Legislature(2015 - 2016)BELTZ 105 (TSBldg)

02/11/2016 01:30 PM Senate LABOR & COMMERCE

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Audio Topic
01:33:30 PM Start
01:34:31 PM Crowdinvesting and Economic Development in Alaska
02:18:29 PM SB126
02:37:56 PM SB108
02:58:27 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Scheduled but Not Heard
Presentation: Crowdinvesting and Economic
Development in Alaska - Michael Shuman
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
-- Public Testimony --
                SB 126-SMALL SECURITY OFFERINGS                                                                             
2:18:29 PM                                                                                                                    
CHAIR COSTELLO reconvened the meeting and announced the                                                                         
consideration of SB 126.                                                                                                        
2:18:43 PM                                                                                                                    
WESTON EILER, Staff, Senator Mia Costello, Alaska State                                                                         
Legislature, introduced SB 126 on behalf of the sponsor,                                                                        
paraphrasing the following sponsor statement:                                                                                   
     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                                                                    
     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                                                                    
     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  at  the  time of  sale.  In                                                                    
     addition to the cap, an  escrow deposit is required, as                                                                    
     is an agreement acknowledging high risk investment.                                                                        
     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, and changes the paradigm for start-ups.                                                                        
2:21:09 PM                                                                                                                    
MR. EILER addressed a question  from Senator Meyer saying that SB
126 creates an exemption in  statute and applicants would have to                                                               
go through the Division of Banking  & Securities to access it. He                                                               
said there are  a number of safeguards that  protect state policy                                                               
and investors.                                                                                                                  
2:23:59 PM                                                                                                                    
SENATOR STEVENS  voiced concern about  investor safety  and asked                                                               
if the process has worked in Oregon.                                                                                            
2:24:35 PM                                                                                                                    
MR. EILER offered to get that  information. He noted an update in                                                               
members' packets from The National  Council on State Legislatures                                                               
(NCSL) and a spreadsheet  of intrastate crowdfunding legislation.                                                               
He said  it is  a new  area and  there are  a variety  of success                                                               
stories and challenges.                                                                                                         
2:25:51 PM                                                                                                                    
CHAIR  COSTELLO  stated  her  intention   to  hold  the  bill  in                                                               
2:26:34 PM                                                                                                                    
KEVIN  ANSELM,  Director,  Division of  Banking  and  Securities,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED),  provided information  related to  SB 126.  She reported                                                               
that  there  are  a  number  of  states  that  have  crowdfunding                                                               
statutes  or regulations  on their  books. While  there have  not                                                               
been many losses  relating to crowdfunding, there  have been some                                                               
securities losses,  which is why  the enforcement  provisions are                                                               
important and the division will be watching closely.                                                                            
2:27:32 PM                                                                                                                    
SENATOR  STEVENS  asked  what the  director's  responsibility  is                                                               
regarding crowdfunding.                                                                                                         
MS. ANSELM  explained the department's  role is  receiving simple                                                               
crowdfunding  applications. She  related  that  Alabama has  been                                                               
successful  for several  years with  its application  process and                                                               
crowdfunding  offerings.   They  have  very   simple  application                                                               
requirements which Alaska is hoping  to copy. She added that most                                                               
of  the details  would be  listed  in regulations  due to  things                                                               
changing quickly, such  as the delivery method  and the financial                                                               
market. She noted it is difficult to change the law.                                                                            
SENATOR STEVENS  asked whether the  department would  analyze the                                                               
merits of a proposed business.                                                                                                  
MS. ANSELM explained  that Alaska is not a  "merit review state,"                                                               
it  is a  "disclosure state,"  so the  department would  look for                                                               
proper disclosures.                                                                                                             
2:29:50 PM                                                                                                                    
SENATOR MEYER  gave an example  of investing $5,000 in  a startup                                                               
company such  as a  brewery, and  having a  beer named  after the                                                               
investor.  He asked what the equity ownership would be.                                                                         
MS. ANSELM clarified that it  is considered crowdfunding if there                                                               
is  some potential  for profit  and the  investor is  expecting a                                                               
return. There would  not be potential for profit  in the previous                                                               
2:31:12 PM                                                                                                                    
SENATOR GIESSEL  noted crowdfunding  can't exceed $1  million and                                                               
$7,500 per  person so  it could  not be used  for the  Alaska LNG                                                               
MR. EILER agreed. He said  the Department of Revenue is exploring                                                               
how  average Alaskans  could invest  in a  large diameter  AK LNG                                                               
2:32:10 PM                                                                                                                    
CHAIR COSTELLO opened public testimony.                                                                                         
2:32:20 PM                                                                                                                    
THOMAS  DALY, Owner,  HiSpeed Gear,  testified in  support of  SB
126. He said the bill  provides opportunities for Alaskans during                                                               
a  time of  financial  challenges.  He shared  a  story from  his                                                               
youth. He maintained that SB  126 will help Alaskan businesses by                                                               
allowing  Alaskans to  invest in  them. He  testified that  large                                                               
corporations do  not last in  Alaska and  are not the  answer. He                                                               
described how clusters  of businesses could be  developed and how                                                               
profits could  remain in  the state. He  concluded that  the bill                                                               
will provide Alaska with a sustainable future.                                                                                  
2:34:54 PM                                                                                                                    
JASON  HOKE,   Executive  Director,  Copper   Valley  Development                                                               
Association, testified in support of SB  126. He said the bill is                                                               
an  opportunity for  small businesses  in  a difficult  financing                                                               
climate. It could  allow urban investors to  invest in businesses                                                               
in rural areas  and elsewhere in the state. He  offered to assist                                                               
in the filing of applications.                                                                                                  
2:37:17 PM                                                                                                                    
CHAIR COSTELLO  held SB  126 in  committee with  public testimony