Legislature(2015 - 2016)SENATE FINANCE 532
04/05/2016 05:00 PM Senate FINANCE
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SENATE BILL NO. 126 "An Act establishing an exemption for the offering and sale of certain securities." 5:05:42 PM SENATOR MIA COSTELLO, SPONSOR, explained the legislation: Senate Bill 126, the Innovating Alaska Act, helps Alaskans start and invest in local businesses by enacting a new finance mechanism in state law. Crowdinvesting (sometimes known as "equity crowdfunding") is a new concept with a simple premise. Instead of receiving large investments from a few traditional investors, Alaskans starting a business receive small investments from a potentially a large group of investors. The approach lets broad groups of people invest in small businesses in return for equity ownership. This makes it easier for business start-ups to get capital to grow, and allows average Alaskans to invest in businesses being started in their communities. The federal Jumpstart Our Business Start-Ups (JOBS) Act of 2012 paved the way for this paradigm shift in business creation. It refines some of the more onerous regulations that have historically made it difficult for average Americans to directly invest in private companies. Since then over 12 states have enacted intra-state crowdinvesting laws. Crowdinvesting usually works through young companies selling equity shares, often through an on line portal, to a wide group of investors. Senate Bill 126 would regulate the sale of these types of securities separately from the Alaska Securities Act (AS 45.55.010) and adds several safeguards to protect investors. Under Senate Bill 126, businesses seeking to raise capital through crowdfunding would apply to the Alaska Division of Banking & Securities and hold investor funds in escrow in an Alaskan bank. Investments made through crowdinvesting are limited to $7,500 for investors and $1,000,000 for businesses raising capital. Both the investor and business owner must be Alaska residents. Business start-ups are key to growing our state's economy. Enacting crowdinvesting through Senate Bill 126 is an innovative way to give entrepreneurs easier access to capital, and help Alaskans invest in local businesses. 5:09:12 PM WESTON EILER, STAFF, SENATOR MIA COSTELLO, presented the Sectional Analysis (copy on file): Section 1. Amends the Alaska Securities Act (AS 45.55) by adding a new section. Sec. 45.55.l75(a) exempts the sale of securities through crowdinvesting between Alaska businesses and residents from the requirements of AS 45.55.070 - 45.55.120 (registration of securities) and AS 45.55.150 (sales and advertising literature). Sets new limitations and requirements on the offer and sale of this type of securities including: (1) issuer's organizational entity must be for- profit, and located and licensed in Alaska, (2) securities under this section may only be sold to Alaska residents and must be in compliance with federal law's (Securities Act of 1933) residency requirements for interstate sale of securities, (3) sale of securities under this section by a for-profit entity are capped at $1,000,000, (4) investments by an individual in a business under this exemption are capped at $7,500 during a 12-month period, (5) issuer of securities under this section must have a reasonable belief that the purchase of securities is for investment not resale, (6) commissions for persons participating in the offer or sale for the issuer are prohibited, (7) requires escrow account deposit of investor funds until the minimum target for the issuer is met, (8) notice to the department about solicitation of sale of securities under this section, (9) restrictions on who may issue securities under this section, (10) disclosures to investors about this type of securities exemption in statute and restriction on resale, (11) requires signed investor acknowledgement of investment risk, (12) exemption for sale of this type of securities may not be used along with other exemptions to the Alaska Securities Act, (13) sale of this type of securities are covered by anti-fraud statutes and other provisions under AS 45.55.010 - 45.55.028. Sec. 45.55.175(b). Allows the department to deny or revoke an exemption under this section if the sale would lead to a fraud on purchasers. Sec. 45.55.l75(c). Requires the Department of Commerce, Community, & Economic Development to charge an applicant a filing fee for an exemption under this section. Sec. 45.55.l75(d). Prohibits an issuer from using the exemption under this section if the entity or its officers are subject to a disqualifier under the Dodd- Frank Wall Street Reform and Consumer Protection Act - U.S.C. 78c(a)(39). Sec. 45.55.175(e). Defines terms for the section. Section 2. Adds a sec. 45.55.175 exempting transactions under this bill to the list of transactions that are exempt from basic security registration requirements under AS 45.55.070 and AS 45.55.075 (the section addressing federal covered securities). 5:13:47 PM Senator Dunleavy wondered if one could currently micro invest under different rules. Mr. Eiler replied in the affirmative. Senator Dunleavy surmised that the bill was related to a business that wanted to go public. Mr. Eiler explained that the legislation targeted startup companies. He remarked that it was a mechanism for large groups of Alaskans with a small amount of money could invest in private companies. Senator Dunleavy stated that current law already allowed for the partnership. Mr. Eiler replied that the bill offered another tool for a general solicitation without a broker dealer. Senator Bishop looked at Section 13, and queried the recourse. Mr. Eiler responded that the language reflected that nothing was exempt from fraud statutes. Senator Bishop surmised that the investor had a vehicle to recover some funds. Mr. Eiler replied in the affirmative. 5:18:07 PM Senator Olson queried the type of people the legislation was intending to invest. Mr. Eiler responded that there were many opportunities, especially in rural areas. The bill would remove some hurdles, to make is easy for Alaskans to invest in small companies such as microbreweries and arts businesses. Senator Olson queried any protections for the elderly. Mr. Eiler replied that he had conversations with the Division of Banking and Security. He stated that the division had worked to monitor that problem. Senator Bishop spoke in support of the legislation. 5:22:25 PM RENEE WARDLAW, DIVISION OF BANKING AND SECURITIES, ASSISTANT ATTORNEY GENERAL, ANCHORAGE (via teleconference), introduced herself. Co-Chair MacKinnon queried feedback on the legislation. Mr. Wardlaw replied that the division was neutral on the bill. Co-Chair MacKinnon wondered whether the public was protected under the legislation. Ms. Wardlaw replied in the affirmative. Co-Chair MacKinnon queried any exemption from the Alaska Security Act. Ms. Wardlaw replied in the negative. 5:24:50 PM THOMAS DALY, OWNER, HISPEED GEAR, KENAI (via teleconference), testified in support of the legislation. He felt that the bill helped to diversify the state's economy. He wanted to empower small businesses. He did not feel that the legislature was properly diversifying the state. He remarked that the bill would engage Alaskans in businesses. He shared his phone number: 907-283-9136. Co-Chair MacKinnon CLOSED public testimony. SB 126 was HEARD and HELD in committee for further consideration. 5:27:33 PM AT EASE 5:28:18 PM RECONVENED