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