Legislature(2017 - 2018)GRUENBERG 120
04/07/2017 01:00 PM House JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HB170 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 170 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
April 7, 2017
2:08 p.m.
MEMBERS PRESENT
Representative Matt Claman, Chair
Representative Jonathan Kreiss-Tomkins
Representative Gabrielle LeDoux
Representative David Eastman
Representative Chuck Kopp
Representative Lora Reinbold
MEMBERS ABSENT
Representative Zach Fansler, Vice Chair
Representative Charisse Millett (alternate)
Representative Louise Stutes (alternate)
COMMITTEE CALENDAR
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."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 170
SHORT TITLE: AK SECURITIES ACT; PENALTIES; CRT. RULES
SPONSOR(s): LABOR & COMMERCE
03/10/17 (H) READ THE FIRST TIME - REFERRALS
03/10/17 (H) L&C, JUD
03/24/17 (H) L&C AT 3:15 PM BARNES 124
03/24/17 (H) Heard & Held
03/24/17 (H) MINUTE(L&C)
03/27/17 (H) L&C AT 3:15 PM BARNES 124
03/27/17 (H) Moved HB 170 Out of Committee
03/27/17 (H) MINUTE(L&C)
03/29/17 (H) L&C RPT 6DP 1NR
03/29/17 (H) DP: SULLIVAN-LEONARD, STUTES, WOOL,
JOSEPHSON, BIRCH, KITO
03/29/17 (H) NR: KNOPP
04/07/17 (H) JUD AT 1:00 PM GRUENBERG 120
WITNESS REGISTER
KEVIN ANSELM, Director
Division of Banking and Securities
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: During the hearing of HB 170, presented the
legislation on behalf of the House Labor & Commerce Committee,
chaired by Representative Kito.
RENEE WARDLAW, Assistant Attorney General
Commercial and Fair Business Section
Department of Law (DOL)
Anchorage, Alaska
POSITION STATEMENT: During the hearing of HB 170, answered
questions.
ACTION NARRATIVE
2:08:17 PM
CHAIR MATT CLAMAN called the House Judiciary Standing Committee
meeting to order at 2:08 p.m. Representatives Claman, LeDoux,
Kreiss-Tomkins, and Kopp were present at the call to order.
Representatives Eastman and Reinbold arrived as the meeting was
in progress.
HB 170-AK SECURITIES ACT; PENALTIES; CRT. RULES
2:09:05 PM
CHAIR CLAMAN announced that the only 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."
2:09:53 PM
KEVIN ANSELM, Director, Division of Banking and Securities,
Department of Commerce, Community & Economic Development
(DCCED), referred to the need to update the Alaska Securities
Act and offered a PowerPoint presentation titled, "Alaska
Securities Act, HB 170." Ms. Anselm turned to slides 2-3, and
explained that the Securities Act provides the legal framework
for [technical difficulties] securities in Alaska, for Alaskans,
registration of firms and sales persons, registration or filing
of securities, and enforcement. The Securities Act also
regulates the Alaska Native Claims Settlement Act (ANCSA)
corporations 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
salespersons, such as stock brokers, investment advisors, and
approximately 1,000 firms, and all of those out-of-state
individuals. She referred to [Sec. 45.56.900(32), page 103,
lines 9-31, and page 104, lines 1-8] and noted that the
definition of security was not changed, and it includes
investments such as stocks, bonds, limited partnerships,
investments in common enterprises, investment contracts, and
viaticals. Basically, she explained, a security involves the
investment of money or other consideration in a common
enterprise with the reasonable expectation of profit, primarily
from the entrepreneurial or management efforts of others.
2:12:29 PM
MS. ANSELM turned to slide 4, and advised that HB 170 updates
the Securities Act by adopting many of the most recent model act
provisions while retaining Alaska's centric provisions. The
bill proposes to lift the Securities Act out of the Native
Claims Settlement Act (ANCSA) provisions and making that change
would highlight the differences between the programs, and allow
ANCSA constituents a clear view of the applicable law. Also,
she explained, the bill's provisions are included to protect
older and vulnerable Alaskans from financial exploitation, and
give investment professionals immunity from administrative and
civil liability if they report possible exploitations. She
noted the division has been working with the industry on those
provisions and she would later discuss a possible amendment.
