Legislature(2015 - 2016)GRUENBERG 120

04/04/2016 01:00 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 194 AK SECURITIES ACT; PENALTIES; CRT. RULES TELECONFERENCED
Heard & Held
-- Public & Invited Testimony --
+= HB 205 CRIMINAL LAW/PROCEDURE; DRIV LIC; PUB AID TELECONFERENCED
Scheduled but Not Heard
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HJR 29 CALL FED. CONSTITUTIONAL CONV:TERM LIMITS TELECONFERENCED
Moved HJR 29 Out of Committee
+= HB 317 FORFEITURE:NO CIVIL IN REM; ONLY CRIMINAL TELECONFERENCED
Moved CSHB 317(JUD) Out of Committee
        HB 194-AK SECURITIES ACT; PENALTIES; CRT. RULES                                                                     
                                                                                                                                
1:13:26 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX announced  that the next order of  business would be                                                               
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."                                                                 
                                                                                                                                
1:13:53 PM                                                                                                                    
                                                                                                                                
KEVIN  ANSELM,  Director,  Division of  Banking  and  Securities,                                                               
Department  of  Commerce,  Community,  and  Economic  Development                                                               
(DCCED), advised that HB 194 is  a complete rewrite of the Alaska                                                               
Securities Act  based on  the model  act.   She pointed  out that                                                               
contained  within  each member  packet  is  a white  paper  dated                                                               
4/5/16, a change summary, a  sectional analysis, and a cross-walk                                                               
between the current and proposed laws.   As a brief overview, she                                                               
provided  that the  Alaska Securities  Act as  proposed separates                                                               
the security  statutes from the  Alaska Native  Claims Settlement                                                               
Act   (ANCSA)  statutes,   to   reduce   confusion  and   improve                                                               
understanding  of  both Acts,  and  the  securities statutes  are                                                               
being  moved  into  AS  45.56.   The  bill  also  recognizes  and                                                               
incorporates  current securities  industry  terms and  standards.                                                               
It  synthesizes with  other states'  laws to  make it  easier for                                                               
businesses,  entrepreneurs,  and  investors to  understand  their                                                               
rights,  responsibilities,  and  opportunities in  Alaska.    She                                                               
offered  that   Chair  LeDoux  added  an   amendment  to  clarify                                                               
disclosure  requirements  in  this  section.    It  opens  equity                                                               
crowdfunding  opportunities  to  Alaskans, it  deters  investment                                                               
scams  using Alaska  entities or  harming Alaskans  by increasing                                                               
civil penalties, and  providing some of the  resources from those                                                               
penalties  for investors,  consumers, and  entrepreneur education                                                               
as long as that is what the legislature would like to do.                                                                       
Finally, she said, it enhances penalties against those who would                                                                
harm older Alaskans.                                                                                                            
                                                                                                                                
1:15:54 PM                                                                                                                    
                                                                                                                                
MS. ANSELM paraphrased the sectional analysis as follows                                                                        
[original punctuation provided]:                                                                                                
                                                                                                                                
     SECTIONS 1  - 14  (pp. 1-11) include  the corresponding                                                                
     changes  to  statutes that  refer  to  former AS  45.55                                                                    
     provisions that have been moved to AS 45.56.                                                                               
                                                                                                                                
MS. ANSELM pointed out that the cross-walk outline gives a                                                                      
point-by-point analysis, including the legal backgrounds of each                                                                
item.  She continued as follows:                                                                                                
                                                                                                                                
     SECTIONS  15  -  24  (pp. 11-24)  modify  AS  45.55  as                                                                
     necessary to  delete references  to statutes  that have                                                                    
     no bearing  on the Alaska Native  Claims Settlement Act                                                                    
     corporations because of the enactment of AS 45.56.                                                                         
                                                                                                                                
     SECTION 25 (p. 14) Proposed new Chapter AS 45.56                                                                       
                                                                                                                                
          Article 1. General Provisions (pp. 14-15)                                                                         
                                                                                                                                
          Sec.     45.56.105.    Securities     registration                                                                    
          requirement - same as current law (AS 45.55.070).                                                                     
          Securities must be registered before offer or                                                                         
          sale unless federally covered or specifically                                                                         
          exempt from registration.                                                                                             
                                                                                                                                
          Article 2. Exemptions from Registration of                                                                          
     Securities (pp.     15-29)                                                                                               
                                                                                                                                
          Sec. 45.56.205. Exempt securities - generally the                                                                     
          same as current law (AS 45.55.900(a)) with a few                                                                      
          additions including securities issued by an                                                                           
          insurance company; certain options, warrants and                                                                      
          rights that are not federal covered securities;                                                                       
          certain    cooperatives   and    equipment   trust                                                                    
          certificates.                                                                                                         
                                                                                                                                
          Sec. 45.56.210. Exempt transactions - similar to                                                                      
          current law AS 45.55.900(b), reorganized with                                                                         
          additions reflecting transactions allowed under                                                                       
          the Uniform Securities Act of 2002 (USA).                                                                             
                                                                                                                                
          Sec. 45.56.220. Small intrastate securities                                                                           
          offerings (referred to as "Crowdfunding") Allows                                                                      
          Alaskans to invest up to $5,000 per person, per                                                                       
          offering, in an Alaskan business. Businesses can                                                                      
          raise up to $1 million per offering and requires                                                                      
          a notice filing with the state and certain                                                                            
          investor disclosures and protections.                                                                                 
                                                                                                                                
1:18:22 PM                                                                                                                    
                                                                                                                                
MS. ANSELM  commented that the  following is new, based  upon the                                                               
Dodd-Frank Act,  it prohibits  persons who  have been  subject to                                                               
regulatory action  or participated  in certain crimes  from using                                                               
exemptions from  the registration  requirement.   Therefore, they                                                               
do  not  get to  do  the  shortcuts and  have  to  do full  blown                                                               
registration  that has  all of  the  information regarding  their                                                               
past transgressions.                                                                                                            
                                                                                                                                
          Sec. 45.56.230. Disqualifier - prohibits persons                                                                      
          who have been subject to regulatory action or                                                                         
          participated in certain crimes from using                                                                             
          exemptions from the registration requirement.                                                                         
                                                                                                                                
          Sec. 45.56.240. Waiver and modification broadens                                                                      
          the administrator's authority to waive or change                                                                      
          requirements or conditions for exemptions.                                                                            
                                                                                                                                
          Sec. 45.56.250. Denial, suspension, revocation,                                                                       
          condition, or limitation of exemptions - same as                                                                      
          current law, although the appeal rights and                                                                           
          hearing information is moved to Article 6.                                                                            
                                                                                                                                
1:19:10 PM                                                                                                                    
                                                                                                                                
MS. ANSELM explained that the Act  is organized by sections so it                                                               
is  easier  for people  to  locate  what  they are  looking  for,                                                               
whether a practitioner, an issuer of securities, or a consumer.                                                                 
                                                                                                                                
     Article 3. Registration of Securities and Notice Filing of                                                               
     Federal Covered Securities. (pp. 29-42)                                                                                  
                                                                                                                                
          No significant changes to registration provisions                                                                     
          from AS 45.55. Material changes are noted by                                                                          
          section.                                                                                                              
                                                                                                                                
          Sec.   45.56.305.   Securities   registration   by                                                                    
          coordination - registration statement must be on                                                                      
          file with the Administrator for 20 days unless                                                                        
          reduced by regulation. 10 days is the current                                                                         
          requirement. References to prompt notice by                                                                           
          telegram are deleted.                                                                                                 
                                                                                                                                
          Sec.   45.56.310.   Securities   registration   by                                                                    
          qualification - adds a new requirement that                                                                           
          registrants disclose pending litigation that may                                                                      
          materially affect the issuer or litigation that                                                                       
          is known to be contemplated but not yet filed.                                                                        
                                                                                                                                
          Sec. 45.56.320. Securities registration filings -                                                                     
          allows the administrator to set escrow time by                                                                        
          regulation or order for certain securities issued                                                                     
          to a promoter or to other persons at a price                                                                          
          substantially less than the public offering                                                                           
          price.                                                                                                                
                                                                                                                                
          Sec. 45.56.330. Notice filing of federal covered                                                                      
          securities - adds the imposition of fees for late                                                                     
          filings                                                                                                               
                                                                                                                                
1:21:10 PM                                                                                                                    
                                                                                                                                
MS. ANSELM  explained that these  federal covered  securities are                                                               
regulated by  the Securities Exchange  Commission, but  there was                                                               
provision in the  federal act that says the entity  must also let                                                               
the state know  that it is operating in their  state.  Currently,                                                               
she pointed  out, the  only way  the state  can affect  an issuer                                                               
failing to  file with the  state is to  issue a Cease  and Desist                                                               
Order.   She  described this  as somewhat  draconian in  that the                                                               
Division of Banking and Securities  would prefer the entity pay a                                                               
fee and if the entity has to pay  a fee once or twice it won't be                                                               
late any longer.  Ms. Anselm continued:                                                                                         
                                                                                                                                
