultimately get Merrill Lynch to agree to certain reforms. He said, "The company itself seemed to be dumbfounded about what we were talking about. And one of the ways the AG got their attention was by bringing one of these X party orders, in which the e-mails and other documents were attached to the court papers, and then the public became aware of what was really going on." Mr. Conner offered details regarding some of the reforms that resulted. MR. CONNER said the settlement, which was $100 million, resulted in New York giving half of the money to the North American Securities Administrators Association. That association, he noted, represents the 50 states, as well as Canada and Mexico. He said, "From that moment on, we started working with all the states, and we commenced a much larger analyst investigation, which eventually led to the $1.4 billion Wall Street reform, with 10 of the biggest investment banking institutions in the country." He described the effort on the Wall Street investigations and settlements as "a broad investor regulatory system looking at an industry." He noted it was discovered that "the companies themselves were very jealous about being at a disadvantage from their competitors, and fairly early on they took the position they would go for the reforms, but they wanted other banking institutions involved." Mr. Conner noted that that ultimately happened. Number 1395 MR. CONNER stated that part of the analyst investigations involved looking at the issue of IPOs. Regarding the inaccurate ratings system, it was found that the executives that were being covered with the ratings were given advantageous IPOs, more or less as favors for turning over banking business to the investment banking house. He said, "We then commenced an action in which we thought to get the return of the monies that the executives received from their IPO allocations. We felt that those monies belonged to the corporations - that these were not the individuals who should benefit. And ultimately the shareholders were to benefit." He noted that part of the settlement was funding law school arbitration clinics to help the investors. Number 1450 MR. CONNER noted that the current issue on the table is the mutual fund investigation. He said it was found that many companies were disclosing in their prospectuses that investors could only make trades at a certain rate, and they could not time their trades after the market closed, "or otherwise to go in and out of the market and get an advantage over the long-term investors, which is what the mutual fund industry was designed for." He also noted that late trading - trading done after 4 p.m. - is prohibited by the federal U.S. Securities and Exchange Commission (SEC). MR. CONNER gave some examples of cases and reiterated that the AG's policy was not to bring down the companies, but rather to clean up the issues, make the public aware, and to [hold the company to what it said]. He noted that the settlements in the mutual fund cases have also brought other types of remedies. For example, in one case, eight directors of the board are agreeing to resign because of their conduct. He stated that [the AG] has also addressed the fees that are being charged and, in many of the settlements, the fees are being reduced over a five-year period. He said the fee issue comes from the fact that the average investor doesn't really know what the fee is for a mutual fund. By not knowing, investors cannot fairly make a choice between different funds, as to where to invest the money. He stated that the issue really comes down to disclosure. If the investor was not told what was going on then that was wrongdoing. Number 1559 MR. CONNER said there is an alleged perception that the federal government and the states are at odds over some of the investigations. That simply is not true, he stated. Except for the first mutual fund investigation, he noted, [the New York AG's office] has worked with the SEC and other states. The same is true regarding the analyst investigations. He clarified as follows: The issues sometimes come down to the fact that we have criminal jurisdiction in New York, which the SEC does not have. And when you have criminal jurisdiction, there are various safeguards that play to the investigation. Certainly, when one is in the grand jury, we cannot talk about that. And some of our cases, it looks like we spring them, but really there are certain prohibitions on us. MR. CONNER said that the overall policy the AG has adopted is to have honesty in the business place. He remarked that no one is against businesses or against making profits. Number 1628 CHAIR WEYHRAUCH told Mr. Conner that the State of Alaska manages a $28 billion fund and is charged with following prudent investor rules and returning investment on that fund to help fund government, provide dividends to the people, and preserve the fund for future generations. He asked if Mr. Conner's office handles merger and acquisition issues. MR. CONNER answered no, but said the office might get involved from an anti-trust viewpoint, as opposed to a securities issue. In response to further questions from Chair Weyhrauch, he clarified that the Act he had previously mentioned was the "Martin Act", which was effective in 1921. He said it did not come about necessarily because of Wall Street, but just because of general investments. He mentioned "boiler rooms" and "fly- by-night" deals that occurred in the early 1920s, which prompted the legislature to consider different bills. In response to another question from Chair Weyhrauch, he said [the New York AG] doesn't give out notice to all the states' AGs, but rather it gives a heads up to the North American Securities