MS. ANSELM pointed out that, currently there is no provision in
the law regarding restitution, and the civil penalty is capped
at $25,000 per violation. The bill asks the legislature to
designate some of those civil penalties funds toward consumer
protection and education. Currently, she said, there is no
requirement for continuing education of industry professionals,
whereas most other industries require continuing education.
2:14:09 PM
MS. ANSELM turned to slide 5, and related that ANCSA provisions
remain unchanged in AS 45.55, including the enforcement and
administration of those related securities laws. The ANCSA
regional corporations do not oppose this change as noted by a
letter included within the committee packets. [3/27/17 letter
directed to The Honorable Sam Kito, from Kim Reitmeir, ANCSA
Regional Association.]
2:14:35 PM
MS. ANSELM turned to slide 6, pointed to the top four highlights
in HB 170, and advised as follows: the bill eliminates filing
for all exemptions from registration, except crowdfunding, to
make it easier for Alaskan businesses to use the exemptions
allowed under the law; it updates entity and law references; it
includes "bad actor" qualifiers who will not be allowed to
register securities in Alaska, such as people convicted of a
crime, including fraud, dishonesty, or inappropriately taking
someone's money; and it improves enforcement and investor
protection, as well as education provisions.
2:15:19 PM
MS. ANSELM turned to slide 7, and explained that the slide is a
general outline of the Securities Act, of which is 111 pages and
there is not quite as much substance as it may appear. Article
1 begins at page 15 because there are a number of provisions to
modify due to the change in the statute numbering. She then
read the entire outline, and explained that Article 4, broker-
dealers, agents, investment advisers, investment adviser
representatives, and federal covered investment advisors,
basically all of the people regulated who must be either
licensed or registered with the state, are now covered under
Article 4.
2:17:01 PM
MS. ANSELM, in response to Representative Reinbold's request for
an explanation of Article 4, explained that it is the licensing
or registration provision that basically advises what someone
must do in the State of Alaska in order to be a stock broker,
investment advisor, or registered as a brokerage house.
2:18:14 PM
MS. ANSELM turned to slides 8-10, and advised that the slides
cover administrative enforcement, civil enforcement, and
criminal enforcement changes. As to slide 8, she advised that,
administratively, outside of court unless there is an appeal,
the changes include extending the time to request a hearing.
She explained that the division can issue various types of
orders currently, and there is a 15 days period wherein a person
can request a hearing if they do not agree with the order, or if
it was not a consent order. Also, civil penalties are increased
from the current standard of $2,500 per [occurrence] or $25,000
per [violation], to a maximum of $100,000 per violation, she
advised.
2:18:55 PM
REPRESENTATIVE REINBOLD asked how many [orders] the division
[files] each year, the types of penalties, and why it changed to
$100,000 per violation.
MS. ANSELM responded that in FY 2016, the division issued 36
filed orders across the division, and it had 17 securities
related orders, which is its typical number of assessments. She
explained that the $25,000 or the $100,000 penalty is at the top
of the range, and the division tries to match the penalty to the
activity. For instance, there are occasions where no civil
penalties are issued, such that someone didn't register for some
reason and it wasn't to avoid the law. Oftentimes, she said,
the division will write a letter of warning, or issue a consent
order advising the person not to do whatever they did again, and
there is no penalty.
CHAIR CLAMAN noted that Ms. Anselm had testified in a prior
hearing that the current penalty level of $25,000 was creating
an enforcement problem, and he asked her to describe the
enforcement problem created with the current penalty levels.
MS. ANSELM referred to a recent case wherein people from Texas
came to Alaska and sold Alaskans approximately $3.1 million
worth of bogus oil and gas securities, and the maximum penalty
the division could access was $25,000, with no opportunity for
rescission for those Alaskans. In this case, she explained, the
division issued an order for the maximum amount possible, the
judge agreed and issued his order in March 2016, granting the
$25,000 civil penalty. She related that the division could
probably collect on that amount, but the Alaskans cannot collect
on anything because there was not a restitution option.
Therefore, the maximum penalty for the firm that sold $3.1
million worth of worthless securities was $25,000. She remarked
that the state have better tools in order to, hopefully, deter
any sort of bad deeds, but with HB 170, if there are bad deeds
the division will have the tools in its toolbox to effectively
enforce the law.
2:22:15 PM
REPRESENTATIVE REINBOLD asked for a description of the 16 orders
and an actual snapshot of the problems.