          Sec. 45.56.340. Viatical settlement interests -                                                                       
          combines current AS 45.55.120 and AS 45.55.905(c)                                                                     
          to explain the joint regulation of these                                                                              
          interests by the Securities and Insurance                                                                             
          statutes.                                                                                                             
                                                                                                                                
          Sec. 45.56.350. Waiver and modification -                                                                             
          administrator allowed waiver authorities are                                                                          
          consolidated   in   this    section   instead   of                                                                    
          throughout the chapter.                                                                                               
                                                                                                                                
          Sec.    45.56.360.    Denial,   suspension,    and                                                                    
          revocation of securities registration - adds                                                                          
          requirement to establish regulations explaining                                                                       
          what conduct may be fraud upon purchasers;                                                                            
          unreasonable discounts, compensation, profits                                                                         
          (including options, etc.) and terms that are                                                                          
          unfair, unjust or inequitable.                                                                                        
                                                                                                                                
     Article    4.   Broker-dealers,    Agents,   Investment                                                                  
     Advisers,   Investment  Adviser   Representatives,  and                                                                  
     Federal  Covered   Investment  Advisers.   (pp.  42-66)                                                                  
     covers the  firm salesperson, and  adviser registration                                                                    
     (licensing)   provisions  are   reorganized  into   one                                                                    
     article,  making  it  more user-friendly  than  current                                                                  
     law. Notable changes are listed below.                                                                                     
                                                                                                                                
          Sec.    45.56.405.   Broker-dealer    registration                                                                    
          requirement and exemptions - includes a new                                                                           
          "snowbird   exemption"   to   facilitate   ongoing                                                                    
          broker-customer relationships with customers who                                                                      
          have established a second or other residence and                                                                      
          clarifies the number of transactions a broker-                                                                        
          dealer may effect annually (3) if not registered                                                                      
          in Alaska.                                                                                                            
                                                                                                                                
          Sec. 45.56.410. Limited registration of Canadian                                                                      
          broker-dealers and agents - changed annual                                                                            
          renewal to December 31 from December 1 for easier                                                                     
          state and firm processing.                                                                                            
                                                                                                                                
          Sec. 45.56.420. Registration exemption for merger                                                                     
          and acquisition broker - this new provision                                                                           
          exempts mergers and acquisitions brokers from                                                                         
          registration (licensing) requirements because                                                                         
          these transactions are typically between knowing                                                                      
          parties with adequate legal counsel and scrutiny.                                                                     
          The exemption is not available if the broker                                                                          
          actually handles the securities exchanged in the                                                                      
          transaction or otherwise represents an issuer or                                                                      
          public shell company, or is subject to a                                                                              
          Securities and Exchange Commission action.                                                                            
                                                                                                                                
          Sec. 45.56.430. Agent registration requirement                                                                        
          and exemptions - the rewrite of this section                                                                          
          includes a statement of the types of business                                                                         
          covered here instead of in a definitional                                                                             
          section.                                                                                                              
                                                                                                                                
          Sec. 45.56.435. Investment adviser registration                                                                       
          requirement and exemptions - includes a new                                                                           
          "snowbird" exemption that mirrors the broker-                                                                         
          dealer exemption in Sec. 45.56.405.                                                                                   
                                                                                                                                
          Sec. 45.56.440. Investment adviser representative                                                                     
          registration requirement and exemptions - these                                                                       
          provisions   mirror    the   broker-dealer   agent                                                                    
          requirements in Sec. 45.56.430.                                                                                       
                                                                                                                                
          Sec.   45.56.445.   Federal   covered   investment                                                                    
          adviser notice filing requirement - these                                                                             
          provisions are not separately stated in the                                                                           
          current law.                                                                                                          
                                                                                                                                
          Sec. 45.56.450. Registration by broker-dealer,                                                                        
          agent, investment adviser, and investment adviser                                                                     
          representative - combines provisions in current                                                                       
          statute and regulations and extends the automatic                                                                     
          registration from 30 to 45 days unless the                                                                            
          registration is denied.                                                                                               
                                                                                                                                
          Sec.   45.56.455.   Succession   and   change   in                                                                    
          registration of broker-dealer or investment                                                                           
          adviser - clarifies that an organizational change                                                                     
          can generally be completed by amendment instead                                                                       
          of a new registration (for instance a sole                                                                            
          proprietorship moving to a limited liability                                                                          
          company).                                                                                                             
                                                                                                                                
          Sec. 45.56.460. Termination of employment or                                                                          
          association of agent and investment adviser                                                                           
          representative and transfer of employment or                                                                          
          association - requires the registrant file a                                                                          
          notification with the division. Allows for an                                                                         
          immediate temporary effective registration with a                                                                     
          new firm when there is no new disciplinary                                                                            
          information added.                                                                                                    
                                                                                                                                
          Sec. 45.56.465. Withdrawal of registration of                                                                         
          broker-dealer, agent, investment adviser, and                                                                         
          investment adviser representative - extends the                                                                       
          effective date of registration withdrawal up to                                                                       
          60 days and allows a revocation proceeding to                                                                         
          commence within one year.                                                                                             
                                                                                                                                
          Sec. 45.56.470. Filing fees - are established and                                                                     
          may be paid through a designee by regulation.                                                                         
                                                                                                                                
1:26:53 PM                                                                                                                    
                                                                                                                                
MS. ANSELM explained  that similar to many  industries across the                                                               
country there  are now national data  bases.  One is  the Central                                                               
Registration Depository  for all of the  broker-dealers and their                                                               
agents,  and since  the state  has over  1200 broker-dealers  and                                                               
over  92,000 sales  persons it  is helpful  to have  the national                                                               
registry  since most  of  those are  located  out-of-state.   She                                                               
offered that  it is easier for  them to apply and  easier for the                                                               
state to manage.  Ms. Anselm continued:                                                                                         
                                                                                                                                
          Sec. 45.56.475. Post registration requirements -                                                                      
          in addition to current requirements, adds the                                                                         
       provision for continuing education by regulation.                                                                        
                                                                                                                                
          Sec. 45.56.480. Denial, revocation, suspension,                                                                       
          withdrawal, restriction, condition, or limitation                                                                     
          of registration - in addition to current                                                                              
          provisions, allows the administrator to bar                                                                           
          registration and includes for actions taken by                                                                        
          other     regulators.     Civil    penalty     for                                                                    
     registrants is      increased from $2,500-$10,000 per                                                                      
     violation to up     to $100,000 per violation.                                                                             
                                                                                                                                
1:28:01 PM                                                                                                                    
                                                                                                                                
MS.  ANSELM explained  the  first portion  of  Sec. 45.56.480  by                                                               
using the example  that the discipline is that  the entity cannot                                                               
be licensed  in Alaska any longer,  or in some cases,  ever.  Ms.                                                               
Anselm continued:                                                                                                               
                                                                                                                                
     Article 5. Fraud and Liabilities. (pp. 66-69)                                                                            
                                                                                                                                
          Sec. 45.56.505. General fraud - same as current                                                                       
          AS 45.55.010.                                                                                                         
                                                                                                                                
          Sec. 45.56.510. Prohibited conduct in providing                                                                       
          investment advice - allows administrator to                                                                           
          define prohibited conduct by regulation.                                                                              
                                                                                                                                
          Sec. 45.56.520. Misleading filings - same as                                                                          
          current AS 45.55.160.                                                                                                 
                                                                                                                                
          Sec. 45.56.530. Misrepresentations concerning                                                                         
          registration or exemption - same content as AS                                                                        
          45.55.170.                                                                                                            
                                                                                                                                
          Sec. 45.56.540. Evidentiary burden - same content                                                                     
          as AS 45.55.900(c).                                                                                                   
                                                                                                                                
          Sec. 45.56.550. Filing of sales and advertising                                                                       
          literature - same content as AS 45.55.150.                                                                            
                                                                                                                                
          Sec. 45.56.560. Qualified immunity - registered                                                                       
          persons are not liable to other registered                                                                            
          persons, under state defamation laws, for                                                                             
          statements   contained   in   disclosure   records                                                                    
          required to be filed with the administrator for                                                                       
          purposes of licensing and potential discipline.                                                                       
          This provision encourages full disclosure to the                                                                      
          administrator.                                                                                                        
                                                                                                                                
     Article  6. Administration  and  Judicial Review.  (pp.                                                                  
     69-89)                                                                                                                     
                                                                                                                                
