AN ACT CONCERNING THE FORFEITURE OF PROPERTY OBTAINED BY SECURITIES FRAUD.

AN ACT CONCERNING THE FORFEITURE OF PROPERTY OBTAINED BY SECURITIES FRAUD.

This bill establishes forfeiture procedures for money and property illegally obtained by (1) someone in connection with the offer, sale, or purchase of securities or (2) investment advisors and people who solicit business on their behalf (see BACKGROUND). It subjects to forfeiture money and property obtained or derived from illegal activities.

To forfeit the property, the bill requires a civil court proceeding with notice and a hearing and the state must prove all material facts by clear and convincing evidence. An owner or someone with an interest in the property can offer evidence and the court can protect his or her interests under certain circumstances. The court's decision can be appealed. Any forfeited money or the proceeds from forfeited property sold at auction is deposited into a securities fraud restitution account, which the bill creates. The Department of Banking can use money in the fund to pay restitution to victims of these crimes.

Within 90 days of seizing money or property that is subject to forfeiture in connection with a lawful criminal arrest or search, the bill allows a prosecutor to petition the court to order forfeiture. The suit is an in rem proceeding (a proceeding against the property) that is a civil suit in equity. The bill establishes the following procedures:

1. the court must identify property owners and others that appear to have an interest in the property and the state must notify them by certified or registered mail;

2. the court must hold a hearing within two weeks after the notice unless it delays the hearing for good cause;

3. the state must prove all material facts by clear and convincing evidence;

4. the court hears evidence, makes factual findings, reaches legal conclusions, and issues a final order; and

5. the parties can appeal the order as with a decree in equity.

The bill prohibits testimony or evidence offered by owners or interested persons at the hearing from being used against them in any proceeding. This also applies to evidence discovered as a result of or derived from their testimony or evidence. However, these individuals may be prosecuted for perjury or contempt based on their testimony or production of evidence.

The bill prohibits an owner's or lienholder's interest from being forfeited due to someone else's act or omission if the owner or lienholder did not know and could not have reasonably known that the money or property was (1) being used in, (2) intended to be used in, or (3) derived from, criminal activity.

The bill requires the administrative services commissioner or her designee to sell forfeited property at public auction. Forfeited money and the proceeds from any auction are used to pay (1) the balance due on any lien the court preserved (although the bill also provides that certain lienholder interests cannot forfeit); (2) storage, maintenance, security, and forfeiture costs; and (3) court costs. Any balance is deposited in the securities fraud restitution account which the bill creates as a separate, non-lapsing General Fund account. The Department of Banking uses the fund to pay restitution to victims of securities fraud.

The law prohibits anyone, in connection with the offer, sale, or purchase of a security, from directly or indirectly:

1. employing a device or scheme to defraud;

2. making an untrue statement of a material fact or omitting a material fact that is necessary to make the statements made not misleading, in light of the circumstances; and

3. engaging in acts, practices, or a course of business that is fraudulent or deceives anyone.

This is punishable by up to 10 years in prison, a fine of up to $ 10,000, or both (CGS §§ 36b-4, -28)

The law also prohibits anyone, in connection with the offer, sale, or purchase of a security, from directly or indirectly engaging in dishonest or unethical practice. This is punishable by up to two years in prison, a fine of up to $ 2,000, or both (CGS §§ 36b-4, -28).

Prohibited Activities of Investment Advisors and People Soliciting Business for Them

The law prohibits anyone from directly or indirectly receiving compensation for advising someone about the value of securities or their purchase or sale, through reports or otherwise, by:

1. employing a device or scheme to defraud;

2. making an untrue statement of a material fact or omitting a material fact that is necessary to make the statements made not misleading, in light of the circumstances; and

3. engaging in acts, practices, or a course of business that is a fraud or deceit of anyone.

The law prohibits anyone who directly or indirectly receives compensation as an investment advisor or for soliciting business for an investment advisor from engaging in dishonest or unethical practices.

This is punishable by up to 10 years in prison, a fine of up to $ 10,000, or both (CGS §§ 36b-5, -28)

The law prohibits an investment advisor from having, entering into, extending, or renewing an investment advisory contract unless it is signed by the client and contains certain written disclosures. An investment advisor also cannot take or have custody of a client's securities or funds it is prohibited by a regulation or, absent a regulation, the advisor does not notify the banking commissioner.

The law prohibits someone who directly or indirectly receives compensation for soliciting advisory business for an investment advisor from:

1. employing a device or scheme to defraud;

2. making an untrue statement of a material fact or omitting a material fact that is necessary to make the statements made not misleading, in light of the circumstances; and

3. engaging in acts, practices, or a course of business that is a fraud or deceit of anyone.

This is punishable by up to two years in prison, a fine of up to $ 2,000, or both (CGS §§ 36b-5, -28).

The law provides similar procedures to those in the bill to allow the state to seize property believed to be possessed, controlled, designed, or intended for use or which is, has been, or may be used as a means of committing a crime. The property must have been seized as a result of a lawful search or arrest and the state must claim it is a nuisance. Under these forfeiture provisions, money or property is destroyed or given to a charitable or educational institution or government agency or institution. Money or proceeds from auctioning property go to the General Fund.

Other forfeiture provisions apply to property related to violations of the drug laws.

sSB 6671, favorably reported by the Judiciary Committee, establishes forfeiture procedures for (1) property used or intended to be used to commit or facilitate commission of various exploitation crimes, primarily involving children; (2) money used or intended for use in violation of the crimes; (3) the direct and indirect crime proceeds; and (4) property derived from the proceeds.

Yea

Nay

(03/31/2009)