MS. ANSELM referred to the spreadsheet titled, "Securities
Enforcement Comparison: Current 45.55 versus Proposed 45.56,"
and advised it is an outline of each case the division has taken
during the time period 2012 to present.
2:23:00 PM
REPRESENTATIVE REINBOLD asked whether the division's desire to
move to the $100,000 penalty was due to one particular case and
noted she was trying to understand the division's reasoning in
quadrupling the penalty.
MS. ANSELM responded that civil penalties have not been adjusted
in 40 years, and in order to get the attention of bad actors,
the division needs a civil penalty that will deter that sort of
activity, and she pointed out that civil penalties go into the
state's general fund.
2:23:55 PM
REPRESENTATIVE REINBOLD referred to slide 7, bullet point 5,
"Restitution to a victim can be ordered" and asked how often
restitution is ordered.
MS. ANSELM reiterated that the division does not have the
ability to order restitution, for instance, a halibut fisherman
was "ripped off" by an unregistered New York brokerage firm, and
the division was able to return some of his money because one of
the involved persons actually had a conscience but, she
reiterated, the division cannot order restitution [under current
law].
CHAIR CLAMAN clarified that under HB 170 the division will have
the authority to order restitution.
MS. ANSELM answered in the affirmative.
2:24:56 PM
REPRESENTATIVE REINBOLD asked who would have the authority to
order the restitution.
MS. ANSELM answered that the division and the courts could order
restitution.
2:25:13 PM
REPRESENTATIVE EASTMAN asked what constitutes a specific
violation, because he was surprised there would be an instance
wherein someone could defraud many people and receive a single
violation penalty of $25,000, such as the case she previously
described.
MS. ANSELM answered that there are multiple violations, and
currently the single [occurrence] fine is $2,500 and the total
violation fine is $25,000.
REPRESENTATIVE EASTMAN commented that it did not appear logical
in an instance where someone defrauded people in the millions of
dollars, and the division is only asking for a penalty increase
to $100,000 as an effective deterrent.
MS. ANSELM advised that the fine is up $100,000 per violation,
which is not to say the division would impose that amount, but
it needs the range. She referred to the spreadsheet and said
that once it is copied, the grid will show what happens under
current law, and what the division probably would have done as
to the $3.1 million case.
REPRESENTATIVE EASTMAN noted that the bill gives the division
authority to assess penalty fees up to $100,000 per violation,
and asked what checks would be in place regarding an inadvertent
technical violation.
MS. ANSELM replied that currently there are internal controls
because the division is careful to review what was accessed in
the past for similar types of violations, and consider what it
does in the future. She pointed out that a person always has
the opportunity to request a hearing, which is heard through the
Office of Administrative Hearings or through the "circuit
court."
2:28:03 PM
REPRESENTATIVE LEDOUX referred to the current $2,500 and $25,000
penalty fines, and surmised that those people have the remedy of
going before a civil court, which could allow them to obtain
money.
MS. ANSELM responded that those people do have the remedy of
civil court with the possibility of receiving a positive
judgment.
REPRESENTATIVE LEDOUX noted that the maximum would be $100,000
per violation, and if this fine was just restitution, not pain
and suffering or anything of that nature, why wouldn't the
person seek restitution for the actual amount of their loss.
MS. ANSELM explained that the $100,000 maximum is a civil
penalty which is different from restitution, and the division
would seek restitution [under HB 170].
2:29:23 PM
REPRESENTATIVE LEDOUX offered that currently the penalty is
$2,500-$25,000, and HB 170 moves the maximum to $100,000 per
violation, and questioned whether the division would also seek
restitution for these folks.
MS. ANSELM answered that the division would seek restitution if
it was appropriate, and noted that it may be appropriate in some
cases to simply order restitution because that person should be
paid and not the state.
MS. ANSELM, in response to Representative LeDoux, answered that
civil penalties are deposited into the state's general fund.
REPRESENTATIVE LEDOUX asked why the division wouldn't have the
money go to the [coughing].
MS. ANSELM answered that the money would go to the [injured
person], except the division does not have the authority to
order restitution currently. Although, she explained, with
regard to a consent order, the division does have authority to
ask a consenting scammer to return the injured party's money,
and she emphasized that it must be on a consent basis as it is
not an order.
2:31:00 PM
REPRESENTATIVE LEDOUX pointed out that she wants to make certain
the injured parties are paid before the state is paid.