          Sec. 45.56.605. Administration - adds a new                                                                           
          provision allowing the administrator to develop                                                                       
          and implement investor education initiatives and                                                                      
          accept   grants   or    donations   for   investor                                                                    
          education.                                                                                                            
                                                                                                                                
1:29:46 PM                                                                                                                    
                                                                                                                                
MS. ANSELM related  that there are many scams going  on out there                                                               
and  not only  does the  state need  to increase  its enforcement                                                               
activities  and make  it less  profitable  for firms  to rip  off                                                               
Alaskans, the state also needs to  give tools to its investors to                                                               
understand what  is out there  and what  they need to  watch for.                                                               
Currently,  there is  nothing  budgeted for  that  purpose.   Ms.                                                               
Anselm continued:                                                                                                               
                                                                                                                                
          Sec. 45.56.610. Administrative files and opinions                                                                     
          - requires the administrator keep records                                                                             
          according to a retention schedule and outlines                                                                        
          publicly disclosable documents.                                                                                       
                                                                                                                                
          Sec. 45.56.615. Public records; confidentiality -                                                                     
          clarifies and specifies record confidentiality.                                                                       
                                                                                                                                
          Sec. 45.56.620. Uniformity and cooperation with                                                                       
          other   agencies   -   expands   opportunity   for                                                                    
          cooperation and sharing with governmental units,                                                                      
          regulatory    organizations   for    collaborative                                                                    
          efforts including regulation, enforcement and                                                                         
          coordination to reduce the burden of raising                                                                          
          capital by small business.                                                                                            
                                                                                                                                
          Sec. 45.56.625. Securities investor education and                                                                     
          training fund - creates a securities and investor                                                                     
          education and training fund within the general                                                                        
          fund to provide funds for investor education. 33%                                                                     
          of the money received from civil penalties may be                                                                     
          used for investor education and training if so                                                                        
          appropriated by the legislature.                                                                                      
                                                                                                                                
          Sec. 45.56.630. Service of process - same as                                                                          
          current AS 45.55.980.                                                                                                 
                                                                                                                                
          Sec. 45.56.635. Applicability of the chapter -                                                                        
          same as current AS 45.55.980.                                                                                         
                                                                                                                                
          Sec. 45.56.640. Regulations, forms, orders,                                                                           
          interpretative opinions, and hearings - combines                                                                      
          existing AS 45.55.950 and 45.55.970 and clarifies                                                                     
          that GAAP compliant financial statements may only                                                                     
          be required as allowed by federal law.                                                                                
                                                                                                                                
          Sec. 45.56.645. Investigations and subpoenas -                                                                        
          similar to existing AS 45.55.910 and allows                                                                           
          broader cooperation with other regulators.                                                                            
                                                                                                                                
          Sec. 45.56.650. Administrative enforcement - time                                                                     
          period for a respondent to request a hearing                                                                          
          after an action is taken is extended from 15 days                                                                     
          to 30 days. Civil penalties are increased from                                                                        
          $2,500 for a single violation and $25,000 for                                                                         
          multiple violations to a maximum of $100,000 for                                                                      
          a single violation with no cap for multiple                                                                           
          violations. If a victim is an "older person" (a                                                                       
          person over 60 years old), the respondent is                                                                          
          subject to treble damages. Restitution and actual                                                                     
          costs of investigation may be ordered. The                                                                            
          administrator may deny the use of securities                                                                          
          exemptions under Article 2 and registration                                                                           
          (licensing) exemptions under Article 4 if a                                                                           
          person violates the Act. The administrator may                                                                        
          petition the Superior Court to enforce a final                                                                        
          order and the Court may hold a person in contempt                                                                     
          for violating an order of the administrator,                                                                          
          punishable by up to $100,000 per violation, in                                                                        
          addition to any administrative penalties that                                                                         
          were originally assessed.                                                                                             
                                                                                                                                
          Sec.   45.56.655.   Civil    enforcement   -   the                                                                    
          administrator may seek remedies such as asset                                                                         
          freezes, an order of rescission, restitution, and                                                                     
          civil penalties of up to $100,000 per violation,                                                                      
          and all damages may be trebled if the victim is                                                                       
          an "older person" (person over 60 years of age).                                                                      
                                                                                                                                
          Sec. 45.56.660. Civil liability - outlines                                                                            
          instances where the seller is liable to the                                                                           
          purchaser and potential remedies (actual damages                                                                      
          including interest as determined by the court);                                                                       
          also describes instances where the buyer may be                                                                       
          liable to the seller.                                                                                                 
                                                                                                                                
          Sec. 45.56.665. Rescission offers - outlines the                                                                      
          rescission offer process, including a new                                                                             
          requirement that the offeror must demonstrate the                                                                     
       ability to pay and then actually pay as promised.                                                                        
                                                                                                                                
          Sec. 45.56.670. Criminal enforcement - knowing                                                                        
          violations of the Act and fraud are punishable as                                                                     
          class C felonies punishable under AS 12.55.125.                                                                       
          Unknowing violations are punishable as class A                                                                        
          misdemeanors and fine of not more than $100,000.                                                                      
          Individuals who alter or destroy evidence are                                                                         
          guilty of a class C felony and a fine of not more                                                                     
          the $500,000 or both.                                                                                                 
                                                                                                                                
          Sec. 45.56.675. Judicial review - appellants have                                                                     
          30 days to request review of a final order.                                                                           
                                                                                                                                
     Article   7.  Miscellaneous   and  Additional   General                                                                  
     Provisions. (pp. 89-100)                                                                                                 
                                                                                                                                
          Sec.   45.56.710.    Reimbursement   of   expenses                                                                    
          incident to examination or investigation - same                                                                       
          as AS 45.55.915.                                                                                                      
                                                                                                                                
          Sec. 45.56.720. Electronic records and signatures                                                                     
          - facilitates filing of electronic records and                                                                        
          signatures. Consumers must consent and have the                                                                       
          option to withdraw such consent.                                                                                      
                                                                                                                                
          Sec. 45.56.730. References to federal statutes -                                                                      
          a list of all federal statutes referenced in the                                                                      
          Act.                                                                                                                  
                                                                                                                                
          Sec. 45.56.740. References to federal agencies -                                                                      
          notes that a reference to an agency of the United                                                                     
       States is also a reference to a successor agency.                                                                        
                                                                                                                                
     Sec. 45.56.900. Definitions.                                                                                               
          - Updates federal citations                                                                                           
          - New definitions include:                                                                                            
               Disqualifier                                                                                                     
               Filing                                                                                                           
               Institutional investor (reflects federal                                                                         
                    law)                                                                                                        
               Insurance company                                                                                                
               Insured                                                                                                          
               International Banking Institution                                                                                
               Offer to purchase                                                                                                
               Older person - a person that is age 60 or                                                                        
                    older (from AS 47.65.290(6))                                                                                
               Price amendment                                                                                                  
               Record                                                                                                           
               Self-regulatory organization                                                                                     
               Sign                                                                                                             
                                                                                                                                
          Sec. 45.56.995. Short title. This chapter may be                                                                      
          cited as the Alaska Securities Act.                                                                                   
                                                                                                                                
     SECTIONS 26 - 28  (pp. 101-105). Citations are modified                                                                  
     to reflect Chapter 45.56 in place of                                                                                       
                                                                                                                                
          Chapter 45.55 references; federal law citations                                                                       
          are updated.                                                                                                          
                                                                                                                                
     SECTION  29 (p.  105) -  Repeals statutes  that are  no                                                                  
     longer needed in AS 45.55  because they do not apply to                                                                    
     Alaska Native  Claims Settlement Act  corporation proxy                                                                    
     solicitations.                                                                                                             
                                                                                                                                
     SECTION  30  (p. 105)  -  Amends  indirect Court  Rules                                                                  
     relating to changes in AS 45.56.                                                                                           
                                                                                                                                
     SECTION  31 (pp.  105-106) -  Allows the  department to                                                                  
     adopt transition regulations.                                                                                              
                                                                                                                                
     SECTION 32  (pp. 106-107)  - Amends  the law  to effect                                                                  
     transition  and application  of AS  45.55 for  existing                                                                    
     proceedings, existing rights and duties.                                                                                   
                                                                                                                                
     SECTION 33  (p. 107) - Reviser's  instruction to rename                                                                  
     AS  45.55  to  Alaska   Native  Claims  Settlement  Act                                                                    
     Corporations Proxy  Solicitations and  Initial Issuance                                                                    
     of Stock.                                                                                                                  
                                                                                                                                
     SECTION  34 (p.  107) -  Conditional effect  of certain                                                                  
     provisions upon constitutionally  required vote of each                                                                    
     house.                                                                                                                     
                                                                                                                                
