Legislature(2017 - 2018)BELTZ 105 (TSBldg)

03/19/2018 06:00 PM LABOR & COMMERCE

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        HB 170-AK SECURITIES ACT; PENALTIES; CRT. RULES                                                                     
6:56:57 PM                                                                                                                    
CHAIR  COSTELLO   reconvened  the   meeting  and   announced  the                                                               
consideration  of   HB  170.  [CSHB   170(JUD)  was   before  the                                                               
6:57:06 PM                                                                                                                    
SENATOR MEYER  made a  motion to clarify  that the  committee was                                                               
considering version O that passed the House.                                                                                    
CHAIR COSTELLO objected for the sake of discussion.                                                                             
6:58:03 PM                                                                                                                    
CRYSTAL  KOENEMAN, Staff,  Representative  Sam  Kito III,  Alaska                                                               
State Legislature, Juneau, Alaska, presented  HB 170 on behalf of                                                               
House Labor and Commerce Committee.  She said this was brought to                                                               
the  House Labor  and  Commerce Committee  by  the Department  of                                                               
Commerce,  Community  and  Economic Development.  It  amends  the                                                               
Alaska  Securities  Act.  Security statutes  are  separated  from                                                               
statutes  related  to the  Alaska  Native  Claims Settlement  Act                                                               
(ANCSA)  to facilitate  better understanding  of both.  It deters                                                               
investment scams  using Alaska entities and  harming Alaskans. It                                                               
helps  protect   older  and  vulnerable  adults   from  financial                                                               
exploitation  by  requiring  financial  professionals  to  report                                                               
suspected  exploitation and  giving  the reporting  professionals                                                               
immunity. It enhances penalties against  those who harm older and                                                               
vulnerable Alaskans.  It also updates  entity and  law references                                                               
that currently use  notice by telegrams. It is  an overall update                                                               
of the Securities Act.                                                                                                          
6:59:33 PM                                                                                                                    
KRISTY  NAYLOR,   Acting  Director,   Division  of   Banking  and                                                               
Securities,  Department  of   Commerce,  Community  and  Economic                                                               
Development  (DCCED),  Anchorage, Alaska,  said  HB  170 is  very                                                               
important to the  operation of the division in  its regulation of                                                               
securities in  Alaska and  also to  Alaska consumers.  The Alaska                                                               
Securities  Act  provides the  legal  framework  for offering  or                                                               
selling   securities  in   Alaska  or   to  Alaskans,   including                                                               
registration  of  the  financial  product and  sales  force,  and                                                               
enforcement action  against those  who violate  the act.  It also                                                               
regulates ANCSA Corporation and shareholder proxy provisions.                                                                   
MS. NAYLOR said  securities is one of 12  statutory programs that                                                               
the division  regulates and is  the largest single  program area.                                                               
Just  over  95,000 people  are  licensed  to sell  securities  in                                                               
Alaska.  There are  also over  1,200 security  firms. The  growth                                                               
over the last few years has been significant.                                                                                   
MS.  NAYLOR said  HB 170  solves two  main problems  with current                                                               
law. First, the  current law is outdated and hasn't  kept up with                                                               
the industry. The current Alaska  Securities Act went into effect                                                               
in 1961.  The Act has  only been  changed in any  significant way                                                               
three times in almost 60 years.                                                                                                 
MS.  NAYLOR said  second,  consumer  protections and  enforcement                                                               
provisions are insufficient. Alaskans  have been harmed by people                                                               
who  have violated  Alaskan laws  and low  administrative, civil,                                                               
and criminal penalties  do not serve as  a significant deterrent.                                                               
They are low enough to be seen as the cost of doing business.                                                                   
7:02:23 PM                                                                                                                    
MS.  NAYLOR  said the  bill  solves  the problem  by  modernizing                                                               
current law:                                                                                                                    
        • Updates outdated provisions to better align the law                                                                   
          with  current   industry  practices   (Current  statute                                                               
          refers  to  entities  that  no  longer  exist,  federal                                                               
          statutes  that  have  changed  over  time,  and  allows                                                               
          notification by telegram.)                                                                                            
        • Incorporates the Innovating Alaska Act, which allows                                                                  
          intrastate crowdfunding to help grow Alaska businesses                                                                
        • Eliminates most filings that must be made with the                                                                    
        • Separates ANCSA from securities, so the two programs                                                                  
          can be regulated separately                                                                                           
        • Improves organization                                                                                                 
7:04:07 PM                                                                                                                    
MS. NAYLOR said the bill enhances consumer protection:                                                                          