MS. ANSELM said, "That is absolutely the division's intent."
2:31:18 PM
REPRESENTATIVE KOPP said that in reading the bill, he guessed
the division would follow criminal law such that when there is a
criminal fine and a restitution order, the restitution order
always has precedent over the criminal fine.
MS. ANSELM opined that is exactly how the bill reads.
Unfortunately, she said, if the division does issue a civil
penalty and is able to collect on the penalty, the money goes to
the state's general fund because the division cannot order
payment to an injured party at this time.
REPRESENTATIVE KOPP suggested reviewing the statute and aligning
that procedure with criminal law.
CHAIR CLAMAN agreed, and he pointed out that Ms. Anselm was
discussing current practice, and once the bill was in place that
problem would be void.
MS. ANSELM answered in the affirmative.
2:32:52 PM
REPRESENTATIVE REINBOLD commented that when this law is in
place, it could potentially generate generous revenue for the
state coffers, especially if the penalty was up to $100,000 per
violation. She suggested an amendment stipulating the bill's
intention that if any money was collected it was strictly
restitution for the injured party, and not to generate revenue
for the state.
2:34:06 PM
REPRESENTATIVE KOPP asked whether he was correct in stating that
this discussion relates to stock and investment fraud.
MS. ANSELM agreed, and she pointed to the broad definition of
"securities" because people do take advantage of others through
business and other opportunities.
2:34:31 PM
REPRESENTATIVE KOPP asked whether this bill is important because
this type of fraud happens to vulnerable people who cannot
afford to lose the capital, or are otherwise unable to recognize
the risk of the investment.
MS. ANSELM answered "Yes and beyond," there are smart people
duped because they are presented with fine looking documents, or
other evidence. For instance, two individuals convinced an
Alaskan he could join them in a business opportunity if he gave
them, she opined, $40,000. These individuals promised him a
management position in this new business venture, and they had a
credit line of $10 million from some other source that they
could tap, except it all ended up being bogus. She related that
the division contacted the individuals to have the money
returned, they agreed, and then they skipped town.
REPRESENTATIVE KOPP remarked that the state is "absolutely doing
the right thing" in recognizing this increase in fees as these
injuries can be in the many millions of dollars in stealing
people's life savings and pensions. Alaskan banks are victims
of this, he offered, but it is never advertised because it is
bad for the clientele, and sometimes the people investing their
life savings will pull banks down with them in their bad
decisions. He described $100,000 as a drop in the bucket
because it does not even begin to address the problems out
there.
2:37:05 PM
CHAIR CLAMAN noted there is a long body of case law in Alaska,
and throughout the country, requiring that any fine be
proportional, and a minor error in filing would not result in a
$100,000 fine. The high cost per violation limit points to
firms such as the Texas firm who may have sold to just 10
investors, but there are 10 different violations. Thereby,
putting the message out that people cannot come to Alaska, dupe
investors, and the largest penalty they will face is $25,000
when duping people for over $3 million, he said. Those firms
need to know that Alaska is prepared to aggressively pursue
those not following the rules and taking advantage of people.
At the same time, he remarked, fine proportionality offers
comfort to firms that they will not receive an unreasonable fine
for conduct that does not merit a heavy application.
2:39:03 PM
MS. ANSELM continued the presentation and referred to changes in
the in administrative enforcement area, slide 7, and explained
that under HB 170, the division can bar a "bad actor" from
operating in the state. The division can also deny exemptions
from registration for securities, it can tell an entity they
have not done such good things in the past, it wants to see the
paperwork first, and makes the entity go through a registration
process. Under this bill, if a civil penalty was accessed with
no request for a court hearing, and the person decided they
didn't want to pay the civil penalty, the division could go to
court and ask that the civil penalty be enforced. Also, she
said, in the event a person already has an administrative order
against them and then repeats the same offense, the division can
ask the court to hold them in contempt.
2:40:38 PM
CHAIR CLAMAN surmised that she had been discussing remedies
without going to court because they are administrative actions
authorized to the department.
MS. ANSELM agreed.
2:40:45 PM
MS. ANSELM referred to the spreadsheet titled, Securities
Enforcement Comparison: Current 45.55 versus Proposed 45.56" and
asked that the spreadsheet be copied for the members, noting the
copied spreadsheets would not be in color, which may be
difficult.