Administrative Association. He gave examples, including trading off cases with other states and working with other states. An exception is criminal cases, he said. Number 1801 CHAIR WEYHRAUCH noted that Alaska is far removed from New York, both in time zone and distance. He asked Mr. Conner, "What are the ... practical impediments or benefits to ... a state like [Alaska's] adopting such a pervasive, aggressive securities investigation scheme ... such as New York has?" MR. CONNER opined that the advantage that New York has is in having the criminal jurisdiction. Criminal jurisdiction is a powerful tool because someone coming in to give testimony or produce documents never knows what [the New York AG's office] is going to do. He said, "Our policy is not to make a determination on, ultimately, how we're going to proceed until towards the end of an investigation, when we have a handle on the facts." He added that he thinks it's that criminal threat and the X party order that acts as a deterrent and certainly "moves us to settlement quicker than we might normally move." Number 1858 REPRESENTATIVE GRUENBERG indicated that [the Alaska AG's] staff is small compared to that of New York's. MR. CONNER interjected that "most people don't know that we only have about 12 lawyers working on these big Wall Street cases." In response to a question from Representative Gruenberg regarding the legislature's role in the current investigations, Mr. Conner said that although the New York State Legislature has not really been involved, it submits different bills that attempt to improve it's statutory scheme. He offered his understanding that the other elected official in New York who has been very active is the state comptroller. He explained that the state comptroller's office, which is governs the state pensions funds, has been active in [encouraging] other states to develop principles that companies must follow if they wish to have the state investments. The aforementioned is a different way of approaching the problem, he commented. In response to Representative Gruenberg, he explained that the comptroller's office does this by informal policy rather than by regulation. Some of the comptrollers have put out a statement of principles, which are guidelines for investing the state's money. Number 1975 REPRESENTATIVE GRUENBERG noted that Alaska does not have a comptroller, but has independent pension boards and a board of trustees for the Alaska permanent fund. The guidelines for those boards are statutorily general. However, Mr. Conner is discussing detailed guidelines, he opined. MR. CONNER clarified that they are not that detailed because the comptroller decides where the investments go and he/she has the authority to set conditions regarding where to put the money. He offered his understanding that "the principles ... are only a few pages long, but they do make certain requirements of companies." He added, "Now, whether or not they're more detailed guidelines and positions in other documents that have not been made public - that I don't know." REPRESENTATIVE GRUENBERG asked what Alaska can do to participate. MR. CONNER answered that one of the things that helps is when certain companies are located in the state. In that case, often the state securities administrators are more knowledgeable about those companies and their activity. Still, because a lot of trading goes through New York, he said, "we generally have jurisdiction, somehow." He suggested, "I think one thing that could be done is for other states to contact us to see what assistance we can provide and help with, and just generally get whatever knowledge we have about the industries." REPRESENTATIVE GRUENBERG said, "We are developing, with a small group of other states ..., a group that's very competitive state to state in trust administration, and we are constantly revising our trust laws to be more competitive." He added that "this group" includes bankers and estate planning lawyers and it can move fairly quickly; however, he offered his understanding that there is not any oversight of the group at the state level. He asked Mr. Conner if he has had any indication of "anything going on there." MR. CONNER responded that he is not really aware of that whole area, in terms of trust administration. He stated that how New York really works is through the North American Securities Administrative Association. Number 2136 REPRESENTATIVE COGHILL referred to Mr. Conner's previous remark about holding criminal penalty over an investigation. He stated that one of the things "we are always looking for here" is how to keep government from being intimidating, while still being able to produce good results. He asked Mr. Conner to give some idea of the accountability structure "there." MR. CONNER answered that, in terms of the accountability within [the New York AG's office], decisions regarding whether to bring a criminal case or not are made at the very highest levels. He said there are many levels of supervisory review. He said, "The accountability at the end of the day - it's the attorney general to the public. And he has that trust of the public, and if he misuses that trust, then the public has a way of dealing with that during the next election." MR. CONNER, in response to a request by Representative Coghill to explain the process by which the New York attorney general is selected, stated that the AG is a public official who runs for office at the same time as the governor, lieutenant governor, and comptroller. Each political party puts up its candidate, and it's a statewide election separate from the presidential election or the election for the mayor of New York. In further response to Representative Coghill, he