BILL ANALYSIS �
SB 398
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Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 398 (Hern�ndez) - As Amended: March 24, 2011
Policy Committee: PER&SSVote:6-0
Elections and Reapportionment 7-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill revises the definition of placement agent and external
manager, makes conforming changes to the definition of placement
agent and "external manager in the Political Reform Act of 1974
(PRA), and exempts placement agents, as specified, from local
government reporting and registration requirements. States that
this bill is in furtherance of the PRA, an initiative statute,
and will take effect immediately as an urgency statute.
FISCAL EFFECT
There is no significant fiscal impact from this bill.
COMMENTS
1)Purpose . According to the author, SB 398 is intended to
clarify specified provisions of AB 1743 (Hern�ndez), Chapter
668, Statutes of 2010. The author states that the goal of AB
1743 was to identify and regulate the activities of
individuals soliciting investments for external managers.
However, some in the financial community have raised concerns
that AB 1743 could be interpreted to include all broker
dealers engaged in general secondary and primary securities
transactions with state retirement systems. The author argues
that AB 1743 was never intended to cover the routine trading
and sales of securities (such as stocks in publicly traded
companies) by a brokerage firm.
2)Background . Placement agents are persons hired by outside
investment managers in connection with an investment
transaction as a finder, solicitor, marketer or consultant to
SB 398
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raise money from, or to obtain access to, an institutional
investor such as a public retirement system. There have been
widespread allegations nationwide that placement agents may
have improperly attempted to sway the investment decisions of
public retirement systems.
3)Political Reform Act of 1974 . This act was an initiative
statute, Proposition 9, which was passed by the California
voters and created the FPPC and codified significant
restrictions and prohibitions on candidates, officeholders and
lobbyists. Amendments to the PRA that are not submitted to
the voters, such as those contained in this bill, must further
the purposes of the initiative and require a two-thirds vote
of both houses of the Legislature.
4)Previous legislation .
a) AB 1743 (Hernandez), Chapter 668, Statutes of 2010,
prohibits a person from acting as a placement agent in
connection with any potential investment made by a state
public retirement system unless that person is registered
as a lobbyist in accordance with, and is in full compliance
with, the requirements of the PRA, and requires placement
agents connected with investments made by local public
retirement systems to comply with any applicable
requirements imposed by a local government agency on
lobbyists pursuant to the PRA.
b) AB 1584 (Assembly Public Employees, Retirement and
Social Security Committee), Chapter 301, Statutes of 2009,
increases disclosure and accountability of investment
placement agents, board members and others associated with
public pension funds in California.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081