BILL ANALYSIS                                                                                                                                                                                                             DATE OF HEARING:  JUNE 6, 1994         AB 3073


               SENATE COMMITTEE ON BANKING, COMMERCE, AND
                           INTERNATIONAL TRADE

                           LUCY KILLEA, CHAIR

               AB 3073 CALDERA, AS AMENDED MAY 16, 1994


     PRIOR ACTION:

     ASSEMBLY BANKING AND FINANCE.........11-0
     ASSEMBLY WAYS AND MEANS..............19-0
     ASSEMBLY FLOOR.......................67-0

     SUBJECT:  Local agency obligations securities, 
š     clarification of existing law with an urgency 
š     clause.

     FISCAL:  Yes

     Existing law prevents the unauthorized offer and 
š     sale of securities that are fractional interests in 
š     local agency obligations (leases, installments 
š     sales, or other obligations of the city, county, 
š     school district, or other local agencies of the 
š     state) without obtaining the prior written consent 
š     of the local agency to that offer or sale. 

     This bill would repeal provisions of the 
š     Corporations Code relating to the sale of local 
š     agency obligations and add provisions to the 
š     Government Code relating to the sale of local 
š     agency obligations. 

     This bill would prevent unauthorized offers and 
š     sales of issued transactions in securities that 
š     constitute fractional interests in local agency 
š     obligations by requiring the prior written consent 
š     of the local agency.  Violators would be subject to 
š     civil and criminal penalties up to $10,000,000 
š     and/or up to five years imprisonment.

     This bill does not apply to the following:

       1. Any security that is a fractional interest in 
       a lease, installment sale, or other obligation of 
       a local agency that was first issued and sold 
       prior to October 2, 1993;

     SENATE COMMITTEE ON BANKING, COMMERCE     AB 3073
     AND INTERNATIONAL TRADE                   CALDERA
     JUNE 8, 1994
     PAGE TWO


       2. Any security that is a fractional interest in 
       a lease, installment sale, or other obligation of 
       a local agency and that is registered under the 
       Securities Act of 1933;

       3. Offers or sales of participation interests 
       between financial institutions;

       4. Offers or sales of shares or interest in any 
       registered unit investment trust or management 
       company, as defined in the Investment Company Act 
       of 1940;

       5. Offers or sales of any security that is a 
       fractional interest in a lease, installment sale, 
       or other obligation of a local agency made solely 
       to one or more persons who are reasonably 
       believed to be qualified institutional buyers or 
       accredited investors; and

       6. Any security that was first issued and sold 
       prior to the effective date of this section if 
       that security is described in this section.

     This bill would not eliminate the need for 
š     qualifying the offer or sales under the 
š     Corporations Code (Division I of Title 4).

     This bill would change the existing strict 
š     liability standard to a knowledge standard.

     This bill implements the changes immediately by an 
š     urgency clause, to prevent disruption of the 
š     market.


     COMMENTS:
     AB 1160, Chapter 623, went into effect on October 
š     of 1993 and prevents the unauthorized offer and 
š     sale of securities that constitute fractional 
š     interests in local agency obligations without 
š     obtaining the prior written consent of the local 
š     agency except in certain instances.  According to 
š     the author there were several concerns in the 
š     investment community that AB 1160 was too far 
š     reaching.  This bill would eliminate those concerns 
š     by exempting the following securities from 
š     compliance with this section:

     SENATE COMMITTEE ON BANKING, COMMERCE     AB 3073
     AND INTERNATIONAL TRADE                   CALDERA
     JUNE 8, 1994
     PAGE THREE


       1. Securities that are sold only to institutions;

       2. Securities which are registered under federal 
       securities laws; and

       3. Securities which are already issued and 
       outstanding before the effective date of AB 1160.

     According to the author because of the 
š     inclusiveness of AB 1160 investors in derivative 
š     securities find themselves in the position of 
š     potentially being held strictly liable should they 
š     seek to dispose of their investment when the 
š     required consent has not been obtained by the 
š     original issuer of the derivative security. 
š     Therefore, this bill would eliminate the strict 
š     liability standard imposing instead a knowledge 
š     standard.  Under the knowledge standard, nonissuer 
š     investors have the duty to determine whether or not 
š     consent is required or has been obtained.

     The Department of Corporations requested relief 
š     from its obligation to enforce AB 1160 due to 
š     fiscal constraints, and suggested it be moved to 
š     the Government Code, allowing for local 
š     enforcement.


     POSITIONS:

     SPONSOR:
     Los Angeles County

     SUPPORT:
     Lehman Brothers
     Orrick, Herrington & Sutcliffe

     OPPOSITION:
     none received to date.


     Jan L Owen 6-6-94
     445-6306