        • Increases  administrative,    civil   and    criminal                                                                 
          penalties,  especially for  those  who harm  vulnerable                                                               
          people   (Current  enforcement   provisions  allows   a                                                               
          maximum  civil  penalty  of   $25,000  per  person  who                                                               
          commits   a  violation.   The  division   has  recently                                                               
          investigated frauds  that involved millions  of dollars                                                               
          of losses. The  new law would allow a  fine of $100,000                                                               
          per  violation.  The  fines can  be  increased  if  the                                                               
          victim is a senior or vulnerable adult.)                                                                              
        • Allows for bad actors to be barred from the industry                                                                  
        • Requires brokers and advisers to report suspected                                                                     
          financial  exploitation   of  seniors   and  vulnerable                                                               
          adults to the Division and Adult Protective Services                                                                  
        • Improves investor education provisions, allowing for a                                                                
          portion of  collected civil  penalties to  be deposited                                                               
          into  a  fund that  the  legislature  may allocate  for                                                               
          investor education                                                                                                    
        • Facilitates continuing education for brokers and                                                                      
7:06:26 PM                                                                                                                    
She highlighted the following securities scams in Alaska:                                                                       
     Fortune Oil and Gas, LLC--Texas-based  oil and gas scam that                                                             
     resulted in a $3.1 million loss to Alaskans                                                                                
     J. Randall Gladden--Unregistered  salesperson came to Alaska                                                             
     to give financial presentations  to local church communities                                                               
     after  he  had  been  suspended by  federal  regulator  from                                                               
     acting as a securities agent                                                                                               
     Global  Arena Capital  Corp--Unregistered  NY  firm and  six                                                             
     employees cited for soliciting then  selling junk bonds to a                                                               
     retired and ailing Alaskan halibut fisherman                                                                               
     Garden State  Securities--agent from  Global went  to Garden                                                             
     State  and  attempted  to sell  risky  investments  to  same                                                               
     customer without a license in  Alaska (The firm was licensed                                                               
     in Alaska.  They withdrew from  Alaska and paid  the maximum                                                               
     civil penalty without blinking an eye.)                                                                                    
7:10:20 PM                                                                                                                    
SENATOR STEVENS asked why it  is necessary to separate ANCSA from                                                               
other securities.                                                                                                               
MS.  NAYLOR  explained that  the  regulation  of corporate  proxy                                                               
solicitations is  a securities function that  the SEC [Securities                                                               
and   Exchange   Commission]   provides   for   publicly   traded                                                               
corporations.  Alaska  is the  only  state  that regulates  proxy                                                               
solicitations.  Ordinarily the  SEC  would  regulate them.  ANCSA                                                               
corporations are  outside of federal regulations  and not covered                                                               
by  SEC regulations.  It makes  sense to  separate them  and deal                                                               
with them as  a unique Alaska entity. If changes  need to be made                                                               
to either the Securities Act  generally or ANCSA provisions, that                                                               
can be done more appropriately if they are separated.                                                                           
SENATOR  STEVENS  asked if  they  would  still be  regulated  but                                                               
MS. NAYLOR said yes.                                                                                                            
SENATOR GARDNER  noted that when  she described the  Global Arena                                                               
Capital Corporation fraud, she mentioned  that the division could                                                               
not order  restitution. It  had to be  a negotiated  process. She                                                               
asked why it had to be negotiated.                                                                                              
MS. NAYLOR  said no provision  in the enforcement section  of the                                                               
current  law  allows  the  division   to  order  someone  to  pay                                                               
restitution.  HB 170  has  a  provision to  allow  them to  order                                                               
SENATOR  GARDNER asked  how  a securities  agent  differs from  a                                                               
stockbroker or investment advisor.                                                                                              
MS. NAYLOR said they're the same.                                                                                               
SENATOR MEYER said he was  looking for a definition of securities                                                               
in the bill  but might have missed it. He  assumes securities are                                                               
stocks, bond, life insurance, and banking CDs.                                                                                  
MS.  NAYLOR directed  attention to  page  103 of  the bill.  They                                                               
include   stocks,    bonds,   limited    partnership   interests,                                                               
certificates of  deposit. It's a long  list. It's the same  as in                                                               
current law.                                                                                                                    
SENATOR  MEYER  asked if  the  state  has jurisdiction  over  the                                                               
