Legislature(2015 - 2016)HOUSE FINANCE 519

04/13/2016 08:30 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time --
*+ HB 311 SUSTAINABLE BUDGET REPORTING TELECONFERENCED
Heard & Held
+ SB 170 DNR FEES FOR GEOLOGICAL SERVICES TELECONFERENCED
Moved CSSB 170(RES) Out of Committee
+ HB 194 AK SECURITIES ACT; PENALTIES; CRT. RULES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 194                                                                                                            
                                                                                                                                
     "An Act repealing and  reenacting the Alaska Securities                                                                    
     Act,   including   provisions    relating   to   exempt                                                                    
     securities and  transactions; relating  to registration                                                                    
     of  securities, firms,  and agents  that offer  or sell                                                                    
     securities   and   investment   advice;   relating   to                                                                    
     administrative,   civil,   and   criminal   enforcement                                                                    
     provisions, including  restitution and  civil penalties                                                                    
     for violations; allowing certain  civil penalties to be                                                                    
     used  for  an   investor  training  fund;  establishing                                                                    
     increased civil  penalties for harming  older Alaskans;                                                                    
     retaining provisions  concerning corporations organized                                                                    
     under the Alaska Native Claims Settlement Act;                                                                             
     amending Rules 4, 5, 54, 65, and 90, Alaska Rules of                                                                       
     Civil Procedure; and providing for an effective date."                                                                     
                                                                                                                                
8:48:10 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler MOVED  to ADOPT  the proposed  committee                                                                    
substitute for  HB 194,  Work Draft  29-GH1060\G (Bannister,                                                                    
4/12/16). There being NO OBJECTION, it was so ordered.                                                                          
                                                                                                                                
BRODIE  ANDERSON,  STAFF,   REPRESENTATIVE  STEVE  THOMPSON,                                                                    
explained  the  changes  in  the  Committee  Substitute.  He                                                                    
related   that  the   change  corrected   language  from   a                                                                    
conceptual amendment  adopted in  the previous  committee to                                                                    
match the  intent of the  amendment. He delineated  that one                                                                    
correction was located  on page 101, line 2  and deleted the                                                                    
number 19 that  was replaced by the number  18. He explained                                                                    
that the number reflected the  age of maturity. In addition,                                                                    
on  page 101,  line  5, the  words  "or disappearance"  were                                                                    
deleted  and the  words  "dementia  or Alzheimer's  disease"                                                                    
were inserted.                                                                                                                  
                                                                                                                                
KEVIN ANSELM, DIRECTOR, DIVISION  OF BANKING AND SECURITIES,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
reported that the  legislation was a re-write  of the Alaska                                                                    
Securities Exchange  Act and much  of the  language remained                                                                    
the same. She provided a  brief overview and highlighted the                                                                    
changes.  She outlined  that the  bill separated  securities                                                                    
statutes  from  the  Alaska  Native  Claims  Settlement  Act                                                                    
(ANCSA)  related statutes  to reduce  confusion and  improve                                                                    
the  understanding  of  both  acts.  The  bill  removed  the                                                                    
securities statutes  in AS  45.55 and  added a  new chapter,                                                                    
45.56.  The  legislation  "synthesized" the  Securities  Act                                                                    
with other  state's laws by adopting  relevant provisions of                                                                    
the  Uniform Securities  Act (2002)  to make  it easier  for                                                                    
businesses,  entrepreneurs,  and   investors  to  understand                                                                    
their  rights,  responsibilities,   and  opportunities.  She                                                                    
furthered that the bill  recognized and incorporated current                                                                    
securities  industry terms  and  standards. The  legislation                                                                    
opened  equity  crowd  funding  opportunities  and  derailed                                                                    
investment   scams  by   increasing  civil   penalties.  The                                                                    
penalties could  be used to provide  investor, consumer, and                                                                    
entrepreneurial   education    via   legislative   approval.                                                                    
Finally,  HB  194  tripled penalties  for  offences  against                                                                    
senior   citizens  or   vulnerable   adults.  She   provided                                                                    
background regarding the securities  industry in Alaska. She                                                                    
reported  that  by the  end  of  2015  the state  had  1,234                                                                    
registered broker/dealer  firms, however  only one  firm was                                                                    
Alaskan.  She  remarked  that   Alaska  had  765  investment                                                                    
advisors and  only 30 firms  were "domiciled" in  the state.                                                                    
In  2015, 90,340  financial sales  persons were  licensed in                                                                    
Alaska and less than 1000  were domiciled here. She observed                                                                    
that the  state received 6,600 securities  filings each year                                                                    
and most  were from  out-of-state. In general,  the industry                                                                    
was compliant with state laws.                                                                                                  
                                                                                                                                
