What finally happened to HB 1311, a bad bill discussed in an earlier column? It would have exempted certain sale/leaseback investments from Colorado's security law.
Bad bills, like bears, hibernate and reappear. HB 1311 by Rep. Lynn Hefley (R) will reappear in 2004 either as a separate bill or as part of another, larger measure.
HB 1311 was introduced Feb.17th and passed out of House State Affairs Committee Feb. 28th. Then it sat on the House calendar, day after day, almost always the first bill on the list and always laid over, hibernating, until finally dying without a substantive vote on May 7th.
Why was it a bad bill? Let's describe a public pay phone sale/leaseback. You buy the pay phone for $50,000. You lease it back to the seller "solely in exchange for a contractually fixed and guaranteed rate of return without any possibility of participation in risk, capital appreciation or earnings."
The problem is a "guarantee" regardless of the ability to make good on the guarantee is no guarantee. The guy with the slicked down hair and thin mustache can disappear, leaving naive but formerly financially stable elderly consumers standing naked in the snow.
Attorney General Ken Salazar's office termed HB 1311 "a recipe for unscrupulous promoters to circumvent the securities laws...making
Colorado the new capital for all these types of schemes."
Why do I think it will be back? Because it can make a lot of money for a few. And in 2004, the division of securities will be repealed under Colorado's Sunset law, unless continued by the legislature. Right now the Dept. of Regulatory Agencies (DORA) is working on a report of bill recommendations that will likely be made public in October.
The title to the bill will begin with the words "Concerning the Division of Securities". That lays the bill open to all sorts of possible amendments by legislators as the measure moves through the process. My guess is HB 1311 will surface as an amendment to the larger bill.
All Sunset bills in 2004 begin in the House with the subject matter assigned to a committee by the House Speaker, Lola Bradley. After the committee listens to the DORA recommendations and approves having a bill printed, the committee chair decides who will be the chief sponsor. If he or she chooses someone who supports the concept of HB 1311, we will see a bitter battle. In the end perhaps the governor must determine whether HB 1311 becomes part of our securities law.
Colorado has been "here" before. As a Denver Post reporter wrote "In the heady stock markets of the 1980s, Denver penny stocks, gold deals and other investments attracted some of the nation's most notorious swindlers. Much of their success at making millions from unsuspecting investors was blamed on emasculated state securities regulation."
That emasculated law left enforcement of federal and state fraud law to an understaffed U.S. Securities and Exchange Commission whenever the scheme crossed state lines. The securities subsection of the Colorado Bar Association was responsible for part of that law, which law was finally revised in 1990 to restore state control over these frauds.
It would certainly be fitting and proper if the same state bar association came out strongly against adding language from HB 1311 to the Colorado securities statute.
(Jerry Kopel served 22 years in the Colorado House.)
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