HB 83-ALASKA SECURITIES ACT REPRESENTATIVE NORM ROKEBERG, sponsor of HB 83, made the following comments. HB 83 amends the Alaska Security Act to mainline with the National Security Marketing Improvement Act. Alaska has until October 1999 to enact HB 83 or it will lose over $4 million in revenue from the registered security industry from program receipts. Forty states have adopted similar legislation. The major banking institutions in the state are in agreement with this legislation. HB 83 preempts from registration a new class of securities, called federal covered securities. Without this legislation, investment advisors and their agents would be totally unregulated. HB 83 has been thoroughly reviewed by three committees already. Number 414 SENATOR DONLEY asked why Alaska will lose $4 million in revenue if HB 83 is not enacted. REPRESENTATIVE ROKEBERG explained the revenue is comprised of registration fees from, primarily, the mutual fund industry. Every mutual fund and registered agent must pay a registration fee. SENATOR DONLEY asked if that money would come to the state to help regulate the industry. REPRESENTATIVE ROKEBERG replied that is correct. Number 427 TERRY ELDER, Director of the Division of Banking, Securities and Corporations, Department of Commerce and Economic Development (DCED), informed committee members that HB 83 will bring Alaska into compliance with the National Securities Market Improvement Act (NSMIA) which passed in October of 1996. That Act created federal covered securities and federal covered advisors. NSMIA preempted state registration of those but provided that the states, in order to be revenue neutral, could continue to collect fees and require notice filings for those securities. The states were given three years to bring their securities acts into compliance with federal law. State laws were to cover securities and advisors and could continue to require the filing of notices and the payment of fees. In Alaska, the fees equal about $4 million. The Investment Company Institute, the major association representing the mutual fund industry, has provided a letter of support for HB 83. The Institute expects the fees collected to be used to regulate the securities industry, however Alaska, like almost every other state, does not spend as much as it collects on regulation. The House passed HB 83 with a unanimous vote as did the Senate Labor and Commerce Committee. The bill has broad bipartisan support and essentially no opposition. Number 452 MR. ELDER said because passage of NMSIA required a substantial re- write of the Alaska Securities Act, other improvements were made to the Alaska Securities Act as well. First, an accredited investor exemption was added to the list of those exempted from registration. The language was drafted by the North American Securities Administrators' Association. Its purpose is to allow Alaskan businesses to use the Small Business Administration's ACENET program which is an electronic matching service. Second, HB 83 exempts transactions conducted solely within a family. Third, HB 83 contains a provision to allow the division to go to court to reduce a fine to a judgment when a final order has been made. That provision will help the division go after out-of-state people who cheat Alaskans. In addition, changes were made to the recision provisions for securities sold without registration. Under current law, one who sells securities in Alaska without registration is liable to the buyer for a period of three years. The buyer could sue for the cost of the securities plus six percent interest per year. The new proposal changes the six percent interest rate to eight percent or the stated rate on the note, whichever is less. The three year time period remains unless the transaction was fraudulent, in which case an additional two years to sue, from the date of which the fraud became known, will be allowed. SENATOR DONLEY asked what the time limit is for an unlicensed sale. MR. ELDER replied if the seller is unregistered but the transaction is not fraudulent, the time limit is three years. Number 472 SENATOR DONLEY asked if an unlicensed person committed fraud, and the seller was aware of the fraud when the transaction occurred, whether the time period would be two or three years. MR. ELDER replied if an element of fraud can be proved, then the longer time period would be appropriate. He clarified that the bill provides for whichever time period is longer. CHAIRMAN TAYLOR noted the time period is a minimum of three years, but if fraud is involved an additional two years would be allowed. SENATOR DONLEY asked what types of investment professionals, not currently licensed, will be required to get licensed if HB 83 passes. MR. ELDER said no one who is not currently licensed will be licensed under this bill. SENATOR DONLEY asked if the revenue will be in the form of federal funds. MR. ELDER stated the revenue will come from filing notice and registration fees that are collected from the industry. SENATOR DONLEY questioned whether that is current practice, however the new federal law removes the state's authority to continue to do so without adopting the Uniform Act. MR. ELDER said that is correct. SENATOR DONLEY asked if the fees will increase. MR. ELDER said the fees are set by state regulation so they can change periodically. CHAIRMAN TAYLOR maintained that by regulation, Alaska could increase the notice and registration fees paid by municipal funds, and yet it would not have the authority under federal law to enforce those regulations. MR. ELDER stated if HB 83 is not enacted, Alaska could adopt a fee structure but it would not have the authority to take action if the fee was not paid. CHAIRMAN TAYLOR pointed out the real policing mechanism is found with the citizen's ability to file a civil action against the seller. He asked if the division has enforcement mechanisms. MR. ELDER replied the division has enforcement mechanisms but federal law preempts registration and allows notice filings, but the fact that the investment advisor or mutual fund filed a notice makes them subject to Alaska's anti-fraud rules. Federal law continues to give the states authority to investigate fraud.