Representative Munoz joined the meeting.                                                                                        
                                                                                                                                
Ms. Anslem continued  to address the bill.  She relayed that                                                                    
Alaska's  security industry  paid approximately  $13 million                                                                    
per year in  licensing and filing fees and the  bill did not                                                                    
affect  the  fees. The  budget  for  the division  was  $3.5                                                                    
million  per  year.  She informed  the  committee  that  the                                                                    
division  investigated and  took enforcement  action against                                                                    
securities firms, agents, and  issuers, if necessary. In the                                                                    
last four calendar  years the division had  taken 54 actions                                                                    
against  securities related  firms  and  sales persons.  She                                                                    
offered  that  most  actions were  settled  through  consent                                                                    
agreements,  and all  civil penalties  went directly  to the                                                                    
General Fund (GF). The division  took default orders against                                                                    
the six cases  that weren't settled. She  discussed three of                                                                    
the  unsettled  cases to  emphasize  the  importance of  the                                                                    
enforcement actions  and passage of the  bill. She indicated                                                                    
that  the   current  maximum  fine  was   only  $25,000  per                                                                    
respondent no matter how many violations were committed.                                                                        
                                                                                                                                
8:55:46 AM                                                                                                                    
                                                                                                                                
Ms. Anslem read the following from prepared notes:                                                                              
                                                                                                                                
     13-1095-S,  Fortune  Oil &  Gas,  Russell  Vera and  R.                                                                    
     Gerald  Bailey:  On  February  3,  2014,  the  Division                                                                    
     issued  a Final  Cease and  Desist Order  that included                                                                    
     the   MAXIMUM   civil   penalty  of   $25,000   against                                                                    
     Respondents   for   selling   over  $3.1   million   in                                                                    
     unregistered  limited  partnership interests  in  Texas                                                                    
    Oil and Gas ventures, mainly to Alaskan investors.                                                                          
                                                                                                                                
     14-1442-S, Global  Arena Capital Corp.: On  October 23,                                                                    
     2015,  the Division  issued a  Final  Cease and  Desist                                                                    
     Order  that  included  a   civil  penalty  of  $150,000                                                                    
     against  Global  Arena and  six  of  its employees  for                                                                    
     violations    of    the    Alaska    Securities    Act.                                                                    
     Specifically, an employee of  Global Arena contacted an                                                                    
     elderly  Alaska halibut  fisherman in  poor health  and                                                                    
     sold him junk bonds,  although the investor believed he                                                                    
     was  buying  something  like a  CD.  The  investigation                                                                    
     revealed that  the agents were instructed  to offer and                                                                    
     sell  the  junk  bonds  as  "safe  investments."    The                                                                    
     fisherman invested $27,000 in  the bonds, which rapidly                                                                    
     lost  value.   The  firm  even  attempted to  sell  the                                                                    
     investor  other bonds,  including  one  that would  not                                                                    
     reach maturity  until the investor  was 119  years old.                                                                    
     The investment  lost nearly  $16,000. Global  Arena was                                                                    
     cited for deceptive  and misleading representations and                                                                    
     offering   unsuitable    securities.   Currently,   the                                                                    
     Division  can  only  get money  back  for  a  defrauded                                                                    
     investor  with an  agreement with  a bad  actor to  pay                                                                    
     restitution directly  to the  investor.  In  this case,                                                                    
     the Division  successfully negotiated  with one  of the                                                                    
     respondents  to pay  restitution to  the investor.  The                                                                    
     Division may be  able to recover some  of the penalties                                                                    
     through  a SIPC  action since  the firm  is now  out of                                                                    
     business.                                                                                                                  
                                                                                                                                
     15-1520-S/15-1520-2-S, Garden  State Securities/Garland                                                                    
     James:  Garland James,  previously an  agent at  Global                                                                    
     Arena  Capital Corp.,  went to  work for  Garden State.                                                                    
     He  cold-called the  same  elderly  Alaskan fleeced  by                                                                    
     Global  and  tried  to  sell him  $82,000  of  a  risky                                                                    
     biotechnology stock.  When he made the  call, James was                                                                    
     not  registered as  a  broker-dealer  agent in  Alaska.                                                                    
     The  Division entered  into  a  consent agreement  with                                                                    
     Garden  State to  withdraw its  registration in  Alaska                                                                    
     and pay  a $25,000 civil penalty  (maximum) for failing                                                                    
     to  supervise James.  The Division  issued a  Temporary                                                                    
     Cease and Desist Order against  James on March 21, 2016                                                                    
     for   unregistered  activity   and   for  offering   an                                                                    
     unsuitable security to the  investor, seeking a $25,000                                                                    
     civil penalty.                                                                                                             
                                                                                                                                
