BILL NUMBER: AB 1743	AMENDED
	BILL TEXT

	AMENDED IN SENATE  AUGUST 5, 2010
	AMENDED IN SENATE  JUNE 17, 2010
	AMENDED IN ASSEMBLY  MAY 10, 2010
	AMENDED IN ASSEMBLY  MARCH 17, 2010

INTRODUCED BY   Assembly Member Hernandez
   (Principal coauthor: Assembly Member Lieu)
   (Coauthors: Assembly Members Block, Blumenfield, Buchanan, Ma,
Portantino, Saldana, and Audra Strickland)
   (Coauthors: Senators  Alquist,  Correa, Hancock, 
and Strickland   Strickland,   and Wolk 
)

                        FEBRUARY 8, 2010

   An act to amend Sections 7513.8, 82002, and 82039 of, and to add
Sections 7513.86, 7513.87, 82025.3, 82047.3, and 86206 to, the
Government Code, relating to the Political Reform Act of 1974.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1743, as amended, Hernandez. Political Reform Act of 1974:
placement agents.
   Existing law regulates investments made by public pension and
retirement systems and defines the term "placement agent" to mean a
person or entity hired, engaged, or retained by an external manager,
as defined, to raise money or investment from a public retirement
system in California. Existing law, the Political Reform Act of 1974,
provides for the comprehensive regulation of the lobbying industry,
including defining the term "lobbyist" and regulating the conduct of
lobbyists. Among its provisions, the act requires lobbyists to
register with the Secretary of State and to file periodic disclosure
reports, and it prohibits lobbyists from engaging in certain
activities, including accepting or agreeing to accept any payment in
any way contingent upon the defeat, enactment, or outcome of any
proposed legislative or administrative action, as defined.
   This bill would amend the existing definition of "placement agent"
to mean a person  or entity   , as defined,
 hired, engaged, or retained by  , or serving for the
benefit of or on behalf of,  an external manager, as defined, to
 raise money or investment from   act as a
finder, solicitor, marketer, consultant, broker, or other
intermediary in connection with the offer or sale of the securities,
assets, or services of an external manager to  a public
retirement system in California for compensation, and would exclude
from that definition an employee, officer, director, equityholder,
partner, member, or trustee of an external manager who spends 1/3 or
more of his or her time, during a calendar year, managing the 
securities or  assets  owned,  controlled  ,
invested, or held  by the external manager. The bill would
define "placement agent" in a similar way for purposes of the
Political Reform Act of 1974, except that the definition would be
limited to an individual acting  to raise money or investment
from   in connection with the offer or sale  
of the securities, assets, or services of an external manager to
 a state public retirement system in California and would not
include  in-house  employees, officers, or directors
of specified external managers or of affiliates of those external
managers. In addition, the bill would prohibit a person from acting
as a placement agent in connection with any potential system
investment made by a state public retirement system unless that
person is registered as a lobbyist and is in full compliance with the
Political Reform Act of 1974 as that act applies to lobbyists. The
bill would also require a person acting as a placement agent in
connection with any potential system investment made by a local
public retirement system to file any applicable reports with a local
government agency that requires lobbyists to register and file
reports and to comply with any applicable requirements imposed by a
local government agency. The bill would provide that an individual
acting as a placement agent is a lobbyist for purposes of the
Political Reform Act of 1974 and is thereby required to comply with
all regulations and restrictions imposed on lobbyists by the act, and
the bill would further expand the definition of "administrative
action" for purposes of the act to include, with regard only to
placement agents, the decision by any state agency to enter into a
contract to invest state public retirement system assets on behalf of
a state public retirement system. The bill would specify that a
placement agent who is registered with the Securities and Exchange
Commission and regulated by the Financial Industry Regulatory
Authority is permitted to receive a payment of fees for contractual
services provided to an investment manager, except to the extent that
payment of fees is prohibited by the proscription on contingency
payments to placement agents. Additionally, the bill would require
the Public Employees' Retirement System and the State Teachers'
Retirement System to each provide to the Legislature, not later than
August 1, 2012, a report on the use of placement agents in connection
with investments made by those retirement systems.
   Existing law makes a knowing or willful violation of the Political
Reform Act of 1974 a misdemeanor and subjects offenders to criminal
penalties.
   This bill would impose a state-mandated local program by creating
additional crimes.
   The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.
   The Political Reform Act of 1974, an initiative measure, provides
that the Legislature may amend the act to further the act's purposes
upon a 2/3 vote of each house and compliance with specified
procedural requirements.
   This bill would declare that it furthers the purposes of the act.

   Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 7513.8 of the Government Code is amended to
read:
   7513.8.  As used in Sections 7513.85, 7513.86, 7513.87, 7513.9,
and 7513.95:
   (a) "Board" means the retirement board of a public pension or
retirement system, as defined in subdivision (h) of Section 17 of
Article XVI of the California Constitution.
   (b) "External manager" means  an asset management firm
that is seeking to be, or has been, retained by a public retirement
system in California to manage a portfolio of assets, including
securities, for a fee.   either of the following: 

   (1) A person who is seeking to be, or is, retained by a board to
manage a portfolio of securities or other assets for compensation.
 
   (2) A person who is engaged, or proposes to be engaged, in the
business of investing, reinvesting, owning, holding, or trading
securities or other assets and who offers or sells, or has offered or
sold, securities to a board.  
   (c) "Person" means an individual, corporation, partnership,
limited partnership, limited liability company, or association,
either domestic or foreign.  
   (c) 
    (d)  (1) "Placement agent" means any person or
entity  hired, engaged, or retained by, or  acting
  serving for the benefit of or  on behalf of, an
external manager, or on behalf of another placement agent, 
to act or having   who acts or has  acted for
compensation as a finder, solicitor, marketer, consultant, broker, or
other intermediary  to raise money or investment from, or to
obtain access to, a public retirement system in California, directly
or indirectly, including, without limitation, through an investment
vehicle.   in connection with the offer or sale of the
securities, assets, or services of an external manager to a board or
an investment vehicle, either directly or indirectly. 
   (2) Notwithstanding paragraph (1), an  individual who is an
 employee, officer, director, equityholder, partner, member, or
trustee of an external manager  and  who spends one-third or
more of his or her time, during a calendar year, managing the 
securities or  assets  controlled   owned,
controlled, invested, or held  by the external manager is not a
placement agent.
   (3) For purposes of this subdivision, "investment vehicle" means a
 corporation,  partnership, limited partnership, limited
liability company,  or other investment vehicle 
 association, or other entity, either domestic or foreign,
constituting or  managed by an external manager in which a
 public retirement system in California   board
 is the majority investor and that is organized in order to
invest with  , or retain the investment management services of,
 other external managers.
  SEC. 2.  Section 7513.86 is added to the Government Code, to read:
   7513.86.   A   Except as provided in
subdivisions (b) and (c) of Section 82047.3, a  person shall not
act as a placement agent in connection with any potential system
investment made by a state public retirement system unless that
person is registered as a lobbyist in accordance with Chapter 6
(commencing with Section 86100) of Title 9 and is in full compliance
with the Political Reform Act of 1974 (Title 9 (commencing with
Section 81000)) as that act applies to lobbyists.
  SEC. 3.  Section 7513.87 is added to the Government Code, to read:
   7513.87.  (a) A person acting as a placement agent in connection
with any potential system investment made by a local public
retirement system shall file any applicable reports with a local
government agency that requires lobbyists to register and file
reports and shall comply with any applicable requirements imposed by
a local government agency pursuant to Section 81013.
   (b) This section does not apply to an  individual who is an
 employee, officer, director, equityholder, partner, member, or
trustee of an external manager who spends one-third or more of his or
her time, during a calendar year, managing the  securities or
 assets  controlled   owned, controlled,
invested, or held  by the external manager.
  SEC. 4.  Section 82002 of the Government Code is amended to read:
   82002.  (a) "Administrative action" means either of the following:

   (1) The proposal, drafting, development, consideration, amendment,
enactment, or defeat by any state agency of any rule, regulation, or
other action in any ratemaking proceeding or any quasi-legislative
proceeding, which shall include any proceeding governed by Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title
2.
   (2) With regard only to placement agents, the decision by any
state agency to enter into a contract to invest state public
retirement system assets on behalf of a state public retirement
system.
   (b) "Ratemaking proceeding" means, for the purposes of a
proceeding before the Public Utilities Commission, any proceeding in
which it is reasonably foreseeable that a rate will be established,
including, but not limited to, general rate cases, performance-based
ratemaking, and other ratesetting mechanisms.
   (c) "Quasi-legislative proceeding" means, for purposes of a
proceeding before the Public Utilities Commission, any proceeding
that involves consideration of the establishment of a policy that
will apply generally to a group or class of persons, including, but
not limited to, rulemakings and investigations that may establish
rules affecting an entire industry.
  SEC. 5.  Section 82025.3 is added to the Government Code, to read:
   82025.3.  "External manager" means  an asset management
firm that is seeking to be, or has been, retained by a public
retirement system in California to manage a portfolio of assets,
including securities, for a fee.   either of the
following:  
   (1) A person who is seeking to be, or is, retained by a state
public retirement system in California to manage a portfolio of
securities or other assets for compensation.  
   (2) A person who is engaged, or proposes to be engaged, in the
business of investing, reinvesting, owning, holding, or trading
securities or other assets and who offers or sells, or has offered or
sold, securities to a state public retirement system in California.

