BILL ANALYSIS                                                                                                                                                                                                    



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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          2759 (Levine)


          As Amended  August 17, 2016


          Majority vote


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          |ASSEMBLY:  |80-0  |(June 1, 2016) |SENATE: |39-0  |(August 22,      |
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          Original Committee Reference:  JUD.




          SUMMARY:  Seeks to compensate victims of corporate fraud  
          committed by corporate officers from the Victims of Corporate  
          Fraud Compensation Fund (VCFCF).  Specifically, this bill: 


          1)Allows an individual who is a victim of corporate fraud and  
            who wins a civil judgment against a corporate officer or  
            obtains a final criminal restitution order in connection with  
            the fraudulent acts of a corporate officer, but is unable to  
            collect the judgment from the officer after diligent efforts  
            to do so, to collect damages from the VCFCF in the same manner  
            as a similarly situated victim of corporate fraud with a  
            judgment against a corporation would be able to do.


          2)Eliminates the requirement in existing law that the VCFCF must  








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            pay interest to a claimant on an unpaid claim in the event  
            that it does not have enough money to pay a claim when it is  
            initially submitted for payment.


          3)Defines relevant terms.


          The Senate amendments:


          1)Eliminate the provision specifying that attorney fees are not  
            costs that can be recovered from the VCFCF and declaring that  
            the limitation on attorney fees is declaratory of existing  
            law.


          2)Clarify that a victim who obtains a final criminal restitution  
            order in connection with the fraudulent acts of a corporate  
            officer may also recover from the VCFCF.


          FISCAL EFFECT:  According to the Senate Appropriation analysis: 


          1)Secretary of State:  Potential increase in administrative  
            costs, likely minor and absorbable (General Fund) to a) revise  
            and distribute forms and notices, b) process a greater number  
            of claims for reimbursement against agents of corporations,  
            and, c) enforce and collect repayments to the VCFCF for claims  
            paid on individual restitution orders. 


          2)VCFCF payments:  Potentially significant to major increase in  
            future payments made from the VCFCF due to extending  
            compensation eligibility to include claims against agents of  
            corporations.  For every 10 to 20 claims paid at the $50,000  
            cap per claim, costs would be $0.5 million to $1 million  
            (Special Fund*).  The VCFCF is projected to receive revenues  
            of $1.7 million in Fiscal Year (FY) 2016-17, with an ending  
            reserve balance of $12.4 million. Annual payments out of the  
            VCFCF have been in the range of $1.5 million to $1.8 million.   








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            Staff notes the current level of fee revenues, in the absence  
            of regular repayments to the VCFCF, will be insufficient to  
            sustain future increases in payments from the VCFCF.   
            Repayments to the Secretary of State on claims paid from the  
            VCFCF are rare, with no repayments provided over the last  
            three years. 


          3)Repeal of interest:  Minor future reductions to VCFCF claim  
            payment amounts that will no longer have interest applied to  
            the outstanding award payment during the period that the VCFCF  
            balance is insufficient to fully satisfy the award.  To date,  
            no interest has been assessed or paid on VCFCF payments.


          COMMENTS:  According to the Secretary of State's Office, the  
          Victims of Corporate Fraud Compensation 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,  








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               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:  


                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.  This bill will correct  
               this problem and allow many individuals who should  
               have access to the fund access.


          Access to the Victims of Corporate Fraud Compensation Fund.  If  
          a plaintiff successfully obtained a judgment against an officer  
          of a corporation based upon the tortious act by the officer him  
          or herself; the act of the officer on behalf of the corporation;  
          or the act of the officer violated the "Responsible Corporate  
          Officer Doctrine," the plaintiff's theory of liability would be  
          based upon misdeeds of the corporation that are attributable to  
          the officer (and vice versa).  It therefore seems reasonable to  
          provide such a plaintiff with the same remedies available to a  
          plaintiff who obtains a judgment against the corporation itself.


          Analysis Prepared by:                                             
                          Alison Merrilees / JUD. / (916) 319-2334  FN:  
          0004564










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