     12-85-S, Troy Stafford and  Patrick Williams:  Stafford                                                                    
     and Williams  formed an Alaska  LLC, GS Capital  and WS                                                                    
     Seafood.  Stafford   offered  an  Alaska   resident  an                                                                    
     opportunity  to  invest  $40,000   in  WS  Seafood  and                                                                    
     employment.   Stafford  also   stated,  falsely,   that                                                                    
     another corporation had promised  a $10 million loan to                                                                    
     assist the endeavors. The  investor invested his money.                                                                    
     The deal  fell through and the  investor never received                                                                    
     the promised  management role. The  Division negotiated                                                                    
     a settlement  with the  respondents, requiring  them to                                                                    
     offer  rescission to  the  investor, which  respondents                                                                    
     agreed to do and promised  to pay, even filing a notice                                                                    
     of  rescission  with  the Division.  Respondents  never                                                                    
     paid the  investor as promised.  The Division  issued a                                                                    
     Cease and Desist and received  a court order to enforce                                                                    
     it.                                                                                                                        
                                                                                                                                
Ms. Anslem  stressed that  in regards to  the last  case; no                                                                    
statute  mandated   payment  by  the  perpetrators   to  the                                                                    
investor. The current version  of the legislation authorized                                                                    
enforcement. She continued to read the following:                                                                               
                                                                                                                                
     This bill  would change the  maximum civil  penalty per                                                                    
     violation  to $100,000.    You can  see  that with  the                                                                    
     kinds of cases  we are talking about, there  would be a                                                                    
     wider range  of potential  civil penalties.   The fines                                                                    
     imposed  for  the  six  cases  that  I  mentioned  were                                                                    
     $525,000.    Under  the  provisions   in  HB  194,  the                                                                    
     potential  fines could  have  reached over  $7,000,000.                                                                    
     Of  course,  one  never  knows  what  can  actually  be                                                                    
     collected.    Accordingly,  we can't  promise  revenues                                                                    
     with  any  certainty,  thus  the  indeterminate  fiscal                                                                    
     note.                                                                                                                      
                                                                                                                                
9:01:02 AM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson   asked  about  the  importance   of  the                                                                    
legislature adopting HB 194 during  the current session. Ms.                                                                    
Anslem considered the bill critical.  She explained that the                                                                    
division  had worked  for a  number of  years to  update the                                                                    
securities  law. She  believed the  legislation helped  with                                                                    
revenue  generation by  increasing the  civil penalties  for                                                                    
businesses that harm Alaskans.                                                                                                  
                                                                                                                                
Vice-Chair Saddler asked what  specific sections or elements                                                                    
of the bill were the  most critical. Ms. Anslem replied that                                                                    
most   of  the   Alaska  specific   provisions  dealt   with                                                                    
exemptions  from  registration  and carried  over  from  the                                                                    
original act.  She pointed  out that  the state  had special                                                                    
exemptions for certain  fishing cooperatives, the Commercial                                                                    
Fishing  and  Agricultural  Bank  (CFAB),  and  some  mining                                                                    
exemptions.  Vice-Chair  Saddler  asked whether  there  were                                                                    
sections or  elements of the  bill that were  "more critical                                                                    
than the  others." Ms. Anslem answered  that the enforcement                                                                    
and  crowd funding  provisions  were  critical. She  thought                                                                    
that the  provisions that were  the least critical  were the                                                                    
exempt  security  sections:  Article  1,  2,  and  4,  which                                                                    
remained  very similar  to the  original.  She deduced  that                                                                    
another  important   element  allowed  the   legislature  to                                                                    
allocate up to  one third of the funds  collected from civil                                                                    
penalties for consumer and  investor education. She revealed                                                                    
that  consumer  and  investor  education  was  part  of  the                                                                    
division's mission but currently was not funded.                                                                                
                                                                                                                                
9:04:51 AM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler asked whether  there were elements of the                                                                    
bill  that required  conformity  with federal  requirements.                                                                    
Ms.  Anslem replied  that  there were  a  number of  federal                                                                    
requirements  that had  evolved over  time but  were already                                                                    
referenced in  the law. She  elaborated that  securities law                                                                    
was comprised  of two components:  a federal overlay,  and a                                                                    
"blue sky law" that all  states administered. One layer, the                                                                    
national  securities  law   governed  individual  investors,                                                                    
dealers,  and financial  markets  operations. She  furthered                                                                    
that localized  securities laws  were handled  by individual                                                                    
states.  Alaska's  laws  written  in  alignment  with  other                                                                    
states aided  business and investors, which  allowed them to                                                                    
cross state  lines and maintain compliance  with federal and                                                                    
state laws.                                                                                                                     
                                                                                                                                