     SECTION 35 - July 1, 2016 effective date                                                                                 
                                                                                                                                
1:37:26 PM                                                                                                                    
                                                                                                                                
MS. ANSELM mentioned that the  Division of Banking and Securities                                                               
is  not aware  of any  opposition to  the bill,  originally there                                                               
were  concerns  from  the  insurance   industry  that  have  been                                                               
resolved.  A fiscal impact is  not expected, she noted, and there                                                               
may  be some  increased revenue  with the  enforcement and  civil                                                               
penalties  being  increased  but it  cannot  predict  enforcement                                                               
actions with any certainty.                                                                                                     
                                                                                                                                
CHAIR LEDOUX  asked whether the members  understood the testimony                                                               
because if they  didn't, Ms. Anselm gives  an excellent tutorial.                                                               
She noted that  she heard the bill four times  in the House Labor                                                               
and  Commerce Standing  Committee and  suspected that  Ms. Anselm                                                               
spent four to eight hours in her office just with Chair LeDoux.                                                                 
                                                                                                                                
MS. ANSELM commented that it was her pleasure.                                                                                  
                                                                                                                                
1:38:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CLAMAN  asked Chair LeDoux her  current thought as                                                               
far as plans for the bill.                                                                                                      
                                                                                                                                
CHAIR LEDOUX related that the  committee certainly isn't going to                                                               
hold  it for  a few  weeks,  and it  will  move the  bill at  the                                                               
pleasure of the  committee to give the members  an opportunity to                                                               
review the bill with Ms. Anselm.                                                                                                
                                                                                                                                
1:39:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FOSTER asked what questions  came out of the House                                                               
Labor and  Commerce Standing Committee  that may be  relevant for                                                               
the House Judiciary Standing Committee.                                                                                         
                                                                                                                                
MS. ANSELM responded that there were  a number of questions as to                                                               
why the state is increasing the  civil penalties as much as it is                                                               
and, she said  that primarily $25,000 does not appear  to be much                                                               
of a deterrent.   She then turned  to the last page  of the white                                                               
paper  "13-1095-S Fortune  Oil  & Gas,"  and  related that  these                                                               
people  recently came  from  Texas and  sold  about $3.1  million                                                               
worth of worthless securities to  Alaskans, and to people outside                                                               
of Alaska.   The largest amount  the state can tag  that group is                                                               
$25,000 which  is the cost  of doing  business if, in  fact, they                                                               
elect to pay  it.  In this  case they elected not to  pay and the                                                               
division is going  to court over it because it  doesn't want them                                                               
to get away with those actions.   Yes, she commented, there is an                                                               
opportunity for  the claimants, who  are out  a lot of  money, to                                                               
file against  Fortune Oil & Gas  and go through the  court system                                                               
which, in  this case,  they are  doing.   She commented  that the                                                               
state also  has established broker-dealers  coming in, such  as a                                                               
New York  broker-dealer that ripped  off [Mr. Burke],  an elderly                                                               
halibut fisherman  in poor health  because he answered  his phone                                                               
to a  cold call.   The fisherman thought he  was buying CDs  in a                                                               
Canadian bank  and, in fact,  he was  buying junk bonds  and lost                                                               
approximately  $17,000.    Although  the  division  was  able  to                                                               
retrieve his  loss through an  agreement with  the broker-dealer,                                                               
but  that  broker-dealer could  only  be  fined $25,000  for  his                                                               
actions.  The  division is aware that activity was  going on and,                                                               
in fact,  it is so bad  that that broker-dealer, as  it was going                                                               
out-of-business, apparently sent its cold  call list out with the                                                               
representatives  they   were  dismissing.     Interestingly,  the                                                               
division received a  telephone call from Mr.  Burke advising that                                                               
another  representative  of  another   firm  tried  to  sell  him                                                               
something else,  but it is  only if the  division can get  out to                                                               
people and  let them know  to call the  division that some  of it                                                               
can be stopped.                                                                                                                 
                                                                                                                                
1:42:30 PM                                                                                                                    
                                                                                                                                
MS.  ANSELM related  that  most of  the  questions have  revolved                                                               
around  the high  enforcement penalties.   She  offered that  the                                                               
division does  negotiate a lot  of the securities issues  that it                                                               
finds.   Some  are  inadvertent, some  people  didn't pay  enough                                                               
attention  to what  they were  doing in  the securities  laws and                                                               
made some mistakes.  The  division will usually consent those out                                                               
with  a lower  penalty  and  she doesn't  expect  that to  change                                                               
because  the  division is  not  out  for  blood.   Although,  the                                                               
division  it is  out to  get  people that  do not  belong in  the                                                               
industry in the State of Alaska out of Alaska.                                                                                  
                                                                                                                                
1:42:59 PM                                                                                                                    
                                                                                                                                
CHAIR   LEDOUX  asked   whether  this   increased  the   criminal                                                               
penalties,  the  felony  threshold  change or  anything  of  that                                                               
nature.                                                                                                                         
                                                                                                                                
MS. ANSELM deferred to the Department of Law.                                                                                   
                                                                                                                                
1:43:41 PM                                                                                                                    
                                                                                                                                
RENEE WARDLAW,  Assistant Attorney  General, Commercial  and Fair                                                               
Business  Section,  answered that  the  changes  to the  criminal                                                               
penalties  actually clarified  some of  what the  penalties would                                                               
actually  do.   She offered  that her  section does  not do  much                                                               
criminal work  currently but  in the  event it  did want  to take                                                               
criminal  enforcement,  the changes  to  this  bill clarify  that                                                               
notion.    She  noted  that  she  had  confirmed  that  with  the                                                               
Department of  Law's Legislation  and Regulations Section  and it                                                               
is quite comfortable in moving forward in that regard.                                                                          
                                                                                                                                
CHAIR LEDOUX referred  to the word "clarify," and  related she is                                                               
trying to  put it  into the  context of  the criminal  law reform                                                               
bill,  HB 205.    She  explained that  that  bill changes  felony                                                               
threshold levels with the smart  justice idea, and reiterated she                                                               
would like to know how this might gel with HB 205.                                                                              
                                                                                                                                
MS.  WARDLAW responded  that it  did not,  in fact,  increase any                                                               
sort  of misdemeanor  penalties to  go to  felonies.   She opined                                                               
that HB  205 does not, in  any manner, conflict with  the changes                                                               
proposed in HB 194.                                                                                                             
                                                                                                                                
1:45:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS  noted  Ms. Anselm  had  mentioned                                                               
that  some  of  this  is motivated  from  work  originating  with                                                               
Uniform Act.   He  asked whether she  could highlight  where this                                                               
legislation diverts  from Uniform  Act recommendations,  and what                                                               
are the Alaska specific provisions.                                                                                             
                                                                                                                                
MS.  ANSELM   responded  that  most   of  the   Alaska's  centric                                                               
provisions are  related to the types  of registration exemptions,                                                               
there are  certain things for  minerals, oil  & gas, and  some of                                                               
the  fishing cooperatives.    She said  she  will highlight  them                                                               
within the cross-walk contained within the packets.                                                                             
                                                                                                                                
CHAIR  LEDOUX  clarified  that  Ms.  Anselm  will  highlight  the                                                               
provisions in  this bill  that differ from  the Uniform  bill for                                                               
this committee.                                                                                                                 
                                                                                                                                
MS. ANSELM agreed.                                                                                                              
                                                                                                                                
1:47:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS referred  to  AS 45.56.655,  Civil                                                               
Enforcement, and asked  the motivation for treble  damages for an                                                               
older  person.   He  further  asked whether  there  had been  any                                                               
thought  of  expanding  that class  for  particularly  vulnerable                                                               
citizens to disabled or mentally disabled people.                                                                               
                                                                                                                                
MS. ANSELM said yes, there is  been a national push to do exactly                                                               
that.   The division has  not proposed amendments in  that regard                                                               
but would be  pleased with any amendment offered.   She noted she                                                               
could provide the national model  to the committee because it was                                                               
released less than one month ago.                                                                                               
                                                                                                                                
REPRESENTATIVE CLAMAN referred  to the Uniform Act  and asked how                                                               
many other states have adopted the Uniform Act at this point.                                                                   
                                                                                                                                
MS. ANSELM  deferred to  Kristy Naylor,  Division of  Banking and                                                               
Securities.                                                                                                                     
                                                                                                                                
1:49:01 PM                                                                                                                    
                                                                                                                                
KRISTY NAYLOR,  Chief of Enforcement and  Securities, Division of                                                               
Banking and  Securities, Department  of Commerce,  Community, and                                                               
Economic  Development  (DCCED),  advised   that  26  states  have                                                               
adopted the  2002 Uniform Act,  and opined that it  recently went                                                               
to 27  states when  the State  of Wyoming  adopted it  within the                                                               
last month.                                                                                                                     
                                                                                                                                