2:41:24 PM
MS. ANSELM pointed to the top of the spreadsheet depicting the
date of the case, case name, description, enforcement action by
division, fine/penalty, whether a vulnerable adult was involved,
the potential fine or penalty under HB 170, and the potential
for the Investor Education Fund. She explained that the bill
proposes up to 33 percent of collected civil penalties be
deposited into a line item the legislature would have control
over for the Investor Education Fund. In the event the
legislature determined the money should not be used [in a
certain year] and there was a budget deficit, for example, that
money might be used for the deficit.
CHAIR CLAMAN noted his understanding of the spreadsheet in that
after moving through the type of enforcement action, columns
five and six are the current scenario, and columns seven and
eight are how it would change under the proposed law.
2:42:54 PM
MS. ANSELM agreed, and she advised that the blue columns are
ANCSA related, and the green columns are national settlements
negotiated generally with all 50 states. She turned to page 5
of the spreadsheet, pointed to "12/3/15, LPL Financial, LLC and
11/6/15, Citigroup Global Markets, Inc." and explained that
Alaska participated with a number of states in putting all of
the actions together so there was only one action, and the
[parties] settled with the states.
2:43:49 PM
[Due to the black and white copies of the spreadsheet, a
discussion ensued explaining how to determine the white, blue,
and green columns on each page.]
2:46:37 PM
MS. ANSELM referred to the bottom of page 10, 5th column from
the left, "Fine/Penalty" and offered that the division accessed
2012 to present day at $1,487,239.29, and that the actual
collected fines were far lower. She referred to the column
titled "Potential fine/penalty under proposed law" and offered
that the maximum amount would be $9,901,239.29, with 33 percent
of that amount going to the Investor Education Fund, totaling
$3,301,023.18.
2:47:24 PM
MS. ANSELM referred to page 1, second column down, and advised
that the "2/8/17, Codawn Consulting Corporation" matter is
currently in litigation. She explained the reason the number is
greater with Codawn Consulting Corporation was that the division
was able to access $25,000 to each participant in that scam.
She moved down one column to "11/28/16, Michael Scow," and
explained that Mr. Scow defaulted on a couple of promissory
notes which is why his fine was $25,000. She then moved to the
bottom column regarding "6/10/16, SOSDisasterplan.com" and
advised it is currently in litigation.
2:48:41 PM
MS. ANSELM, in response to Representative Reinbold, explained
that she skipped over the ANCSA cases as those would not be
involved in the new Securities Act because they are separate and
nothing will change for the ANCSA cases.
REPRESENTATIVE REINBOLD asked why nothing would change for the
ANCSA cases.
MS. ANSELM explained that the Alaska Native Claims Settlement
Act (ANCSA) provisions relate solely to proxy solicitations,
which is different from the fraud and types of issues being
discussed for regular security violations. The ANCSA was
established through the federal government, and put into the
Securities Act because there was a connection with proxy
solicitation in that, initially, they were given inalienable
stock. Therefore, she explained, there are regulations in the
Securities Act that instructs the ANCSA corporations, as well as
people who are shareholders who want to run for the board of
directors, on certain required disclosures. She noted that the
types of civil penalties being discussed for true securities
related violations do not fit with the ANCSA provisions. It is
important to list the securities provisions out of what is now
called the ANCSA provisions so they are not treated disparately,
and offered, that is one of the problems the division has
experienced because anything done with the securities law
affects the ANCSA corporations, their shareholders, and how
proxy solicitations are handled. Nationally, she remarked,
securities proxy solicitations are covered through the U.S.
Securities and Exchange Commission (SEC), which is a federal
overlay. The only reason the division has anything like that at
all is due to the ANCSA corporations, and the fact that with
their securities ownership and the things that go with it,
including the proxy solicitations, "there was no one else to
deal with it" so the federal government said to put it in
Alaska, she explained.
2:51:03 PM
REPRESENTATIVE REINBOLD asked Ms. Anselm to explain the
protection provisions in this bill that "were not in the bill
before, you know, for ANCSA, but are now."
MS. ANSELM reiterated that the division has proposed no changes
to the ANCSA provisions as it is simply lifting out everything
securities related, not ANCSA related, and put into a whole new
chapter of statute, which is AS 45.56, currently being
discussed.
2:51:51 PM
REPRESENTATIVE REINBOLD said she wondered why something having
to do with the bill was held up due to ANCSA.