confirmed that has been true since the beginning of New York's securities law. CHAIR WEYHRAUCH noted that the House State Affairs Standing Committee is made up of representatives from all across the state, with a wide variety of viewpoints. He welcomed Mr. Conner and his staff to come to Alaska some time. Number 2237 REPRESENTATIVE SEATON asked Mr. Conner if it is his opinion that if [New York] had adopted the Uniform Securities Act, it wouldn't have been able to proceed in "any of these investigations." MR. CONNER answered that New York's Martin Act gives "us" more power than the Uniform Securities Act, but he added that he couldn't say whether the Uniform Securities Act would have "absolutely precluded us from doing what we're doing." REPRESENTATIVE SEATON noted that Mr. Conner had said that a person who's guilty under "the civil portion" is simply barred from further security action, instead of having a "variable time." He asked Mr. Conner, "Do you think that that's been important so that it's all or nothing?" MR. CONNER replied as follows: I think that is important, because whenever one goes into the judicial system, quite honestly, every lawyer thinks they have the greatest case in the world, and someone's not going to come out happy. So, you're always taking a chance; even though you may evaluate your case one way, the courts can view it a different way. So, I think the fact that if you pushed this before a judge, the possibility that you're going to get permanently barred from the industry, and all the implications that has, is a great deterrent. Of course, what I didn't explain now, and what I will now, is that we, as an agency and institution, ... can consent on our own to a less than permanent bar, but if it's put to a judge, that judge is all or nothing. Number 2329 REPRESENTATIVE HOLM recalled Mr. Conner's previous comment that due process rights do not kick in during an investigative process. MR. CONNER noted that, under a U.S. Supreme Court decision, an investigation is viewed differently than an adjudicatory proceeding. When something is being adjudicated and a determination is being made based upon the facts present, the witnesses have rights to lawyers, there is a regular cross- examination, and transcripts are provided. However, in an investigation, those particular rights don't apply. He said: In New York ... we generally take the position an attorney may be present during testimony for the purpose of advising a witness as to his or her rights and privileges, but it's not a participatory type of session; it's really an investigation for us to try and determine what the facts are through the means that we think are best available. So, that is a distinction. REPRESENTATIVE HOLM asked if Mr. Conner is maintaining that the Fifth Amendment rights don't apply during an investigative process. MR. CONNER specified that the Fifth Amendment rights apply during the investigative process, it's just some of the other traditional things - such as [formal hearings in which there's cross] examination and a determination made by the agency - that don't apply in an investigation. TAPE 04-52, SIDE B Number 2375 MR. CONNER said, "If we, at the end of an investigation, believe there's wrong doing, we can't, on our own, do anything; we have to go to the court system. That's where the due process rights fully kick in, and the courts will protect both parties in that situation." Number 2344 REPRESENTATIVE GRUENBERG, with respect to the provision that does not give the judge the authority to issue less than a permanent injunction, asked if that has ever been challenged on a separation of powers basis. MR. CONNER answered that he is not aware of that. He clarified, "The New York Court of Appeals, which is the highest court, has interpreted the statute in New York as being that way - that it's an all or nothing statute - but I don't believe it's been challenged on a separation of powers situation." Number 2311 REPRESENTATIVE LYNN asked if a person can be forced to talk during an investigative case; he asked what would happen if that person said he/she didn't want to talk. MR. CONNER replied as follows: If a person doesn't want to talk to us, we usually have issued a subpoena already, and our options are two: One is to go into the civil part of the state supreme court, which is New York's trial court, and seek a court order directing the witness to appear and to testify. Obviously, during the testimony they can take the Fifth Amendment. The other route we have is we can go in through the criminal system in state supreme court and seek a misdemeanor determination, and, obviously, with a misdemeanor there are certain penalties that the judge can impose on the witness, whether it's incarceration, fines, or whatever. And then, under both systems, we do have the powers of contempt that the court can use. So, that's how the approach would go if a witness did not want to testify. REPRESENTATIVE GRUENBERG asked if committees in the state legislature in New York "do any investigatory stuff like they do in Congress," such as issue subpoenas, or put people under oath. MR. CONNER prefaced his answer by stating that he is not the expert in that [issue]. Notwithstanding that, he proffered that there is some investigatory work that [the legislature] does. He said it certainly holds hearings and questions witnesses. Number 2200 REPRESENTATIVE HOLM moved to adopt the committee substitute (CS) for HB 527, Version 23-LS1792\H, Bannister, 3/30/04, as a work draft. There being no objection, Version H was before the committee. Number 2188 CHAIR WEYHRAUCH moved [to adopt] Conceptual Amendment 1, which read as follows [original punctuation provided]: The division is