REPRESENTATIVE CLAMAN  referred to  the issue of  protections for                                                               
the elderly and  disabled and asked whether it  is something that                                                               
has now been approved by  the Uniform Law Commission or something                                                               
that is coming from a different group.                                                                                          
                                                                                                                                
MS. ANSELM  responded that it  is coming from the  North American                                                               
Securities  Administrators  Association,  an association  with  a                                                               
number of  other organizations.   No, she  said, it has  not gone                                                               
through the model act process yet.                                                                                              
                                                                                                                                
REPRESENTATIVE CLAMAN asked whether  she knew whether the Uniform                                                               
Law Commission  is actually looking at  it, or whether it  is too                                                               
early for them to get involved.                                                                                                 
                                                                                                                                
MS. ANSELM replied that she does not know.                                                                                      
                                                                                                                                
CHAIR LEDOUX asked whether she would be able to find out.                                                                       
                                                                                                                                
MS. ANSELM responded  that she does not know the  answer but will                                                               
check.                                                                                                                          
                                                                                                                                
1:50:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT asked whether  this fraud is becoming more                                                               
prevalent  in  the  state  because  money  is  being  put  toward                                                               
education.  She  further asked whether the  division is expecting                                                               
a larger reporting of people being fleeced.                                                                                     
                                                                                                                                
MS. ANSELM  responded yes,  Alaska's per  capita income  is high;                                                               
therefore, Alaskans  are automatic  targets for  a number  of the                                                               
scammers.   She pointed  out that  it is  not only  increasing in                                                               
Alaska, it is  increasing everywhere and the  aging population is                                                               
generally the population that has  a few dollars and is concerned                                                               
about  having those  dollars last  throughout a  longer lifetime.                                                               
Unfortunately, people retire  or get close to  retirement and are                                                               
afraid they  will not  have enough  money to  live the  long life                                                               
they  now  expect  to  live  and take  chances,  which  is  where                                                               
education comes in.  People do  not want to appear uninformed and                                                               
do not  always want to  question people as to  their [fraudulent]                                                               
motives or what the security really  is, so the division wants to                                                               
give  people  tools  to  be   able  to  respond,  ask  the  right                                                               
questions,  and   have  the  resources.     The  division  offers                                                               
education on  its website, it offers  investor education programs                                                               
in coordination  with AARP with  other divisions,  the Securities                                                               
Exchange Commission came to Alaska  and offered outreach, and the                                                               
division has  been performing  outreach as it  can.   She advised                                                               
that the division would like  to dedicate more resources to those                                                               
programs and it  only makes sense to use some  of the monies that                                                               
come from ill-gotten gains to give back to the community.                                                                       
                                                                                                                                
1:52:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT asked  the annual  average collection  of                                                               
fees.                                                                                                                           
                                                                                                                                
MS.  ANSELM pointed  to  a  document in  the  record  and on  the                                                               
division's website, which  may not have been printed  out for the                                                               
members' packets,  and described  it as a  multi-colored document                                                               
that  represents all  of the  securities actions  that have  been                                                               
taken from 2012 - present.   She explained that a number of these                                                               
were done by consent and she  is not including those in the fines                                                               
collected.    The  fines  imposed  not on  a  consent  basis  are                                                               
$525,000, the potential i.e., not  on a consent basis.  Although,                                                               
going to  the new maximum  would be over  $7 million, and  all of                                                               
these are  the kinds of  cases discussed  with Fortune Oil  & Gas                                                               
and Global.   She offered  that as part of  potential restitution                                                               
out of  that would be $3.4  million.  Substantial money  could be                                                               
collected  from  these  large  firms   that  don't  want  to  pay                                                               
attention to the correct manner of doing business, she said.                                                                    
                                                                                                                                
1:53:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  surmised that  Alaska is falling  in line                                                               
with  the  other  states  that  have  increased  their  penalties                                                               
upwards to $100,000, and asked  whether there is a national scale                                                               
of standard fines.                                                                                                              
                                                                                                                                
MS.  ANSELM replied  that she  was  unaware there  was an  actual                                                               
average she could  quote because it does change, and  many of the                                                               
states have different methods of  accessing penalties.  Alaska is                                                               
fairly straight  forward, she commented,  and some states  have a                                                               
more complicated  schedule.  Although,  $100,000 appears to  be a                                                               
medium sort of fine, she said.                                                                                                  
                                                                                                                                
1:54:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  pointed to  her testimony  regarding cold                                                               
calls and asked where people  are obtaining the lists of Alaska's                                                               
seniors and vulnerable  adults that may have a  bit of disposable                                                               
income and are trying to secure their future.                                                                                   
                                                                                                                                
MS. ANSELM  responded that people can  buy the lists or  buy lead                                                               
generators,  or people's  names  get put  on  lists because  they                                                               
signed up for something,  or they went to a seminar,  or any of a                                                               
number of  things, and  the lists  are then  refined and  sold to                                                               
other people  in the business.   She  described it as  the "seamy                                                               
side of the  securities business" and this has  been around since                                                               
"blind em and rob em," such  as Blinder, Robinson & Company.  She                                                               
explained there were  a number of firms in the  mid-to late 1980s                                                               
that did a  lot of the cold calling and  penny stock "pumping and                                                               
dumping."                                                                                                                       
                                                                                                                                
1:56:04 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX expressed concern  regarding AS 45.56.665 rescission                                                               
offers, and  stated she was to  be certain that simply  because a                                                               
rescission offer was made, and  accepted, and the issuer actually                                                               
did what  they promised,  that this doesn't  wipe out  any common                                                               
law  remedies possibly  available in  order to  sue for  fraud or                                                               
misrepresentation or whatever.   She asked Mr.  Julius Brecht and                                                               
Mr. Robert Banks the same question.                                                                                             
                                                                                                                                
REPRESENTATIVE  CLAMAN  asked  the  definition  of  a  rescission                                                               
offer.                                                                                                                          
                                                                                                                                
1:57:18 PM                                                                                                                    
                                                                                                                                
MS. ANSELM  turned to the cross-walk  "Comparison of HB 194  CS N                                                               
to  Existing Alaska  Securities Act  (AS 45.55),"  page 92,  Sec.                                                               
45.56.665 and  advised it outlines  the rescission  offer statute                                                               
and discusses  rescission offers  on the  right-hand side  of the                                                               
page.   She  explained that  a rescission  offer is  basically an                                                               
offer  to undue  the  wrong  that has  been  done; therefore,  if                                                               
someone  buys  a security  and  there  was  a problem  with  that                                                               
security, the rescission  offer comes into play  when the seller,                                                               
in  this case,  of the  security says  they will  give the  buyer                                                               
their money  back if the  securities are returned  plus interest.                                                               
Basically then, there is no other  provision the state can use to                                                               
go after  anything else because  the rescission offer  takes care                                                               
of it.   She advised  that rescission  offers come into  play not                                                               
just if  there is a  security problem  with the company,  in that                                                               
most  often Alaska  has  seen rescission  offers  to correct  the                                                               
title on  a corporation.   In other  words, a  corporation should                                                               
have registered  the security  with the  division or  somehow the                                                               
division does  not have a  clean title  of that security  and the                                                               
entity cannot then  sell it later, it is not  eligible for merger                                                               
and  acquisition, and  no one  wants to  touch the  company until                                                               
it's been  reorganized.  With  a rescission offer "you  can clean                                                               
that title" which, she reiterated,  is what rescission offers are                                                               
used for in Alaska.                                                                                                             
                                                                                                                                
MS. ANSELM  turned to  the bottom  of page 2  of the  white paper                                                               
"Alaska  Securities Act  CSHB 194/N,  House Judiciary  Committee,                                                               
April  4,  2016," pointed  to  the  "12085-S, Troy  Stafford  and                                                               
Patrick  Williams"   and  related  that  Troy   Stafford  offered                                                               
rescission to an investor who had  invested $40,000 in one of his                                                               
projects, and Mr.  Stafford agreed to make it right  and he would                                                               
return  the   $40,000.    Mr.   Stafford  offered  to   make  the                                                               
rescission,  the  rescission  offer  went  through  the  division                                                               
because it vets  those, and he never  paid.  That is  why the law                                                               
changed that says  not only does the entity have  to offer it but                                                               
they have  to actually  pay the  person, otherwise  everything is                                                               
off and the person is back  to taking whatever civil action.  The                                                               
division, in  fact, took  an order against  Mr. Stafford  and his                                                               
partner regarding them, she said.                                                                                               
                                                                                                                                
2:00:28 PM                                                                                                                    
                                                                                                                                
MS. ANSELM  returned to the  white paper [page 92],  and referred                                                               
to Sec. 45.56.660(m) Civil Liability, which read as follows:                                                                    
                                                                                                                                