Vice-Chair  Saddler noted  that the  National Conference  of                                                                    
State  Legislatures   (NCSL)  and   the  Council   of  State                                                                    
Governments  issued  uniform  laws and  recommendations.  He                                                                    
asked who  produced and administered the  Uniform Securities                                                                    
Act.                                                                                                                            
                                                                                                                                
RENEE  WARDLAW, ASSISTANT  ATTORNEY  GENERAL, DEPARTMENT  OF                                                                    
LAW,  ANCHORAGE  (via  teleconference),  answered  that  the                                                                    
National Conference  of Commissioners on Uniform  State Laws                                                                    
[also  known as  the Uniform  Law Commission  (ULC)] drafted                                                                    
the legislation.                                                                                                                
                                                                                                                                
Representative  Wilson stated  that she  had not  vetted the                                                                    
bill.   She  referred   to   the   provisions  on   criminal                                                                    
enforcement  that changed  "willful" violation  to "knowing"                                                                    
violation  and   asked  for   an  explanation.   Ms.  Anslem                                                                    
responded that  the Uniform Securities Act  had included the                                                                    
term   "willfully"    that   meant    "intentionally."   The                                                                    
Legislative Legal  Services Agency attorney's  requested the                                                                    
change  to   "knowingly."  She  clarified  that   the  legal                                                                    
determination  regarding state  of mind  and culpability  in                                                                    
criminal law  (Mens Rea)  was hierarchically  categorized as                                                                    
intentionally,   knowingly,  recklessly,   and  negligently.                                                                    
Knowingly  was  a  lesser  standard.  Representative  Wilson                                                                    
asked  for verification  that the  standard for  criminality                                                                    
was being  lowered. Ms. Anslem  replied in  the affirmative.                                                                    
She cited  AS 11.81.900  as the  statute that  contained the                                                                    
language.                                                                                                                       
                                                                                                                                
9:09:40 AM                                                                                                                    
                                                                                                                                
Representative Wilson  asked whether  the division  or court                                                                    
proceedings  determined  whether   violations  occurred  and                                                                    
dispensed penalties.  Ms. Anslem  responded that  there were                                                                    
three different  types of actions  that could be  taken. She                                                                    
detailed that  the first action was  administrative taken by                                                                    
the   Department   of   Commerce  Community   and   Economic                                                                    
Development (DCCED).  The second  action was civil  taken by                                                                    
either  DCCED or  "a  private cause  of  action." The  third                                                                    
action  was  criminal, taken  by  DCCED  or the  state.  She                                                                    
clarified that  the department had  not taken on  a criminal                                                                    
case  to date  and the  Department of  Law (DOL)  could take                                                                    
criminal  action if  a case  arose in  a context  outside of                                                                    
DCCED.  Representative Wilson  surmised that  the department                                                                    
could find  someone guilty through an  administrative action                                                                    
and the new provisions could  enact penalties up to $100,000                                                                    
in restitution.  She asked whether the  department could add                                                                    
additional fines. Ms. Anslem replied  that the civil penalty                                                                    
would be  up to $100,000  per violation although  the amount                                                                    
was  typically negotiated  on a  consent  basis. She  stated                                                                    
that   restitution  was   different.   She  explained   that                                                                    
restitution was usually  a repayment of lost  money and that                                                                    
imposing both  was possible. Representative  Wilson wondered                                                                    
about   the  administrative   appeal  process.   Ms.  Anslem                                                                    
answered  that  an  appeal  was   heard  in  the  Office  of                                                                    
Administrative   Hearings  and   that  decisions   could  be                                                                    
appealed to Superior  Court. Representative Wilson contended                                                                    
that  she   had  issues  with  the   administrative  hearing                                                                    
process.                                                                                                                        
                                                                                                                                
Co-Chair  Thompson  noted  that  Representative  Edgmon  had                                                                    
joined the meeting.                                                                                                             
                                                                                                                                