MS. ANSELM responded that when the division proposed changes to
the Securities Act, the ANCSA corporations and shareholders
offered concern that it would affect something inadvertently, or
intentionally, having to do with its holding of their ANCSA
shares. For instance, she said, all ...
2:52:36 PM
CHAIR CLAMAN interrupted and asked whether it had to do with
proxy solicitations, or another issue.
MS. ANSELM answered "Yes, with regard to proxy solicitations"
but also violations, which is why the division wants to make it
clear that it is not changing anything relating to the ANCSA.
2:52:59 PM
REPRESENTATIVE REINBOLD suggested uploading the spreadsheet for
the public, and noted that the ANCSA corporations or penalties
tend to be approximately $1,000-$1,550, but the others tend to
be $100,000, $125,000, and $75,000, and asked why it was $1,500
or $1,000 for many, and others are upwards of $25,000 to
$125,000.
MS. ANSELM said that most of the ANCSA related penalties are
small because that is what is appropriate for a shareholder
issue within the State of Alaska, "that it's an informational
thing, it's not taking other people's money, generally."
Typically, the division's orders explain why the civil penalty
is what it is and commented that the truth of the matter is that
if it is a filing issue, the division does not take an action
with a civil penalty attached unless it is a repeat offense with
the ANCSA corporations. She referred to other cases depicted on
the spreadsheet, and advised that many of the more recent cases
have been taken by default wherein the offender would not talk
to the division so it moved on a default order. She referred to
page 3, 5th column down, "12/10/2013, Daniel Digiacomo," and
explained that this case involved crowdfunding, and posting on
the internet which was just beginning to take place. Mr.
Digiacomo lived in the State of Maryland and posted an
opportunity for investors in Alaska on Craig's List, the
division then advised him not to post, he asked why, the
division explained, and he continued to post. The division then
issued a Cease and Desist Order and when Mr. Digiacomo agreed to
take everything down and not post again, the division did not
access a civil penalty.
2:55:56 PM
CHAIR CLAMAN noted that he hadn't had a meaningful opportunity
to review it and rather than taking time reviewing page-by-page
and case-by-case on the fly, the spreadsheet would be set aside
for questions during the next hearing on the bill. He asked Ms.
Anselm to continue through to the end of the presentation.
2:56:36 PM
REPRESENTATIVE EASTMAN noted that the cases he briefly reviewed
appeared, for the most part, to be violations on the part of
Americans, and asked how the division would deal with a Canadian
violator.
CHAIR CLAMAN interjected that the question relates to the
spreadsheet, and he asked Ms. Anselm to get back to the
committee in writing or during the next hearing, but the
committee would not go down that path at this time. He asked
that Ms. Anselm forward the electronic scanned color copy to his
office and it would be uploaded online, and given to the
committee members.
MS. ANSELM agreed.
2:57:59 PM
MS. ANSELM turned to slide 9, Civil Enforcement Changes. She
advised that HB 170 clarifies as follows: the actions the
administrator can pursue in civil court, including asset freezes
and receivership; treble monetary penalties in cases involving
older or vulnerable adults; allows rescission, disgorgement and
restitution orders as well as pre or post-judgment interest;
provides that salespersons who violate the Act are liable to
their clients; both sellers and buyers of securities can be
liable for their actions, as a buyer would be liable when not
truthful; and the Statute of Limitations is typically three
years, or two years from discovery of the fraud. The interest
rate is set by statute, AS 09.30.070, and the minimum rate is
[coughing] percent, but it can be set through looking at the "12
Federal Reserve district discount rate plus 3 percent."
Attorney's fees are also recoverable by a plaintiff where
allowed, it does not have a prevailing party provision, she
explained.
3:00:08 PM
REPRESENTATIVE REINBOLD requested an explanation regarding
prevailing attorney fees.
MS. ANSELM explained, for instance, a person sues because they
believe they bought a bad security and lost money, if they go to
court and whoever sold it to them wins, that party receives
attorney fees under the prevailing party provision even though
they did not bring the case in the first place.
CHAIR CLAMAN asked whether she was saying that in this
particular Act, the bill is actually exempting it from the Rule
82 prevailing party attorney fee provisions by the nature of the
Act, or whether it says nothing in the Act that Rule 82 would
apply under the civil rules.