internet or if that is a federal issue.                                                                                         
MS. NAYLOR said  they have jurisdiction over offers  and sales of                                                               
securities over the  internet. Anything coming or  going into the                                                               
state would be within their jurisdiction.                                                                                       
SENATOR MEYER asked if he  can report an internet solicitation to                                                               
invest in an oil well in Russia.                                                                                                
MS. NAYLOR said yes.                                                                                                            
7:16:40 PM                                                                                                                    
SENATOR  MICCICHE referred  to the  civil penalties  on page  83,                                                               
line 20.  He asked why  there isn't  a percentage of  the damages                                                               
when there  could be  millions in  losses. He  asked how  far the                                                               
bill can go in recovering those losses.                                                                                         
MS. NAYLOR  said the $100,000 is  the civil penalty that  the bad                                                               
actor would pay the state for  violating the statute. Adding in a                                                               
restitution provision  means they could  order up to  100 percent                                                               
restitution of the loss.                                                                                                        
SENATOR MICCICHE  observed that  the statutory civil  penalty can                                                               
range  from  $100,000  to  $300,000  and  the  restitution  could                                                               
include 100 percent of the loss.                                                                                                
MS. NAYLOR said that's correct.                                                                                                 
7:19:35 PM                                                                                                                    
LEIF HAUGEN,  Acting Chief, Enforcement and  Securities, Division                                                               
of Banking and Securities, Department  of Commerce, Community and                                                               
Economic  Development (DCCED),  Anchorage,  Alaska, provided  the                                                               
following sectional analysis for HB 170:                                                                                        
     Article 1. General Provisions - p. 15                                                                                    
     Same as current law. Securities must be registered before                                                                  
     offer or sell, unless federally covered or exempt.                                                                         
     Article 2. Exemptions from the Registration of Securities                                                                
     p. 15                                                                                                                    
        • Incorporates the current statute regarding small                                                                      
          intrastate security offerings that are known as                                                                       
        • Adds provisions allowing the division to prohibit                                                                     
          persons  who   have  committed  crimes   or  regulatory                                                               
          violations from using  exemptions from registration and                                                               
          provides the  administrator the  authority to  waive or                                                               
          change exemption requirements.                                                                                        
     Article 3. Registration of Securities and Notice Filing of                                                               
     Federal Covered Securities  p. 30                                                                                        
        • Changes would require registration statements to be on                                                                
          file with the administrator for 20 days.                                                                              
        • Increases fees for late filings.                                                                                      
        • Explains the joint regulations of viatical settlement                                                                 
          interests by the Securities and Insurance statutes.                                                                   
        • Requires the administrator to establish regulations                                                                   
          explaining what conduct may be fraud upon purchasers.                                                                 
SENATOR  GARDNER   referred  to  Article  3   Section  45.56.305,                                                               
"registration statement  must be  on file with  the Administrator                                                               
for  20 days  (may  be reduced  by  regulation)." She  questioned                                                               
putting something in statute that may be reduced in regulation.                                                                 
MR. HAUGEN acknowledged that was not taken into consideration.                                                                  
7:21:12 PM                                                                                                                    
At ease.                                                                                                                        
7:21:24 PM                                                                                                                    
CHAIR COSTELLO reconvened the meeting.                                                                                          
SENATOR GARDNER said maybe someone could answer that in due                                                                     
7:21:44 PM                                                                                                                    
MR. HAUGEN continued the sectional for HB 170.                                                                                  
     Article 4. Broker-dealers, Agents, Investment Advisers,                                                                  
     Investment Adviser Representatives and Federal Covered                                                                   
     Investment Advisers  p. 42                                                                                               
     Firm, salesperson, and adviser registration (licensing)                                                                    
     provisions are reorganized into one article, making it more                                                                
     user-friendly than current law.                                                                                            
        • Includes a new exemption for broker-dealers and                                                                       
          agents,   as   well    as   investment   advisors   and                                                               
          representatives,   to   facilitate   on-going   broker-                                                               
          customer   relationships   with  customers   who   have                                                               
