BILL ANALYSIS Ó
AB 2759
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Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 2759
(Levine) - As Introduced February 19, 2016
SUBJECT: Corporations: agents: victims of corporate fraud
compensation fund
SUMMARY: Seeks to compensate victims of corporate fraud
committed by corporate officers. Specifically, this bill:
1)Allows an individual who is a victim of corporate fraud and
who wins a judgment against a corporate officer, but is unable
to collect the judgment from the officer after diligent
efforts to do so, to collect damages from the Corporate Fraud
Compensation Fund (Fund) as a similarly situated victim of
corporate fraud with a judgment against a corporation would be
able to do.
EXISTING LAW:
1) Establishes the Fund in the State Treasury, administered by
the Secretary of State (SOS) for the sole purpose of
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providing restitution to the victims of a corporate fraud.
(Corporations Code Section 2280. All further statutory
references are to this code, unless otherwise indicated.)
2) Requires the SOS to adopt regulations in furtherance of the
administration of the Fund. (Ibid.)
3) Allows an aggrieved person who obtains a final judgment in a
court of competent jurisdiction against a corporation based
upon the corporation's fraud, misrepresentation, or deceit,
made with intent to defraud, the aggrieved person to, upon
the judgment becoming final and after diligent collection
efforts are made, file an application with the SOS for
payment from the Fund. (Section 2282 (a).)
4) Limits the amount of recovery by a person described in 3),
above, to the amount unpaid on the judgment that represents
the awarded actual and direct loss, any awarded compensatory
damages, and awarded costs to the claimant in the final
judgment, excluding punitive damages. (Section 2282 (a).)
5) Raises money for the Fund by directing one-half of the five
dollar disclosure fee required to be paid by corporations
when they file their annual Statements of Information with
the SOS. (Sections 1502 and 2117.)
FISCAL EFFECT: Unknown
COMMENTS:
Currently, the Fund is structured by statute to provide relief
to victims of corporate malfeasance when the convicted entity is
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a corporation. In cases where an individual, acting in their
capacity of an agent of the corporation is convicted of fraud
the victim is unable to access the Fund because it is limited to
corporations, and not individuals. For example, the CEO of AGA
Financial and two accomplices were convicted of running the
largest Ponzi scheme in California history. The many victims of
the fraud perpetrated by AGA Financial are unable to get relief
from the Fund because the individual officers of AGA were
convicted, not the corporation.
In 2002, in response to well-publicized scandals involving Enron
and other corporations, the Legislature created the Fund. (See
AB 55 (Shelley (Chap. 1015, Stats. of 2002).) The purpose was
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 up. The Fund was financed by a fee
on corporate filings, held in the State Treasury, and
administered by and pursuant to rules promulgated by the SOS.
In order 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.
In 2012, the Legislature updated and revised the law regarding
the Fund, codifying the SOS regulations in SB 1058 (Lieu-Chapter
564, Statutes of 2012). SB 1058 also sought to improve the
claim process to make it more likely that valid claims would be
compensated. Among other things, SB 1058 established a new
deadline of 90 days for a victim to receive a determination;
increased the recovery cap for a single applicant from $20,000
to $50,000; and restricted the ability of the fraudulent
corporation to contest payments or block appeals by prohibiting
consideration of issues and fact already established by the
judgment.
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According to the SOS, the Fund had a balance of approximately
$11,900,000 as of January 2016. According to information
provided by the author:
The Victims of Corporate Fraud Compensation Fund has not
received any applications based upon a criminal restitution
order against AGA Financial Inc. However, the Victims of
Corporate Fraud Compensation Fund has received numerous
claims based upon four criminal restitution orders naming
James Koenig and Asset Real Estate and Investment Company
in a related criminal proceeding. The first three criminal
restitution orders named victims who testified at trial.
Administrative review has been completed for all of the
submitted Applications based upon the first three
restitution orders and the Victims of Corporate Fraud
Compensation Fund has paid out more than $1.1 million
dollars to victims named in the three orders.
The court issued its fourth restitution order, on June 24,
2015, naming victims who had not testified at trial. The
Victims of Corporate Fraud Compensation Fund received
nearly 300 claims based upon the June 24, 2015 criminal
restitution order. Unfortunately, James Koenig has filed a
Notice of Appeal with respect to the June 24, 2015 criminal
restitution order which is still pending. California
Corporations Code sections 2281(f) and 2282(a) preclude the
payment of claims while an appeal is pending. Therefore,
the Victims of Corporate Fraud Fund is statutorily
precluded from awarding applications based upon the June
24, 2015 criminal restitution order until the appeal has
run its course.
According to the author:
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We know that there are victims of corporate fraud that are
unable to access the victims of corporate fraud
compensation fund. That is because to access the fund an
individual must have been a victim of a corporation that
has been convicted. Very rarely are corporations charged
with crimes almost always it is an individual who is
charged with a crime. AB 2759 will correct this problem
and allow many individuals who should have access to the
fund access.
REGISTERED SUPPORT / OPPOSITION:
Support
5 Individuals
Opposition
None on file.
Analysis Prepared by:Mark Farouk / B. & F. / (916) 319-3081
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