MS. ANSELM deferred to Renee Wardlaw, Assistant Attorney
General.
3:01:34 PM
RENEE WARDLAW, Assistant Attorney General, Commercial and Fair
Business Section, Department of Law (DOL), answered that the
proposed amendment would actually exempt this provision from
Rule 82, that a prevailing party [technical difficulties.] She
said, that in fact [technical difficulties] trying to exempt
this particular provision from Rule 82 allowing a [technical
difficulty] actually be awarded attorney's fees. She offered
that the division does not want to discourage investors from
bringing lawsuits if they believe they were wronged by a seller
of said investment.
3:02:41 PM
CHAIR CLAMAN interpreted Ms. Wardlaw's garbled testimony and
offered that the intent of this bill is to actually exempt these
lawsuits from the prevailing party attorney fee provision in
Rule 82 because the division did not want a barrier that could
potentially harm investors from being able to sue those who took
advantage of them, and face the prospect of prevailing party
attorney fees.
MS. WARDLAW agreed.
REPRESENTATIVE REINBOLD commented that attorney fees should be
posted as well, and then sent on to the state. She advised that
"a bill may be coming soon."
CHAIR CLAMAN informed Representative Reinbold that prevailing
attorney fees are posted currently, which is Rule 82.
3:04:21 PM
MS. ANSELM turned to slide 10, Criminal Enforcement, and advised
that most of the provisions are similar to current law; however,
"willfully" is changed to "knowingly," and noted that
"willfully" is not currently defined in Alaska Statute.
Generally, she explained, "a class C felony, if someone violates
the law without knowledge though, it is a class A misdemeanor"
and the person will not receive jail time.
3:05:32 PM
REPRESENTATIVE KOPP surmised that "willfully" is not a mental
state recognized in the law, and he offered concern regarding
the statement that the state can apply a criminal penalty
without knowledge, removing the mens rea. It would still be a
misdemeanor with up to one year in jail and a $10,000 fine. He
asked whether the bill was saying that "without knowledge" would
mean a lesser standard than "knowingly," or whether it meant
with criminal negligence still applies, or whether a person can
"just flat out" not know they broke the law and still have the
criminal sanctions and misdemeanor apply.
MS. ANSELM deferred to Ms. Wardlaw.
CHAIR CLAMAN advised that Representative Kopp question was
whether the bill created a strict liability offense without the
need for a mental state requirement in the provision about
misdemeanors, or whether it was something different.
3:06:46 PM
MS. WARDLAW responded that it is a strict liability assessment
and the mens rea has been removed [technical difficulties] into
that offense.
CHAIR CLAMAN, due to the garbled audio, offered that the answer
is that the bill creates a strict liability offense without a
mens rea requirement.
MS. WARDLAW agreed.
3:07:24 PM
REPRESENTATIVE KOPP opined that the legislature needs to be
watchful of attaching criminal liability without any mens rea to
be certain people are not inadvertently convicted criminals
without any intent. A violation may be appropriate for strict
liability, but if they truly do not have any intent to violate
the law, mens rea is always something that should be looked at
when criminal liability is attached, he stated.
3:08:01 PM
REPRESENTATIVE EASTMAN said he has a similar concern and asked
what types of situation Ms. Anselm would perceive as strict
liability.
MS. ANSELM referred to [HB 170, Sec. 45.56.670(a), page 92,
lines 16-18] which read as follows:
(a) a person convicted of violating a regulation
or order issued under the chapter may be fined, but
may not be imprisoned, if the person did not know of
the regulation or order.
3:09:15 PM
REPRESENTATIVE KOPP argued that it does not appear to refer to a
class A misdemeanor, as it is clearly referring to class C
felony conduct with a mental state of intentionally attached on
lines 12-16. He referred to lines 16-18, and said if that's the
misdemeanor language there, where there is no intent, it doesn't
identify it as a misdemeanor and possibly could be construed to
actually just be that on (indisc.) of violation.
MS. ANSELM asked whether there was something to look at in that
provision.
REPRESENTATIVE KOPP noted that it read "class A misdemeanor" and
[technical difficulties] then somewhere in here there has to be
a reference back to it setting the ... is it possible it is just
a violation and not a class A misdemeanor, he asked.
MS. ANSELM said she would check with the bill drafter.