          established  a  second  or  other  residence  in  other                                                               
        • Changes annual renewal to December 31 from December 1                                                                 
          for easier state and firm processing.                                                                                 
        • Adds a provision that exempts merger and acquisition                                                                  
          brokers from registration.                                                                                            
        • Includes, within Article  4, the  types  of  business                                                                 
          covered  regarding agent  registration requirement  and                                                               
          exemptions instead of in the definition section.                                                                      
        • Includes investment adviser registration  requirement                                                                 
          and   exemptions   mirroring  a   broker-dealer   agent                                                               
          requirements in Article 4.                                                                                            
        • Extends time, unless the registration is  denied, for                                                                 
          automatic   registration  of   broker-dealers,  agents,                                                               
          investment    advisers,    and    investment    adviser                                                               
        • Clarifies process for  an organizational  change  for                                                                 
          broker-dealers and investment advisers.                                                                               
        • Requires that broker-dealers or  investment  advisers                                                                 
          file  a notification  of termination  of employment  of                                                               
          agent or representative with the administrator.                                                                       
        • Extends time of the  effective  date of  registration                                                                 
        • Adds provision allowing filing fees to be established                                                                 
          by regulation.                                                                                                        
        • Adds provision allowing   the  administrator  to  set                                                                 
          continuing education requirements by regulation.                                                                      
        • Adds provision adding  model legislation  to  protect                                                                 
         vulnerable adults from financial exploitation.                                                                         
        • Adds provision allowing the  administrator  to bar  a                                                                 
          person or firm from  registration including for actions                                                               
          taken by other regulators.                                                                                            
        • Increases civil penalty for registrants  from $2,500-                                                                 
          $10,000 per violation to up to $100,000 per violation.                                                                
7:23:22 PM                                                                                                                    
     Article 5. Fraud and Liabilities  p. 70                                                                                  
        • Allows administrator to define prohibited  conduct by                                                                 
        • Adds a citation to affirmative defense in criminal law                                                                
          regarding the evidentiary burden.                                                                                     
        • Clarifies that registered persons are  not liable  to                                                                 
          other registered persons,  under state defamation laws,                                                               
          for   statements   contained  in   disclosure   records                                                               
          required  to  be  filed   with  the  administrator  for                                                               
          purposes of licensing and potential discipline.                                                                       
     Article 6. Administration and Judicial Review  p. 72                                                                     
        • Adds a new provision  allowing  the administrator  to                                                                 
          develop  and implement  investor education  initiatives                                                               
          and accept grants or donations for investor education.                                                                
        • Requires the administrator keep records according to a                                                                
          retention schedule and outlines publicly disclosable                                                                  
      • Clarifies and specifies record confidentiality.                                                                         
        • Expands opportunity for coordination with governmental                                                                
          units, regulatory organizations for collaborative                                                                     
          efforts including regulation and enforcement to reduce                                                                
          the burden of raising capital by small business.                                                                      
        • Creates an investor education and training fund within                                                                
          the general fund.                                                                                                     
        • Combines existing AS 45.55.950 and 45.55.970 and                                                                      
          clarifies that GAAP compliant financial statements may                                                                
          only be required as allowed by federal law.                                                                           
        • Separates out and clarifies administrative, civil, and                                                                
          criminal enforcement provisions.                                                                                      
        • Increases to 30 instead of 15 the number of days                                                                      
          respondents can request to review a final order.                                                                      
7:24:45 PM                                                                                                                    
SENATOR GARDNER asked what "registered  persons are not liable to                                                               
other  registered   persons  under  state  defamation   laws  for                                                               
statements contained  in disclosure records required  to be filed                                                               
with the  administrator for purposes  of licensing  and potential                                                               
discipline" in Article 5 meant.                                                                                                 
MR. HAUGEN  said FINRA [Financial Industry  Regulatory Authority]                                                               