Representative  Pruitt wondered  what the  state could  have                                                                    
done  differently  for the  elderly  gentlemen  in the  case                                                                    
against Garden State  Securities if the new  provision in HB
194 had been  enacted at the time. Ms.  Anslem answered that                                                                    
the  state would  have been  able to  order restitution  and                                                                    
fine the firm for failure  to supervise employees. The state                                                                    
would have  been able to  take action against  every manager                                                                    
in  the  firm involved  in  instructing  brokers to  mislead                                                                    
investors.  The findings  would have  led to  the amount  of                                                                    
culpability  and   the  fines   would  have   been  adjusted                                                                    
accordingly.  Representative  Pruitt  asked  whether  Garden                                                                    
State  Securities  was  registered outside  of  Alaska.  Ms.                                                                    
Anslem  replied  that Garden  State  was  a New  York  firm.                                                                    
Representative Pruitt  asked how  the division  enforced the                                                                    
law outside  of Alaska and  whether enforcement was  part of                                                                    
the uniform law.  He asked whether the  laws assisted Alaska                                                                    
to  pursue  enforcement outside  of  the  state. Ms.  Anslem                                                                    
answered  in   the  affirmative.  She  detailed   the  North                                                                    
American  Securities Administrators  Association facilitated                                                                    
states  working together  via very  strong agreements  among                                                                    
each  other. She  observed that  often  violations were  not                                                                    
occurring in  just one state  and joint  investigations were                                                                    
common.                                                                                                                         
                                                                                                                                
9:16:42 AM                                                                                                                    
                                                                                                                                
Co-Chair Neuman asked whether the  bill created a board or a                                                                    
committee.  Ms. Anslem  replied  in  the negative.  Co-Chair                                                                    
Neuman asked  whether any businesses were  currently working                                                                    
in Alaska  that would  be impacted by  the bill.  Ms. Anslem                                                                    
responded that any of the changes  in the bill did not apply                                                                    
to transactions  that took place  before the  effective date                                                                    
of  July 1,  2016. Co-Chair  Neuman thought  that businesses                                                                    
were  not required  to have  an Alaska  business license  to                                                                    
practice  in Alaska.  Ms. Anslem  replied that  the question                                                                    
was  related  to the  Division  of  Boards and  Professional                                                                    
Licensing (CBPL)  regarding whether a specific  business was                                                                    
required to have  a license. She commented that  most of the                                                                    
firms in  Alaska did have  a business license in  the state.                                                                    
Co-Chair Neuman  referred to  a "snow  bird" carve  out. Ms.                                                                    
Anslem  answered that  the snow  bird carve  out applied  to                                                                    
firms that had clients from  another state that travelled to                                                                    
Alaska  and   permitted  the  firms   to  carry   out  three                                                                    
transactions  without  being separately  licensed.  Co-Chair                                                                    
Neuman  noted that  via statute,  money received  from court                                                                    
judgements went  into the General  Fund. Ms.  Anslem replied                                                                    
that HB 194 would not change the statute.                                                                                       
                                                                                                                                
Representative Guttenberg spoke about  a letter from Samuels                                                                    
Yoelin  Kantor LLP  - Robert  Banks dated  February 1,  2016                                                                    
(copy  on  file)  that  reported   an  issue  with  variable                                                                    
annuities  for  customers  and   brokers.  He  wondered  why                                                                    
variable annuities were allowed to  be sold in the state. He                                                                    
stated that he  could not find the statute  AS 45.56.605 (f)                                                                    
as  cited in  Mr. Banks  letter in  the bill  or summary  of                                                                    
changes (copy  on file). He  wondered whether  the provision                                                                    
was deleted. Ms. Anslem replied  in the affirmative - it had                                                                    
been  removed from  the  current version  of  the bill.  She                                                                    
explained  that the  Division of  Insurance was  the primary                                                                    
regulator  of  variable   annuities,  which  were  federally                                                                    
considered  a  security.   However,  states  could  regulate                                                                    
variable  annuities  depending  on what  provisions  of  the                                                                    
Uniform Securities Act a state  adopted. Upon request by the                                                                    
insurance industry, the division  chose not to adopt federal                                                                    
provisions relating to variable annuities.                                                                                      
                                                                                                                                