          (m) The rights and remedies provided by this                                                                          
     chapter  are  in  addition  to   any  other  rights  or                                                                    
     remedies  that may  exist, but  this  chapter does  not                                                                    
     create a cause of action  not specified in this section                                                                    
     or AS 45.56.475(e).                                                                                                        
                                                                                                                                
MS. ANSELM  explained that  common law is  not specified  in this                                                               
section and  commented that  that is  the primary  question Chair                                                               
LeDoux posed.   She noted  that the division's  practitioners may                                                               
clarify that further since they are  out in the real business and                                                               
she is on the regulatory side.                                                                                                  
                                                                                                                                
2:01:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KREISS-TOMKINS  referred to [page 76  of the white                                                               
paper] Sec. 45.56.625 which read as follows:                                                                                    
                                                                                                                                
     The securities investor education  and training fund is                                                                    
     created  as  a special  fund  in  the general  fund  to                                                                    
     provide   funds   for    the   purpose   specified   in                                                                    
     45.56.605(d).    The  legislature  may  appropriate  33                                                                    
     percent of the money received  by this state from civil                                                                    
     penalties  under   this  chapter  into  the   fund  for                                                                    
     securities  investor education  and training.   Nothing                                                                    
     in this  section exempts money deposited  into the fund                                                                    
     for  the requirements  of  AS  37.07 (Executive  Budget                                                                    
     Act) or dedicates money for a specific purpose.                                                                            
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS asked  whether changing  penalties                                                               
and  anticipated increased  revenue  over  present will  increase                                                               
more than  33 percent, thereby, creating  a no net loss  if money                                                               
was diverted into investor education.                                                                                           
                                                                                                                                
2:01:52 PM                                                                                                                    
                                                                                                                                
MS.  ANSELM  agreed, and  she  pointed  out  that those  are  the                                                               
figures she gave earlier, where  the difference between the fines                                                               
the  division   issued  on  non-consent  final   orders  were  so                                                               
dramatically higher  that the division  does believe it  would be                                                               
higher, such  as 66 percent  as opposed to  the 33 percent.   She                                                               
reiterated that  100 percent goes to  the general fund and  it is                                                               
only  if  the legislature  decides  to  spend  some of  that  for                                                               
investor education,  it would  merely be in  a separate  line and                                                               
only the legislature would have  control over that.  The division                                                               
would come then  go the legislature each year and  advise that it                                                               
would like  to spend  "this much" out  of the  investor education                                                               
area with the legislature having control over the entire amount.                                                                
                                                                                                                                
2:03:22 PM                                                                                                                    
                                                                                                                                
JULIUS BRECHT, Of Counsel, Law  Offices of Bankston, Gronning and                                                               
O'Hara, advised the committee of  his legal experience in that he                                                               
has been of counsel associated  with the Law Offices of Bankston,                                                               
Gronning and  O'Hara since the  beginning of 2015, prior  to that                                                               
he was senior  shareholder for over 30 years in  another law firm                                                               
in Anchorage,  past director  of the  Alaska Division  of Banking                                                               
and  Securities, and  prior  to that  was  an assistant  attorney                                                               
general  with the  Alaska Department  of  Law.   He offered  that                                                               
subsequent  to  leaving  the  Alaska   Division  of  Banking  and                                                               
Securities at  the end of 1980,  he has been in  private practice                                                               
in Anchorage  concentrating on state and  federal securities law,                                                               
corporate finance,  financial institution law, and  business law.                                                               
Within  this  practice  he has  represented  clients  before  the                                                               
Securities and  Exchange Commission, the National  Association of                                                               
Securities  Dealers,   the  Nasdaq   Stock  Markets,   and  state                                                               
securities   regulators   including  the   Alaska   Administrator                                                               
Securities.   In  addition, he  said  he has  advised persons  on                                                               
issues   relating   to    securities   offerings,   broker-dealer                                                               
investment advisor  and agent issues  before the  Alaska Division                                                               
of Banking  and Securities.  He  prefaced his comments on  HB 194                                                               
by  stating  that these  are  solely  his  comments and  not  the                                                               
comments of the Law Offices  of Bankston, Gronning and O'Hara, he                                                               
said.                                                                                                                           
                                                                                                                                
2:05:30 PM                                                                                                                    
                                                                                                                                
MR. BRECHT  explained that the  Alaska Securities Act  has served                                                               
the  state  and the  Alaska  investing  public well  through  the                                                               
years.  The current Act is  based upon the Uniform Securities Act                                                               
of 1956,  and when Alaska  became a state in  1959 it was  one of                                                               
the first states to adopt the  model act.  Subsequently, a modest                                                               
amount  of  case  law  has been  generated  with  several  Alaska                                                               
Supreme  Court opinions  along the  way.   In  the meantime,  the                                                               
Uniform  Act has  undergone several  revisions,  the most  recent                                                               
revision published  by the  National Conference  of Commissioners                                                               
on Uniform State Laws in  2002.  As stated earlier, approximately                                                               
27  other states  have replaced  their securities  laws with  the                                                               
2002  Act.   The bill  before  this committee  is legislation  to                                                               
repeal and reenact  the Alaska Securities Act in the  form of the                                                               
2002  Uniform Act,  and by  replacing the  Alaska Securities  Act                                                               
with the 2002 Act Alaska will be  able to stay in step with those                                                               
other states  who have adopted the  model act as well.   That is,                                                               
Alaska  is a  great  place  to live  in  many  ways, its  beauty,                                                               
resources, and  people; however,  its securities market  place is                                                               
rather  modest   in  size  and   development  which   means  that                                                               
opportunities to  interpret its securities  laws are limited.   A                                                               
natural  place to  look  for interpretation  of  language in  the                                                               
current Alaska Securities Act is  to the securities laws of other                                                               
states  also subscribing  to  the  1956 Model  Act.   Since  more                                                               
states are  repealing and reenacting their  securities laws based                                                               
on the 2002 Model Act, Alaska  will soon find itself in a smaller                                                               
and  smaller base  to  seek  out those  interpretations.   It  is                                                               
therefore a reasonable step to  seriously consider the 2002 Model                                                               
Act.   He  noted  that in  considering the  Model  Act, the  real                                                               
strength  of the  model is  to adopt  it with  as few  changes as                                                               
possible  so  that  one  can   look  to  other  jurisdictions  in                                                               
interpreting  its  terms.    One   example  of  this  caution  to                                                               
uniformity  comes up  in  the context  of  Sec. 45.56.660,  civil                                                               
liability,  in HB  194. It  states that  the rights  and remedies                                                               
provided by the  Chapter, meaning the Alaska  Securities Act, are                                                               
in addition to  any other rights or remedies that  may exist.  He                                                               
opined that  the clear meaning of  this subsection is that  it is                                                               
supplemental to any other rights or  remedies that may exist.  He                                                               
suggested that  the way  to emphasize this  point may  be through                                                               
creating a  legislative history  on the section.   He  noted that                                                               
while listening to  other testimonies it occurred to  him that in                                                               
times past, the question of  whether to use the Alaska Securities                                                               
Act as a means for proving  fraud or using common law fraud would                                                               
come up  from time to time  when he was director  of the Division                                                               
of Banking and Securities.  He  said he could not recall that the                                                               
concern  was whether  the Securities  Act in  some way  prevented                                                               
someone from  going in  another direction,  but rather  why would                                                               
they  ever  want  to  go   anyplace  other  than  in  the  Alaska                                                               
Securities Act  because proving fraud  under the  securities laws                                                               
is easier, relatively speaking, to  proving common law fraud.  He                                                               
then harkened back to his  initial statement that he believes the                                                               
language is supplemental  to any other right that  the person may                                                               
be able to seek out under Alaska law, he said.                                                                                  
                                                                                                                                
2:09:54 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX pointed  to Sec. 45.56.665 and surmised  that if the                                                               
rescission offer is  made and actually paid,  that that precludes                                                               
an injured  party from an  action under Sec. 45.56.660,  but does                                                               
not preclude any action they may have under common law.                                                                         
                                                                                                                                
MR.   BRECHT  returned   to  the   previous  comments   regarding                                                               
rescission and offered that in  his practice whenever there was a                                                               
violation of the Alaska Securities  Act, typically in the context                                                               
of failure to register an offering,  that rescission was a way to                                                               
satisfy that  failure to  register.   Thereby, moving  forward by                                                               
offering the  existing investors  the opportunity  to opt  out of                                                               
the  investment and  get  their  money back  plus  interest.   He                                                               
explained  that  the  intent  of  that was  to  get  beyond  that                                                               
violation   of  the   Alaska  Securities   Act  moving   forward,                                                               
typically,  with  doing another  offering  that  would either  be                                                               
registered or  pursuant to  an exemption.   In that  context, the                                                               
rescission was treated  as more of a contract  between the issuer                                                               
and  the investors  that they  would  waive their  rights to  any                                                               
further action against  the issuer.  He offered that  that is one                                                               
line of thought, another are  the provisions of Sec. 45.56.660(m)                                                               
which on  its face says  that the provisions  of this Act  do not                                                               
prevent one from exercising other rights they might have at law.                                                                
                                                                                                                                
