BILL ANALYSIS Ó
SB 1058
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Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1058 (Lieu) - As Amended: May 1, 2012
Policy Committee: Banking and
Finance Vote: 8-2
Judiciary 8-2
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill revises and recasts the provisions governing
administration of the Victims of Corporate Fraud Compensation
Fund (the Fund) by the Secretary of State (SOS), by codifying
certain existing regulations promulgated by the SOS and
facilitating approval of valid claims from the Fund.
Specifically, this bill:
1)Provides that an aggrieved person who obtains a final judgment
in a court of competent jurisdiction against a corporation for
fraud or other similar offense, and who diligently attempted
to recover the judgment from the corporation, may file an
application with SOS for payment from the Fund for the amount
unpaid on the judgment, as specified. Increases the maximum
amount that any one claimant could recover for any single
judgment that otherwise meets the requirements for
compensation from the Fund, from $20,000 to $50,000.
2)Specifies the information and documentation required to be
provided in an application, and requires SOS to provide notice
to the corporation and claimant with respect to an
application.
3)Provides that if, at any time, the money deposited in the Fund
is insufficient to satisfy any duly authorized award or offer
of settlement, the SOS shall, when funds are available,
satisfy the unpaid awards or offer of settlement, plus
accumulated interest, as specified.
4)Permits a claimant whose application for compensation from the
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Fund is denied by the SOS to petition a court for de novo
review of the merits of the application based on the
administrative record.
FISCAL EFFECT
1)Likely costs for administration of this revised program are in
the $150,000 range, with costs to be borne by the Business
Fees Fund.
2)Unknown costs to the trial courts because of the potential for
additional filings. Costs could be in the hundreds of
thousands of dollars if there were appeals of SOS denials of
claims. This bill creates a new cause of action if the
victim's application for restitution is denied by SOS. SB
1058 also creates a new misdemeanor for anyone to file any
required information that is false or untrue.
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COMMENTS
1)Purpose. The author states the Fund is not living up to its
intended purposes and that the Fund's regulations are so
burdensome that they require SOS to re-litigate cases where
corporations have already been held liable by a court for
corporate fraud against the victims. The author argues this
situation results in payments delays and only continues to
victimize the people whom the Fund was created to benefit.
The author concludes SB 1058 will restore the original intent
of the Victims of Corporate Fraud Compensation Fund by
streamlining the procedures and ensuring a timelier payout of
restitution to victims.
2)Support. Secretary of State Debra Bowen supports this bill
because it clarifies the application process for the Victims
of Corporate Fraud Compensation Fund. By streamlining the
application process while maintaining basic requirements, this
bill strikes a balance between simplifying the process for
victims, while maintaining the necessary safeguards to ensure
that funds are not awarded to people who are not actually
victims of corporate fraud.
The Congress of California Seniors argues that this bill will
break the existing bureaucratic logjam that prevents victims
from collecting the compensation to which they are entitled.
3)Background . In 2002, in response to scandals involving Enron
and other corporations, the Legislature created the Victims of
Corporate Fraud Compensation Fund in order to help innocent
victims of corporate fraud who had won judgments but were
unable to collect judgment, either because the corporation was
bankrupt, had disappeared or was otherwise unable or unwilling
to pay. The Fund was financed by a fee on corporate filings
and administered by and pursuant to rules promulgated by the
Secretary of State (SOS). To collect money from the Fund, the
victim must have won a judgment and been unable to collect
from the corporation despite diligent efforts to do so.
4)Program experience. In late 2011, press reports indicated
there was a significant backlog and that very few cases had
been resolved. At the time, SOS reported that, from the
Fund's inception through August 1, 2011, the SOS had received
701 claims for restitution from the Fund. Of these 701
claims, five claims were awarded, one claim was settled during
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litigation, and one court appeal by a victim resulted in a
judgment confirming the SOS's settlement offer. These seven
claims resulted in a payout of $92,497.
Of the remaining claims, 102 did not qualify for payment,
because they did not meet the eligibility criteria established
by the SOS, 28 claims were withdrawn, three claims were
denied, and 561 claims were pending resolution.
By March 28, 2012, the SOS had resolved a considerable number
of its outstanding applications. The SOS reported from the
Fund's inception through March 28, 2012, a total of 225 claims
have been approved or resulted in victims being offered
settlements and 25 claims are pending resolution. An
additional 27 claims had been deemed complete and are pending
a decision. From the Fund's inception to date, the SOS's
office has approved the payout of approximately $2.1 million
in compensation to victims, most, as cited above, in the last
eight months. 118 claims have been rejected, because the
SOS's office found the victims did not qualify for payment
from the Fund (see reasons cited immediately above). 294
claims have been denied, because the applicants could not
prove damages and 30 claims have been withdrawn.
5)Fund balance. The Fund collects approximately $1.5 million
per year, through the $2.50 annual disclosure fee paid by
corporations pursuant to the Fund's enabling legislation. At
present, the Fund holds approximately $5 million. Because the
Fund went several years without making any significant
payments to victims, and thus built up a significant reserve,
funds were transferred in the 2010-11 fiscal year, to help
address General Fund shortfalls. The Fund currently has an
outstanding $10 million loan to the General Fund, which is
required to be repaid with interest, when it is needed to pay
claims out of the Fund.
6)Prior Legislation : AB 55 (Shelley, Ch. 1015, Stats. 2002),
established the Fund to provide restitution to victims of
corporate crime by requiring corporations to pay a $2.50 fee
when filing their annual disclosures.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081
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