CHAIR CLAMAN requested that she get back to the committee
because it is clearly an area of some complication. He related
that under Morissette v. United States, 342 U.S. 246 (1952),
there was a question of knowledge with regard to different
offenses, more narrowly tailored to theft offenses, but it gets
to the issue of mental states and crimes.
3:10:56 PM
REPRESENTATIVE EASTMAN asked that after meeting with the bill
drafter and it turns out there is strict liability here, to then
advise the committee as to why there was the expectation that
strict liability would be necessary.
MS. ANSELM agreed.
CHAIR CLAMAN suggested that from the chair's perspective and
echoing the sentiments raised by Representative Kopp, perhaps an
amendment with the mental state being something less than
"knowingly," as he related that he is wary of criminal issues
that don't involve the mental state.
3:11:48 PM
MS. ANSELM turned to slide 11, and noted that last year the
division filed 36 final orders, 17 were securities related, and
in calendar year 2016, the division issued 27 final orders, and
13 were securities related. She reminded the committee that the
division has 10 other substantive programs it deals with on the
financial side.
3:12:30 PM
MS. ANSELM turned to slide 12, and noted that some of the recent
scams in Alaska include, Fortune Oil & Gas, and opined it had
not gone past its appeal timeline. SOSDisasterplan.com was an
Alaskan business that touted investments on an online disaster
preparedness website, and issued approximately $540,000 in
unregistered/worthless shares. The Global Arena Capital Corp is
the New York firm she mentioned earlier that solicited Mr.
Burke, an ailing retired Alaskan halibut fisherman, and sold him
junk bonds.
MS. ANSELM presented oral testimony from Mr. Burke who had since
passed, and noted that, ultimately, the case was settled.
3:13:43 PM
[Mr. Burke's oral testimony, see pages 13-15 of the PowerPoint
for written testimony.]
3:15:28 PM
MS. ANSELM advised that the division was able to get Mr. Burke's
money back because it found a salesperson with a conscience and
he had parents concerned their son was in trouble.
Mr. Burke was lucky, she described, except he only received his
money back, and not all of the pain and issues he dealt with in
trying to receive his money. She stressed that the division
needs stronger tools to deal with bad actors and that these type
of fraudulent activities should make everyone in the state
angry. She then described Mr. Burke as a smart man because when
he received another call from someone trying to sell him Bio-
Tech stock, he called the division, and it was able to help
another firm understand their responsibilities in the State of
Alaska. Consequently, the division did not allow that firm to
operate in the state and it was fined for trying to use that
same scam on other people, she advised.
3:16:35 PM
REPRESENTATIVE REINBOLD asked that in the event other consumers
are being taken advantage of in this area, whether they should
call the division, or whether she had another recommendation.
MS. ANSELM responded, "Call us," and an investigator will
determine who to contact because it is the division's mission to
protect consumers regarding financial services, to promote a
safe, sound, and healthy financial system, to strongly support
communities, and to protect consumers in Alaska. The department
wants to take a balance approach by modernizing the law to
encourage businesses in Alaska, and protect Alaska's citizens,
including letting citizens know that "we're out here and can
help them, and that's another part of what we need to do." She
described it as one step at a time because the department does
not have the financial outreach capabilities necessary,
although, the division does bring in more than it expends due to
the civil penalty pieces and some of the licensing pieces. Ms.
Anselm estimated that the department operates on approximately
$2.5-$2.6 million, and the division usually brings in
approximately $13 million per year.
3:18:09 PM
CHAIR CLAMAN listed the four names of people online for
questions, and he assumed they would return for the next
hearing.
MS. ANSELM offered that was her understanding.
3:19:08 PM
CHAIR CLAMAN opened public testimony on HB 170. After
ascertaining no one wished to testify, closed public testimony.
CHAIR CLAMAN announced that HB 170 would be held over.
3:21:52 PM
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:21 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB170 ver J 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Sponsor Statement 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Sectional Analysis 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Repealers List 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 DCCED Whitepaper 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Supporting Document-Letter ANCSA Regional Association 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Supporting Document-Letter NASAA 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 HJUD Slide Presentation 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Additional Document-Enforcement Comparison Chart 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Fiscal Note DCCED-DBS 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |
| HB170 Fiscal Note DHSS-SDSA 4.7.17.pdf |
HJUD 4/7/2017 1:00:00 PM HJUD 4/11/2017 5:30:00 PM HJUD 4/12/2017 1:00:00 PM |
HB 170 |