2:12:33 PM                                                                                                                    
                                                                                                                                
CHAIR  LEDOUX pointed  to a  scenario of  someone cold  calling a                                                               
salmon  fisherman who  advises  the caller  that  he is  thinking                                                               
about buying  Microsoft stock.   The  cold caller  then convinces                                                               
the  fisherman to  instead buy  the junk  bond, and  a couple  of                                                               
weeks  later  Microsoft  stock  went  up and  the  junk  bond  is                                                               
worthless.   Chair LeDoux pointed  out that giving  the fisherman                                                               
the  $10,000  through   rescission  he  put  into   it  does  not                                                               
compensate  him  for  the  damages he  actually  incurred.    She                                                               
explained  that  if  it  hadn't  been  for  the  fraudulent  cold                                                               
caller's advice,  the fisherman  would have bought  the Microsoft                                                               
stock and rather than his  investment being worth $10,000, it may                                                               
have been worth $20,000.  In  that scenario it does not appear as                                                               
though the  fisherman necessarily needs to  accept the rescission                                                               
offer to eliminate the liability  under Sec. 45.56.660.  She said                                                               
she wanted  to be  certain that  any suit  the fisherman  has for                                                               
damages he  incurred by  not investing  in Microsoft  stock, that                                                               
they are not eliminated by this section.                                                                                        
                                                                                                                                
2:15:03 PM                                                                                                                    
                                                                                                                                
MR.  BRECHT  offered that  when  he  has  been presented  with  a                                                               
rescission situation  he would advise  the client, in  wanting to                                                               
get a  clean break here,  that the  investor waive all  rights in                                                               
entering into that rescission.                                                                                                  
                                                                                                                                
CHAIR LEDOUX  asked why the  investor should waive all  rights if                                                               
Mr. Brecht  is trying to protect  the investor.  In  the event he                                                               
was representing the cold caller  he would obviously want them to                                                               
waive  all rights,  but it  wouldn't  be in  the investor's  best                                                               
interest to waive.                                                                                                              
                                                                                                                                
MR. BRECHT  explained that he  would be representing  the issuer,                                                               
who had  advised they had a  problem with the division,  and they                                                               
would go  through a rescission  offer process.   Currently, there                                                               
is a clear  statement in the statute where there  is an exemption                                                               
to follow  certain steps in the  rescission.  He offered  that in                                                               
representing the  issuer and trying  to make the problem  go away                                                               
is  to try  to get  the investors,  in return  for getting  their                                                               
money back ...                                                                                                                  
                                                                                                                                
2:16:52 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX interjected that she  does not want to represent the                                                               
issuer, but rather represent the investor.                                                                                      
                                                                                                                                
MR. BRECHT responded  that the investor would not  enter into the                                                               
rescission.                                                                                                                     
                                                                                                                                
CHAIR LEDOUX opined that she may be missing something that ...                                                                  
                                                                                                                                
MR.  BRECHT interjected  that  there is  no  requirement that  an                                                               
investor  enter  into  a rescission  agreement  with  the  issuer                                                               
because the investor can simply sue the issuer, if they prefer.                                                                 
                                                                                                                                
CHAIR LEDOUX advised she would research this issue further.                                                                     
                                                                                                                                
2:18:05 PM                                                                                                                    
                                                                                                                                
ROBERT BANKS,  Attorney, Law Offices of  Samuels, Yoelin, Kantor,                                                               
advised he  has been a lawyer  for 34 years, and  during the last                                                               
32   years  has   concentrated  in   securities  litigation   and                                                               
approximately 95  percent of the time  represented investors, and                                                               
then discussed  his extensive  experience and  practice.   He put                                                               
forth  that  he does  not  have  any  personal interest  in  this                                                               
proposed legislation and no clients  in Alaska, although 15 years                                                               
ago represented  two fishermen in  Dutch Harbor that  fell victim                                                               
to a securities scam of over $1 million.                                                                                        
                                                                                                                                
MR.  BANKS,  in  response  to Chair  LeDoux's  previous  question                                                               
regarding  rescission offers,  explained that  in his  experience                                                               
during the rare times he has  seen them, it involves a seller who                                                               
acknowledges they did something wrong.   He related that he could                                                               
not imagine  a situation where if  he represented a client  and a                                                               
rescission offer  was made  by an issuer  who would  actually pay                                                               
the money  back, that he  would not advise  them to go  ahead and                                                               
take that offer.   He explained that the name of  the game once a                                                               
person has been scammed and he  is representing an investor is to                                                               
try to get the money back.   While he appreciates the concern for                                                               
victims, but in a case where someone  sold a junk bond and it was                                                               
misrepresented,  there will  not  be a  rescission offer  because                                                               
those are  not the types  of people that make  rescission offers.                                                               
Also,  with regard  to the  hypothetical as  a practical  matter,                                                               
that it's not so  easy to prevail on the second  part of the case                                                               
involving the  Microsoft stock  because there  must be  proof the                                                               
investor was going to purchase on  a particular day and sell on a                                                               
particular day,  which is  difficult.  In  that scenario  and any                                                               
other scenario  he can  imagine, he would  advise his  clients to                                                               
take the  rescission and  be thankful that  they got  their money                                                               
back.    He opined  that  most  attorneys representing  investors                                                               
would probably say the same thing, he said.                                                                                     
                                                                                                                                
2:22:36 PM                                                                                                                    
                                                                                                                                
MR. BANKS pointed to the Uniform  Act and agreed that it has been                                                               
enacted in  approximately 25 states,  but these acts  are drafted                                                               
by people  who are thought  to be the  best and the  brightest in                                                               
the  industry.   The  drafters  do seek  input  from  all of  the                                                               
various  viewpoints  before  they  do  any  drafting,  they  hold                                                               
hearings, and have  meetings, and he noted that  he was contacted                                                               
to offer his  input with the 2002  Act.  That Model  Act has been                                                               
endorsed  by  the  American  Bar   Association,  New  York  Stock                                                               
Exchange,  Investment  Council   Association  of  America,  North                                                               
American   Securities   Administrative  Association,   and   many                                                               
different  factions  represented.   He  pointed  out that  it  is                                                               
fairly well established  and the body of cases are  not huge, but                                                               
it is  nice to be able  to look to  the case law of  other states                                                               
whose judges are  interpreting the very same statute  that is now                                                               
before Alaska's courts.   Alaska doesn't have  many decisions and                                                               
it is  helpful to have some  idea about how these  laws are going                                                               
to  be interpreted  when there  is a  whole body  of law  from 25                                                               
different  states rather  than  just  one.   He  referred to  his                                                               
written testimony  and stated that it  is a great idea  and he is                                                               
in favor of it and hopes it passes and becomes law.                                                                             
                                                                                                                                
2:24:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN referred  to  Chair LeDoux's  hypothetical                                                               
wherein  rather than  the investor  buying Microsoft  stock, buys                                                               
the junk  bond and after  a short period  of time the  $10,000 he                                                               
would have invested in the  Microsoft stock is worth $20,000, and                                                               
surmised that from  the perspective of Mr. Banks,  as an attorney                                                               
representing investors,  would probably  advise them to  take the                                                               
rescission offer at $10,000 due  to doubts the additional $10,000                                                               
could be  collected.  Representative  Claman asked whether  it is                                                               
his analysis  of this bill  that it  still allows the  common law                                                               
remedy but  in the practical  reality would advise his  client to                                                               
take the rescission offer and be done.                                                                                          
                                                                                                                                
2:25:54 PM                                                                                                                    
                                                                                                                                
MR. BANKS  answered that  he would, although  if the  dollars get                                                               
really big  that would be a  different question, but he  tries to                                                               
advise his  clients to do the  safe course of action  most of the                                                               
time.  In  the event they can  get the money back in  the door it                                                               
is considered  a success.  He  pointed out that it  will cost the                                                               
investor  more money  to  try  to go  for  the  other common  law                                                               
damages.   Certainly if the  issue was  that the investor  had to                                                               
either take the  rescission or file a lawsuit, he  would urge his                                                               
client to take the rescission offer.                                                                                            
                                                                                                                                
