BILL ANALYSIS Ó
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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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