has a system called CRD  (Central Registration Depository), where                                                               
the  division reviews  the registrations  of  all agents  seeking                                                               
registration in Alaska. In other  states firms felt they couldn't                                                               
be  candid about  an  agent termination  or  investigation of  an                                                               
agent. California  and New York  have adopted  absolute immunity.                                                               
This would  give qualified  immunity to  disclose so  other firms                                                               
will  know before  hiring an  agent and  the state  will know  as                                                               
SENATOR STEVENS asked for the definition of a vulnerable adult.                                                                 
7:26:51 PM                                                                                                                    
DEB ETHERIDGE,  Deputy Director, Senior and  Disability Services,                                                               
Department of Health and Social  Services (DHSS), Juneau, Alaska,                                                               
said they are  seniors and adults with disabilities  who lack the                                                               
capacity to protect themselves from harm.                                                                                       
SENATOR MICCICHE observed that both are defined in statute.                                                                     
MS. ETHERIDGE said that's correct.                                                                                              
7:28:47 PM                                                                                                                    
MR. HAUGEN continued the sectional for HB 170.                                                                                  
     Article 7. Miscellaneous and Additional General Provisions                                                               
     (includes definitions) p. 93                                                                                             
        • Expands recovery of expenses from current AS 45.55.915                                                                
          to cover all examination expenses including staff                                                                     
          time, travel and per diem.                                                                                            
        • Facilitates filing   of    electronic   records   and                                                                 
        • Contains new definitions.                                                                                             
7:29:20 PM                                                                                                                    
CHAIR COSTELLO opened public testimony on HB 170.                                                                               
7:29:31 PM                                                                                                                    
KEVIN ANSELM,  representing self, Matanuska-Susitna  Valley, said                                                               
she  is  a  former  director  of  the  Division  of  Banking  and                                                               
Securities.  She related  that  one of  the  primary reasons  for                                                               
passing  HB  170  is  to separate  ANCSA  provisions  from  other                                                               
securities provisions. Much of the  current Alaska Securities Act                                                               
does not apply to ANCSA issues  and when any changes are proposed                                                               
there is concern that there  will be unintended consequences. The                                                               
bill also  modernizes the  statutes, lessens  the burden  of dual                                                               
state and federal regulations,  streamlines the registration, and                                                               
protects investors.                                                                                                             
7:33:52 PM                                                                                                                    
CHAIR COSTELLO  closed public  testimony on HB  170 and  held the                                                               
bill in committee.                                                                                                              
SENATOR MEYER asked who would opposed the bill.                                                                                 
MR. HAUGEN said other than scammers nobody is opposed to it.                                                                    
SENATOR MICCICHE asked if it's clear when fraud is committed.                                                                   
MR. HAUGEN said the fraud  the division has seen involves someone                                                               
approaching the investor and the  investor doesn't see the return                                                               
promised. Upon  investigation, the  division has  discovered that                                                               
there was  no product  or investment. The  division has  tools to                                                               
identify  when  fraud   has  occurred  as  opposed   to  when  an                                                               
investment was a poor choice.                                                                                                   
[HB 170 was held in committee.]                                                                                                 

Document Name Date/Time Subjects
HB170 Version O.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Sponsor Statement.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Sectional Analysis.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Explanation of Changes.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 DCCED Whitepaper.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Repealers.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB170CS(JUD)-DCCED-DBS-03-16-18.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB170CS(JUD)-DHSS-SDSA-3-16-18.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Supporting Documents ANCSA.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Supporting Documents NASAA.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
HB 170 Senate Labor and Commerce Presentation DBS 03.16.18.pdf SL&C 3/19/2018 6:00:00 PM
HB 170
SB 38 Ver. A.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB 38 Pharmacy Benefit Managers PowerPoint.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB038-DCCED-DOI-3-15-2018.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB038-DOA-DRB-03-15-18.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB 38 Actuarial Letter 2.22.18.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB 38 Letter of Opposition AHIP.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document NCPA 1-26-18.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document PBMs ArkansasMatters 2-21-18.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document PHARMA Supports PBM legislation 3-13-18.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document PHARMA Supports PBM legislation 3-13-18 (1).pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document Reuters-Business Insider Dec. 2017.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document Bismark Tribune 11-13-17.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document Capitol Forum 1-2018.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB38 Supporting Document MAP PBM legislation state by state 2-2018.pdf SL&C 3/19/2018 6:00:00 PM
SB 38
SB119 Support Letter - NFIB.pdf SL&C 3/19/2018 6:00:00 PM
SB 119
SB119 Support Letter Alaska Policy Forum.pdf SL&C 3/19/2018 6:00:00 PM
SB 119