2:26:39 PM                                                                                                                    
                                                                                                                                
MR.  BRECHT  interjected  that the  rescission  offer  itself  is                                                               
actually  a  lengthy  process because  a  written  statement  and                                                               
financial statements  were required  when he  represented issuers                                                               
before the  Division of Banking  and Securities for the  State of                                                               
Alaska.  He  related that it is similar to  a registration and it                                                               
typically comes in  the context of a  client "sheepishly" telling                                                               
him that  they didn't  realize there was  a securities  clause in                                                               
Alaska and they want to make it  right so they can go forward and                                                               
do another offering.   In other words, he  explained, the premise                                                               
is that there  is an entity that  is not a bad  guy, just perhaps                                                               
inattentive as  far as  the lay  of the laws  in Alaska  and they                                                               
want  to  move  forward  by  making a  reasonable  offer  to  the                                                               
investor  to give  the money  back plus  eight percent.   In  the                                                               
event  the  investor  accepts  then fine,  if  not  the  investor                                                               
remains as  an investor  in that particular  transaction.   A bad                                                               
actor  likely will  not make  the rescission  offer in  the first                                                               
place, and will attempt to scam someone else, he said.                                                                          
                                                                                                                                
2:28:42 PM                                                                                                                    
                                                                                                                                
MR. BANKS  said he agrees  with that  statement in that  it's not                                                               
the bad guys  making the rescission offers, it is  the people who                                                               
have made a mistake and want to  make it right.  The bad guys are                                                               
not  willing  to spend  the  amount  of money  it  take  to do  a                                                               
rescission offer which can be considerable, he offered.                                                                         
                                                                                                                                
CHAIR LEDOUX  reiterated that  she wants to  be certain  that the                                                               
very  fact that  somebody has  made a  rescission offer,  and the                                                               
investor decides to  continue with common law  remedies, that the                                                               
very  existence of  a rescission  offer does  not preclude  those                                                               
common  law remedies.   She  opined that  the testimony  has been                                                               
that it doesn't, but she was not certain.                                                                                       
                                                                                                                                
2:30:02 PM                                                                                                                    
                                                                                                                                
MR.  BRECHT responded  that  it  depends upon  the  terms of  the                                                               
rescission offer  because it is  a contract wherein  the investor                                                               
waives  their rights.   From  his standpoint  in representing  an                                                               
issuer, he would try to get  them to waive all rights relating to                                                               
this particular  transaction in return  for the  investor's money                                                               
back plus eight percent per annum.                                                                                              
                                                                                                                                
REPRESENTATIVE CLAMAN pointed out that  the question is not being                                                               
answered and he  restated the question, if there  is a rescission                                                               
offer on the table and the  investor choses to reject that offer,                                                               
they have all of their common law remedies.                                                                                     
                                                                                                                                
MR. BRECHT agreed.                                                                                                              
                                                                                                                                
REPRESENTATIVE CLAMAN surmised that  the only reason the investor                                                               
would  lose the  common  law  remedies is  if  they accepted  the                                                               
offer.   Therefore, he said,  if the investor chooses  to decline                                                               
the offer,  the investor has everything  available through common                                                               
law and Alaska Statutes.                                                                                                        
                                                                                                                                
MR.  BRECHT  agreed,  they  are   not  obligated  to  accept  the                                                               
rescission.                                                                                                                     
                                                                                                                                
2:31:30 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX opened public testimony.                                                                                           
                                                                                                                                
2:31:49 PM                                                                                                                    
                                                                                                                                
JULIETTE  SHEPARD,   Technology  Lead   Development  Coordinator,                                                               
Fairbanks Economic  Development Corporation (FEDC),  advised that                                                               
she  works with  entrepreneurs  and startups,  and the  Fairbanks                                                               
Economic  Development  Corporation  (FEDC)  is  the  trustee  for                                                               
(indisc.) loan which is a  crowdfunded loan program where lenders                                                               
make  microfinance  loans directly  to  borrowers  in the  United                                                               
States by the  internet.  She offered that FEDC  supports HB 194,                                                               
to  modernize  Alaska's  securities laws  for  small  intra-state                                                               
crowdfunding  investment opportunities  that would  permit Alaska                                                               
residents to  invest in  Alaska businesses.   She noted  that the                                                               
FEDC  requests  that  the  legislature  consider  increasing  the                                                               
maximum per  person offering  and making  it closer  in alignment                                                               
with what was proposed in SB 126.                                                                                               
                                                                                                                                
2:33:09 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX asked  Ms. Shepard to point to the  page and section                                                               
she was discussing.                                                                                                             
                                                                                                                                
MS. SHEPARD advised that she does  not have HB 194 because she is                                                               
calling in  remotely and is away  from her office.   She said the                                                               
section she  cited is from  the letter of support  submitted from                                                               
the  North American  Securities Administration,  outlined in  the                                                               
second half  of paragraph five,  which identifies the  per person                                                               
offering at $5,000.                                                                                                             
                                                                                                                                
MR. BRECHT  advised that it  is Sec. 45.56.220,  Small intrastate                                                               
securities offerings, page 26.                                                                                                  
                                                                                                                                
2:35:10 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX  asked Ms. Shepard  to explain where in  the section                                                               
[pages 26-29] she is discussing.                                                                                                
                                                                                                                                
MS. SHEPARD  advised that she  was referencing the  dollar amount                                                               
per  person be  as flexible  as  possible with  a maximum  amount                                                               
closer  to  the $7,500  proposed  in  SB 126,  thereby,  allowing                                                               
opportunities for individuals to contribute more fully.                                                                         
                                                                                                                                
2:35:39 PM                                                                                                                    
                                                                                                                                
MS. NAYLOR interjected  that Ms. Shepard is  referencing page 27,                                                               
lines 12-14, and the $5,000 limit.                                                                                              
                                                                                                                                
REPRESENTATIVE  CLAMAN  asked  whether  it  was  the  testifier's                                                               
suggestion  that amount  on  line 12,  should  be increased  from                                                               
$5,000 to $7,500.                                                                                                               
                                                                                                                                
MS.  SHEPARD offered  that it  be considered  to be  increased as                                                               
previously proposed.                                                                                                            
                                                                                                                                
REPRESENTATIVE CLAMAN  asked whether the $5,000  amount is coming                                                               
from the model act, or from somewhere else.                                                                                     
                                                                                                                                
MS. NAYLOR  responded that the model  used was from the  State of                                                               
Alabama  as there  is  no  model act  language  from the  Uniform                                                               
Securities Act  relating to crowdfunding because  crowdfunding is                                                               
roughly  two  years old  so  they  modeled their  proposal  after                                                               
another state and its simple approach.                                                                                          
                                                                                                                                
2:37:13 PM                                                                                                                    
                                                                                                                                
CHAIR  LEDOUX   asked  whether  the   Division  of   Banking  and                                                               
Securities has  thoughts about amending  the bill to  read $7,500                                                               
rather than $5,000.                                                                                                             
                                                                                                                                
MS. NAYLOR responded that the  Division of Banking and Securities                                                               
leaves that  decision to  the discretion of  the committee  as it                                                               
does not take a position on the amount.                                                                                         
                                                                                                                                
2:38:09 PM                                                                                                                    
                                                                                                                                
CHAIR LEDOUX  offered that this  is something to think  about and                                                               
the  bill will  be held  over.   After ascertaining  that no  one                                                               
wished to testify, closed public testimony.                                                                                     
                                                                                                                                
[HB 194 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 194 - Summary of Changes.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Sectional Analysis Version N.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Supporting Documents - Snowbird Exemptions.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Supporting Documents - Crosswalk.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Supporting Documents - Table of Contents Version N.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Transmittal Letter.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Version N.PDF HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Fiscal Note-DOA-PDA-02-05-16.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Fiscal Note-DCCED-DBS-01-25-16.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Supporting Documents - Whitepaper.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HB 194 - Letter of Support - ACLI.pdf HJUD 4/4/2016 1:00:00 PM
HB 194
HJR 29 - Sponsor Statement.pdf HJUD 4/4/2016 1:00:00 PM
HJR 29
HJR 29 - Written Testimony - Received after 3.24.16.pdf HJUD 4/4/2016 1:00:00 PM
HJR 29
HB 317 - Supporting Documents - Kevin Fitzgerald Letter of Support 04.01.16.pdf HJUD 4/4/2016 1:00:00 PM
HB 317
HB 317 - Letter of Opposition - Alaska Association of Chiefs of Police 04.01.16.pdf HJUD 4/4/2016 1:00:00 PM
HB 317
HB 317 - Letter of Opposition - Jesse Davis 03.31.16.pdf HJUD 4/4/2016 1:00:00 PM
HB 317
HJR 29 - Fiscal Note -LEG-SESS-04-04-16.pdf HJUD 4/4/2016 1:00:00 PM
HJR 29
HB 317-CS ver H 4-4-16.pdf HJUD 4/4/2016 1:00:00 PM
HB 317
HB 317- CS ver H Explanation of Changes 4-4-16 (2).pdf HJUD 4/4/2016 1:00:00 PM
HB 317