exempt from AS 37.10,050(a). Fees collected by the division shall be accounted for in a sub account used to implement the programs and activities of the division and to maintain an aggressive program of investigation, prosecution, and all other actions necessary to prevent harm to persons by violations of AS 45.55 and to seek recovery of damages, costs, and fees for those harmed by a violator, and to cover the costs of the division of its programs, investigations, and proceedings. CHAIR WEYHRAUCH turned attention to Version H. He pointed out the changes made in Version H, including changing the number from 500 to 250 as well as the changes in [Section 3] regarding the penalties for single and multiple violations. Number 2140 VINCE USERA, Senior Securities Examiner, Division of Banking, Securities & Corporations, Department of Community & Economic Development (DCED), noted that most of the fines [the division] levies are in the smaller range and are meant to be corrective. He related scenarios in which the [division] has had to find people [who have moved] out of state and obtain a judgment. The aforementioned takes a lot of effort and if [the division] were to do that with every perpetrator, $1 million would be difficult to collect. "But it would be nice to be able to assess a penalty where that is reasonable and warranted," he added. CHAIR WEYHRAUCH noted that changes were also made regarding the penalties in Section 4 of Version H. Section 5, he noted, would provide the ability to collect restitution, plus attorneys' fees and cost. He clarified that if the division has to employ attorneys' fees or use its own attorney general, those fees and costs should not be borne by the general public "through its treasury," but should be borne by the wrongdoers. MR. USERA said that's correct. He noted that one change was made where restitution must be doubled [page 3, line 12]. However, that may be difficult to negotiate at times. Number 2014 CHAIR WEYHRAUCH turned to Sections 6 and 7. He noted the last sentence in Section 6, [subsection (f), on page 3, beginning on line 11] which read as follows: The amount of the restitution paid to the harmed person must be two times the amount of loss caused to the person by the violator. MR. USERA stated his preference would be to change the word "must" to "may". He explained, "There are some people who, through benign neglect, do wrong. We can get them to pay back, but they don't warrant being punished. And this would put us in a difficult situation there." CHAIR WEYHRAUCH noted that [subsection (g)] in Section 6 would also transfer the burden from the public to the perpetrator. MR. USERA responded that he thinks the concept is fine, though he added that he's not quite certain how that would work in terms of the actual logistics. He explained, "Something's got to go some place; it can't just come back into our coffers." Number 1923 CHAIR WEYHRAUCH returned to Conceptual Amendment 1. He explained that it would exempt the division from AS 37.10.050(a), [a statute] which limits the fees that may be collected. MR. USERA said [AS 37.10.050(a)] was enacted in 1990 and "sort of laid dormant for a long time," until somebody recently rediscovered it. The statute says that fees cannot be collected over the actual cost of doing business. He reflected as follows: Quite honestly, that really limits us. We don't use all the fees that we receive, but it costs us about $2.5 million to do our business, and we bring in somewhere in the range of $10-$12 million. So, there's a generous contribution to a general fund there that would be taken away from us if this statute were to be adhered to. And I think an exemption is warranted in this case, and especially if you're going to give us back some of our fines so that we can do the job that we're empowered to do. CHAIR WEYHRAUCH said that was the point. He turned to the previous comments of Mr. Conner, regarding "$15 million settlements, the North American Securities, and efforts on Wall Street, and money coming back - distributed to the state." He asked Mr. Usera what Alaska's share of that has been. MR. USERA answered that Alaska's total share of the global settlement was about $4.6 million. In response to a follow-up question from Chair Weyhrauch, he confirmed that was receipts to the general fund. Number 1835 REPRESENTATIVE GRUENBERG mentioned the Takeover Bid Disclosure Act. He told Mr. Usera that he wants to update that Act, and he asked for Mr. Usera's assistance in doing so. He offered a brief history of the Act. Number 1776 MR. USERA, in response to a question from Representative Gruenberg, stated that in order to fix the Act it would have to be gutted. He said there wouldn't be much harm in repealing it. He noted that [the Act] "came in" in 1976 and has never been invoked, so "it doesn't seem to be of any utility." He noted that Alaska is not a hotbed of merger activity. He noted there is the federal Williams Act, which requires certain disclosures. He added, "And that's where ... our Act runs afoul of the Williams Act and also runs afoul of the commerce clause." Number 1740 CHAIR WEYHRAUCH asked the committee to return focus to HB 527. Number 1729 CHAIR WEYHRAUCH asked if there was any objection to Conceptual Amendment 1. There being no objection, [Conceptual] Amendment 1 was adopted. Number 1719 REPRESENTATIVE GRUENBERG suggested that Mr. Usera's previous recommendation to change the word "must" to "may" be considered by the committee. Number 1690 CHAIR WEYHRAUCH [moved to adopt Amendment 2 to Version H], as follows: On page 3, line 12 Between "person" and "be" Delete "must" Insert "may" CHAIR WEYHRAUCH asked if there was any objection to [Amendment 2]. There being