C.S.S.B. 1059 78(R)    BILL ANALYSIS


C.S.S.B. 1059
By: Ellis, Rodney
State Affairs
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Recent misconduct by corporate officers demonstrates the need for stronger
measures for addressing corporate fraud.  One purpose of C.S.S.B. 1059 is
to create a corporate integrity unit within the office of the attorney
general to assist in the investigation and enforcement of the laws
relating to corporate fraud or other similar illegal activities. 

In addition, there have been documented instances in which the largest
shareholders of certain business entities have entered into transactions
with interested parties without the consent of a majority of the
shareholders.  Such arrangements can be detrimental to the financial
interests of the business entities and their shareholders.  Another
purpose of C.S.S.B. 1059 is to prohibit certain business entities from
entering into transactions with interested parties that involve more than
$10,000 without the prior approval of a majority of the holders of all
ownership interests.   

RULEMAKING AUTHORITY

It is the opinion of the committee that this bill does not expressly grant
any additional rulemaking authority to a state officer, department,
institution, or agency. 

ANALYSIS

C.S.S.B. 1059 amends Subchapter B, Chapter 402, Government Code, by adding
Section 402.0231 to create a corporate integrity unit within the office of
the attorney general, to assist in the enforcement of the laws relating to
corporate fraud or other similar illegal activities. 

The bill requires the corporate integrity unit to:

_assist district and county attorneys in the investigation and prosecution
of corporate fraud or other similar illegal activities; 
_serve as a clearing house for information related to that subject; and
_assist state agencies with investigation of complaints and administrative
enforcement actions for corporate fraud violations. 

The bill requires a state agency or local law enforcement agency, to the
extent allowed by law, to provide information requested by the corporate
integrity unit as necessary to carry out the purposes listed above.  The
bill provides that such information is confidential and not subject to
public disclosure under Chapter 552, Government Code.  

The bill provides that the office of the attorney general is not required
to implement proposed Section 402.0231, Government Code, unless a specific
appropriation is provided in the General Appropriations Act of the 78th
Legislature, Regular Session, 2003. 

The bill also amends Subchapter D, Chapter 371, Finance Code (Texas
Pawnshop Act), by adding Section 371.184 to prohibit a business entity
licensed under Chapter 371 from entering into a transaction with an
interested party that involves more than $10,000 without the prior
approval of a majority of the holders of all ownership interests, who are
not interested parties, voting together as a single class.  This includes
holders of all the outstanding shares of capital stock, or other ownership
interests, of every class or series, including capital stock or ownership
interests not otherwise entitled to vote.   
 
Proposed Section 371.184 would apply only to a publicly traded business
entity that: 
_makes interest-bearing loans;
_has a single controlling owner; and
_is licensed under Chapter 371, Finance Code.

The bill defines an "interested party" as:
_a shareholder who controls 25% or more of the voting shares;
_a member of the governing body of a business entity;
_an executive officer of a business entity;
_an immediate family member of any of the persons described above; or
_an affiliate of a business entity or of any of the persons described
above. 

EFFECTIVE DATE

September 1, 2003.  Section 371.184, Finance Code, as added by this Act,
applies only to a transaction entered into on or after the effective date
of the Act. 


COMPARISON OF ORIGINAL TO SUBSTITUTE

The original bill:
_added a new section relating to contracts with  companies and financial
disclosures to Subchapter Z, Chapter 2252, Government Code, 
_added a new chapter relating to ethics and disclosure requirements for
outside financial advisors and service providers to Subtitle F, Title 10,
Government Code, 
_added Article 5.20, relating to certification  of false or misleading
financial reports and providing criminal penalties, to Part Five, Texas
Miscellaneous Corporation Laws Act, and 
_amended Section B, Article 1.03, Texas Miscellaneous Corporation Laws
Act, by making conforming changes consistent with the purposes of the Act. 

The substitute does not include any of these provisions and deletes
references to the provisions elsewhere in the bill. 

C.S.S.B. 1059 also differs from the original in that it amends Subchapter
D, Chapter 371, Finance Code, as described above.  The original bill did
not amend the Finance Code.