9:21:25 AM                                                                                                                    
                                                                                                                                
Representative  Guttenberg noted  the  importance Mr.  Banks                                                                    
placed  on the  adopting the  provisions. He  asked how  the                                                                    
regulations  were  "being  covered" under  the  Division  of                                                                    
Insurance.  Ms.  Anslem  responded   that  the  Division  of                                                                    
Insurance  was and  always had  been the  sole regulator  of                                                                    
variable annuities. Representative  Guttenberg asked whether                                                                    
additional rules should be placed  in the bill no matter who                                                                    
the regulator was.  Ms. Anslem replied in  the negative. She                                                                    
thought that  the issue  required more  review and  that the                                                                    
division might revisit  the issue. Representative Guttenberg                                                                    
asked whether there was a  history of problems with variable                                                                    
annuities  in Alaska  and wondered  why the  provisions were                                                                    
being  left  out  of  a  bill  dealing  with  conforming  to                                                                    
national  standards. He  remarked that  the letter  reported                                                                    
issues related to lack of  conformity to national standards.                                                                    
Ms. Anslem  responded that issues around  variable annuities                                                                    
were different in other states  depending on the strength of                                                                    
its regulations.  She offered  that variable  annuities were                                                                    
regulated  on a  national level  by the  Securities Exchange                                                                    
Commission   (SEC)   the   successor   [Financial   Industry                                                                    
Regulatory   Authority,  Inc.   (FINRA)]  to   the  National                                                                    
Association  of Securities  Dealers who  required licensing.                                                                    
The department  licensed variable annuities  brokers through                                                                    
both  the  Division  of  Banking   and  Securities  and  the                                                                    
Division of  Insurance. She informed the  committee that the                                                                    
insurance  division  had  the  sole  authority  to  regulate                                                                    
variable  annuities under  Chapter 21  and provisions  under                                                                    
45.56  would  be  additional  to  the  insurance  division's                                                                    
regulations. She  revealed that  the decision had  been made                                                                    
between  the   Division  of  Insurance  and   the  insurance                                                                    
industry  to do  further  study to  determine  how well  the                                                                    
state   was   regulating   the   annuities.   Representative                                                                    
Guttenberg asked whether  there was a problem  with the sale                                                                    
of variable  annuities in Alaska.  Ms. Anslem  answered that                                                                    
there  had been  complaints,  but she  did not  characterize                                                                    
them as a problem.                                                                                                              
                                                                                                                                
Representative  Gattis asked  whether there  were provisions                                                                    
in  the legislation  that  were imperative  to  pass in  the                                                                    
current session.  She felt the  bill was immense  and wanted                                                                    
to be sure the committee  did its due diligence but realized                                                                    
there  were   essential  "clean-up"  provisions   that  were                                                                    
necessary.                                                                                                                      
                                                                                                                                
9:25:43 AM                                                                                                                    
                                                                                                                                
Ms. Anslem  replied that the  bill had a number  of hearings                                                                    
through prior  committees: House Labor and  Commerce and the                                                                    
House  Judiciary   Committee.  She  deemed  that   the  most                                                                    
important  issues  were  enforcement,  civil  penalties  and                                                                    
restitution, and consumer education.  She expounded that the                                                                    
issues were  about the protection of  Alaskans and educating                                                                    
the public  to protect  them from  "getting ripped  off" and                                                                    
made  aware  of   the  resources  available.  Representative                                                                    
Gattis acknowledged that  there was a lot of  cleanup in the                                                                    
bill that  could be done  and wondered where  emphasis could                                                                    
be placed. She  wanted to know why passage of  the bill "was                                                                    
pressing" in  the current session.  Ms. Anslem  replied that                                                                    
the bill had  been in process for the past  6 years in order                                                                    
to bring  the state in  compliance with the most  recent act                                                                    
from 2002 and  enable alignment with other  states. She felt                                                                    
that  passage  of  the  bill   was  important  for  economic                                                                    
development  in the  state. In  addition, the  crowd funding                                                                    
provisions represented  a new opportunity for  Alaskans that                                                                    
authorized  investing  up  to  $5000  per  year  on  Alaskan                                                                    
businesses  and  start-ups. She  noted  that  SB 126  (Small                                                                    
Security Offerings) sponsored by  Senator Mia Costello dealt                                                                    
with the issue  and was moving through  the legislature. She                                                                    
remarked that  the crowd  funding provisions  were regulated                                                                    
solely by the state.                                                                                                            
                                                                                                                                
9:29:45 AM                                                                                                                    
                                                                                                                                
Representative  Munoz  asked  about  the  90,000  registered                                                                    
agents.  She asked  whether the  number was  unusually large                                                                    
compared  to  other states.  Ms.  Anslem  answered that  the                                                                    
number was a  larger per capita number than  in other states                                                                    
but not the  largest. She indicated that one  of the largest                                                                    
draws was Alaska's  higher per capita income  and higher per                                                                    
capita   net  worth.   She  believed   that  without   solid                                                                    
enforcement opportunities  the state would continue  to be a                                                                    
target  for  offences.  Representative Munoz  asked  whether                                                                    
crowd  funding statutes  existed in  current state  law. Ms.                                                                    
Anslem answered in the negative.  She remarked that the only                                                                    
crowd funding allowed was through  internet option like Kick                                                                    
Starter and the  investor did not expect to get  a return on                                                                    
investment. However,  with equity crowd funding,  returns on                                                                    
investment   or    other   remunerations    were   possible.                                                                    
Representative  Munoz   asked  whether   the  $5000   was  a                                                                    
cumulative  cap.  Ms. Anslem  answered  that  the limit  was                                                                    
$5,000  per  investment.   Representative  Munoz  asked  how                                                                    
violations were discovered. Ms.  Anslem responded that cases                                                                    
were  often  referred to  the  division  through federal  or                                                                    
state law  enforcement, complaints, the  Securities Exchange                                                                    
Commission, and from  a number of other sources  such as the                                                                    
National Association of Securities administrators.                                                                              
                                                                                                                                