no objection, Amendment 2 was adopted. Number 1679 REPRESENTATIVE GRUENBERG turned to page 3, line 1, and suggested [Amendment 3], to change the word "or" to "and". In response to a comment by Mr. Usera, he noted that the [petition by the administrator] is discretionary, thus using the word "and" would allow either option. Number 1637 CHAIR WEYHRAUCH asked if there was any objection to [Amendment 3]. There being none, [Amendment 3] was adopted. Number 1628 REPRESENTATIVE GRUENBERG turned attention to subsection (g), regarding "actual reasonable attorney fees and actual reasonable costs". He said he thinks the court should have discretion, because, for example, there may be a case where it's appropriate to award less. He suggested [Amendment 4], to change the word "shall" to "may". CHAIR WEYHRAUCH asked if there was any objection to [Amendment 4]. There being none, [Amendment 4] was adopted. Number 1594 CHAIR WEYHRAUCH, in response to a comment by Representative Gruenberg, said he added the provision in Section 7. He reiterated that Section 7 is intended to "get all those wrongdoers, no matter where they are, if they're doing business in this state." REPRESENTATIVE GRUENBERG said, "It expands the concept of nexus." Number 1546 WALTER JOHNS shared his Native Alaskan name with the committee and revealed that he is a shareholder of the Sealaska Corporation and Goldbelt, Inc, and he lives in Colorado. He stated that he has been involved with corporations since they first started. He admitted he has not had time yet to analyze the proposed legislation, but he said he always gets concerned when the state gets involved with Native companies. He noted that he has been involved with five elections, "against Sealaska Corporation on ... three of them." He noted that he has also worked for the Sealaska Corporation and "during the time I worked for them we won the election process." He stated, "I am currently serving on a board for one of our corporations through the election process." MR. JOHNS stated his concern that the changes [proposed in HB 527] could have a detrimental effect on Native corporations. He said, "I know that right now there are many ... Native people that are against discretionary voting, because they really don't understand the application and how you can use it for your benefit." He offered an example. He clarified that his major concern is not actually the wording of the bill, but its interpretation and application. He offered another example. Mr. Johns stated his opposition to [HB 527] and offered to answer questions from the committee. Number 1359 REPRESENTATIVE HOLM asked if Mr. Johns considers that corporations in Alaska are of equal value to the state, in the sense that they fall under an umbrella of equal laws. MR. JOHNS responded that he guesses they do, but reiterated his concern is in regard to the interpretation and application of law. REPRESENTATIVE HOLM asked Mr. Johns if he is aware of "the number of cases that we've heard of people that have indicated that they weren't given due process in the corporate (indisc. - overlapping voices)." MR. JOHNS answered yes. He stated, "I can tell you right now that 30 percent of the people, no matter what you do, will be against a corporation." He offered an example. REPRESENTATIVE HOLM offered his belief that "our responsibility is to make sure it's an even playing field for all the people who are members of corporations." MR. JOHNS questioned what the additional cost would be to the corporation in the process of making [the playing field] level. REPRESENTATIVE HOLM suggested, "It may be immaterial whether or not you appreciate what the state is trying to do, if we believe, as the legislature, that as a policy it's in the best interest of all the people of Alaska to have the same rules to live by." MR. JOHNS responded, "As far as I can see, we have the same rules." He reiterated that he has both run and won elections by using the existing laws. He concluded, "If it's equally applied to all the corporations and not just Native corporations, that would be one thing, too." REPRESENTATIVE HOLM clarified that that is what he is suggesting. Number 1161 REPRESENTATIVE SEATON asked Mr. Johns to clarify what he means by discretionary voting. MR. JOHNS answered that "through the election process people can, under proxy, find discretionary voting, and then the corporation can use that to vote and distribute the votes of candidates." He reiterated that those who speak against discretionary voting are those who do not know how to use it. He added, "But it's the best tool that you could have for a dissident, if they know how to use that tool." REPRESENTATIVE SEATON noted the change from 500 to 250 in Section 1 and asked Mr. Johns if he objects to that provision. MR. JOHNS answered no. He indicated that his concern is for the Native corporations that are struggling financially. He noted, for example, that it cost Goldbelt, Inc., approximately $50,000 to hold an election. He concluded as follows: If the company's struggling financially, a handful of people could come into the state and say ..., "We want this," and then they have to go through the process and, you know, maybe they can't afford to distribute. If you're broke and don't have money, what [are] you going to do? And then what would the state do? I mean, that's my concern right now, because there are some companies that are in that predicament today. Number 1061 CHAIR WEYHRAUCH suggested that it may be time to look at an omnibus act, but, with 41 days left in the session, it wouldn't be done this year. Number 1038 CHAIR WEYHRAUCH closed public testimony. [HB 527 was heard and held.]
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