  SEC. 6.  Section 82039 of the Government Code is amended to read:
   82039.  (a) "Lobbyist" means either of the following:
   (1) Any individual who receives two thousand dollars ($2,000) or
more in economic consideration in a calendar month, other than
reimbursement for reasonable travel expenses, or whose principal
duties as an employee are, to communicate directly or through his or
her agents with any elective state official, agency official, or
legislative official for the purpose of influencing legislative or
administrative action.
   (2) A placement agent, as defined in Section 82047.3.
   (b) An individual is not a lobbyist by reason of activities
described in Section 86300.
   (c) For the purposes of subdivision (a), a proceeding before the
Public Utilities Commission constitutes "administrative action" if it
meets any of the definitions set forth in subdivision (b) or (c) of
Section 82002. However, a communication made for the purpose of
influencing this type of Public Utilities Commission proceeding is
not within subdivision (a) if the communication is made at a public
hearing, public workshop, or other public forum that is part of the
proceeding, or if the communication is included in the official
record of the proceeding.
  SEC. 7.  Section 82047.3 is added to the Government Code, to read:
   82047.3.  (a) "Placement agent" means an individual hired,
engaged, or retained by, or  acting   serving
for the benefit of or  on behalf of, an external manager, or on
behalf of another placement agent,  to act or having
  who acts or has  acted for compensation as a
finder, solicitor, marketer, consultant, broker, or other
intermediary  to raise money or investment from, or to obtain
access to, a state public retirement system in California, directly
or indirectly, including, without limitation, through an investment
vehicle.   in connection with the offer or sale of the
securities, assets, or services of an external manager to a state
public retirement system in California or an investment vehicle,
either directly or indirectly. 
   (b) Notwithstanding subdivision (a), an  individual who is an
 employee, officer, director, equityholder, partner, member, or
trustee of an external manager  and  who spends one-third or
more of his or her time, during a calendar year, managing the 
securities or  assets  controlled   owned,
controlled, invested, or held  by the external manager is not a
placement agent.
   (c) Notwithstanding subdivision (a), an  in-house
 employee, officer, or director of an external manager, or
of an affiliate of an external manager,  registered with the
Securities and Exchange Commission, or operating under an exemption
from the Securities and Exchange Commission, who is selected by a
competitive bidding process subject to subdivision (a) of Section
22364 of the Education Code or subdivision (a) of Section 20153 of
this code, as applicable, and agrees to a fiduciary standard of care,
as defined by the standards of conduct applicable to the retirement
board of a public pension or retirement system and set forth in
Section 17 of Article XVI of the California Constitution, when
managing a portfolio of assets of a state public retirement system in
California is not a placement agent.   is not a
placement agent if all of the following apply:  
   (1) The external manager is registered as an investment adviser or
a broker-dealer with the Securities and Exchange Commission or, if
exempt from or not subject to registration with the Securities and
Exchange Commission, the appropriate state securities regulator.
 
   (2) The external manager has been selected through a competitive
bidding process subject to subdivision (a) of Section 22364 of the
Education Code or subdivision (a) of Section 20153 of this code, as
applicable, and is providing services pursuant to a contract executed
as a result of that competitive bidding process.  
   (3) The external manager has agreed to a fiduciary standard of
care, as defined by the standards of conduct applicable to the
retirement board of a public pension or retirement system and set
forth in Section 17 of Article XVI of the California Constitution,
when managing a portfolio of assets of a state public retirement
system in California. 
   (d) For purposes of this section, "investment vehicle" means a
 corporation,  partnership, limited partnership, limited
liability company,  or other investment vehicle 
 association, or other entity, either domestic or foreign,
constituting or  managed by an external manager in which a state
public retirement system in California is the majority investor and
that is organized in order to invest with  , or retain the
investment management services of,  other external managers.
  SEC. 8.  Section 86206 is added to the Government Code, to read:
   86206.  Nothing in this article prohibits the payment of fees for
contractual services provided to an investment manager by a placement
agent, as defined in Section 82047.3, who is registered with the
Securities and Exchange Commission and regulated by the Financial
Industry Regulatory Authority, except as provided in subdivision (f)
of Section 86205.
  SEC. 9.  Not later than August 1, 2012, the Public Employees'
Retirement System and the State Teachers' Retirement System shall
each provide to the respective chairpersons of the Assembly Committee
on Public Employees, Retirement, and Social Security and the Senate
Committee on Public Employment and Retirement a report on the use of
placement agents in connection with investments made by those
retirement systems. Each report shall include all of the following:
   (a) The number of, and descriptions of, those investments made by
the retirement system through external managers that have compensated
placement agents in connection with the investments.
   (b) A description of those external managers based on the size of
assets under their control.
   (c) The annual performance of investments secured through
placement agents.
  SEC. 10.  No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
  SEC. 11.  The Legislature finds and declares that this bill
furthers the purposes of the Political Reform Act of 1974 within the
meaning of subdivision (a) of Section 81012 of the Government Code.