9:33:01 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler  noted  that  the fiscal  note  did  not                                                                    
include or mention funding for  consumer education. He asked                                                                    
for further  information. Ms.  Anslem replied  that consumer                                                                    
protection  was  part  of   the  department's  mission.  She                                                                    
provided  the  example  of   a  $25,000  securities  penalty                                                                    
collected,  which allowed  for  approximately  $8,000 to  be                                                                    
deposited  into   an  account  under  the   control  of  the                                                                    
legislature  who could  appropriate the  funds for  consumer                                                                    
education and  outreach events. Vice-Chair  Saddler wondered                                                                    
how much  money could possibly become  available. Ms. Anslem                                                                    
answered   that    the   penalties   would    have   totaled                                                                    
approximately $7,000,000  and up to  one third of  the funds                                                                    
could have  been appropriated  for consumer  education based                                                                    
on  the  cases  she  exemplified, under  the  maximum  fines                                                                    
established in the bill.                                                                                                        
                                                                                                                                
Representative Pruitt  asked how long the  division had been                                                                    
working on  the bill.  Ms. Anslem replied  that work  on the                                                                    
bill had been in progress since 2008.                                                                                           
                                                                                                                                
Co-Chair Thompson recalled hearing a  version of the bill in                                                                    
the House Judiciary Committee six years earlier.                                                                                
                                                                                                                                
Representative Pruitt  asked about  restitution and  how the                                                                    
issue  was   addressed  in   the  legislation.   Ms.  Anslem                                                                    
responded  that  restitution needed  to  be  paid before  an                                                                    
action was cleared.                                                                                                             
                                                                                                                                
9:37:33 AM                                                                                                                    
                                                                                                                                
Representative   Pruitt  asked   about  the   crowd  funding                                                                    
component of  the bill. He  asked whether the  bill mirrored                                                                    
other  states  regulation or  whether  it  was adjusted  for                                                                    
Alaska.  Ms.   Anslem  answered   that  the   crowd  funding                                                                    
provisions in the  bill were simpler when  compared to other                                                                    
states. The crowd  funding was a simple  process that helped                                                                    
get entrepreneurs off  the ground. The bill  did not require                                                                    
escrow   but  required   compiling  information   about  the                                                                    
business but excluded a  business prospectus requirement due                                                                    
to  the   small  population  of  the   state  and  resulting                                                                    
transparency. She  noted that the  cost to require use  of a                                                                    
broker  dealer  was  very  high  and  not  included  in  the                                                                    
legislation.  Her goal  was to  ensure that  the information                                                                    
about the  business provided to  the investor  was accurate.                                                                    
The state was  considered a "full disclosure"  state but not                                                                    
a  "merit" state.  Representative Pruitt  asked if  the bill                                                                    
ensured  crowd funding  consumers  that  "if something  went                                                                    
sideways they  would potentially be made  whole." Ms. Anslem                                                                    
replied that it  was related to the same  provisions she had                                                                    
already  discussed. Representative  Pruitt  asked about  the                                                                    
mechanism   to  safeguard   that   the   new  business   was                                                                    
legitimate. He asked  what elements were in  place to ensure                                                                    
oversight. Ms.  Anslem answered that the  elements included;                                                                    
a  filing requirement  that  was  scrutinized by  securities                                                                    
examiners,  background  checks,  and Alaska  residency.  She                                                                    
characterized   equity  crowd   funding  as   "Alaskans  for                                                                    
Alaska."  Representative  Pruitt   asked  how  the  division                                                                    
executed  consumer education.  Ms. Anslem  replied that  the                                                                    
division   worked  closely   with  the   SEC  who   provided                                                                    
presentations  and   seminars  as   well  as   the  American                                                                    
Association  of Retired  Persons (AARP)  and acquired  joint                                                                    
grants through  the Investor Protection  Trust to  produce a                                                                    
series  of 30  minute programs  that were  broadcast through                                                                    
KTOO TV on the 360  degree North Channel and reached 250,000                                                                    
viewers per year. The division  participated in all kinds of                                                                    
community events; small and large.                                                                                              
                                                                                                                                
9:44:00 AM                                                                                                                    
                                                                                                                                
Representative Wilson  wondered what  had been  the sticking                                                                    
point  on  the  bill  over  the  past  six  years  to  stall                                                                    
adoption. Ms. Anslem answered that  the bill was complex and                                                                    
the rewrite made the issue  appear "bigger" than it was. She                                                                    
noted that  the ANCSA  issue was intermixed  with securities                                                                    
and had  been a real  impediment to updating  the securities                                                                    
act  because most  of the  securities act  did not  apply to                                                                    
ANCSA. She  believed that separating  the statutes  would be                                                                    
beneficial  to all  parties. Representative  Wilson surmised                                                                    
that  the bill  sounded good,  but she  did not  know enough                                                                    
about it. Her biggest  concern was related to administrative                                                                    
hearings  versus court  hearings.  She  was concerned  about                                                                    
lowering  the threshold  for guilt.  She  asked whether  the                                                                    
industry received notification and had  a chance to weigh in                                                                    
on  the bill.  Ms. Anslem  answered in  the affirmative  and                                                                    
pointed to the issue involving variable annuities.                                                                              
                                                                                                                                
Co-Chair Thompson OPENED public testimony.                                                                                      
                                                                                                                                
Co-Chair Thompson CLOSED public testimony.                                                                                      
                                                                                                                                
Co-Chair Thompson  understood the concerns of  the committee                                                                    
based on the  bill's large size. He noted that  the bill had                                                                    
been well  vetted by two  other committees. He spoke  to the                                                                    
fiscal notes and  reported that two were zero  and the other                                                                    
for the  Department of Revenue  was indeterminate but  had a                                                                    
minimal  impact.   He  communicated  that   the  legislation                                                                    
protected  consumers, vulnerable  individuals, and  provided                                                                    
for  restitution   among  other   benefits.  He   asked  for                                                                    
discussion  regarding reporting  the bill  out of  committee                                                                    
due to the facts that  only several days of session remained                                                                    
and  CCED thought  that the  bill  would be  adopted by  the                                                                    
Senate.                                                                                                                         
                                                                                                                                
9:48:34 AM                                                                                                                    
                                                                                                                                
Representative  Wilson appreciated  the Co-Chair's  comments                                                                    
and  the  consumer  protection afforded  in  the  bill.  She                                                                    
understood   that  the   bill  had   been  vetted   and  she                                                                    
acknowledged that  there was a  companion bill in  the other                                                                    
body. However, she  wanted more time to  answer her concerns                                                                    
regarding   lowering   the   criminal   threshold   and   to                                                                    
familiarize herself with all of the provisions in the bill.                                                                     
                                                                                                                                
Representative  Gattis requested  more time  to look  at the                                                                    
bill in order to gain more clarity.                                                                                             
                                                                                                                                
Vice-Chair  Saddler  echoed  the comments  by  the  previous                                                                    
speakers and asked for more time to review the legislation.                                                                     
                                                                                                                                
HB  194  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
HB194 - Summary of Changes Ver A to Ver N.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB 194 CS WORKDRAFT FIN vG.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 - Transmittal Letter.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 Fiscal Note-DCCED-DBS-01-25-16.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 Supporting Documents - ACLI letter.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 Supporting Documents - Robert Banks letter.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 Supporting Documents - Snowbird Exemptions.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 Supporting Documents - Ver P Whitepaper.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 ver I Summary of Changes.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 ver I Sectional Analysis.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
HB194 ver I Supporting Documents - Crosswalk Ver I.pdf HFIN 4/13/2016 8:30:00 AM
HB 194
SB0170-Explanation of Changes-Version A to Version W.pdf HFIN 4/13/2016 8:30:00 AM
SB 170
SB0170-Sectional Analysis-Version W.pdf HFIN 4/13/2016 8:30:00 AM
SB 170
SB0170-Sponsor Statement.pdf HFIN 4/13/2016 8:30:00 AM
SB 170
SB0170-Supporting Document-FAQs from DNR-DGGS.pdf HFIN 4/13/2016 8:30:00 AM
SB 170
SB0170-Supporting Document-Letter-DNR-DGGS.pdf HFIN 4/13/2016 8:30:00 AM
SB 170
HB311 Sponsor Statement.pdf HFIN 4/13/2016 8:30:00 AM
HB 311
HB 311 Presentation (4.13.2016).pdf HFIN 4/13/2016 8:30:00 AM
HB 311