SRC-LBB S.B. 1059 78(R)   BILL ANALYSIS


Senate Research Center   S.B. 1059
78R7524 CLG-DBy: Ellis, Rodney
Jurisprudence
3/24/2003
As Filed


DIGEST AND PURPOSE 

Currently, some feel there is a need for increased efficiency in
addressing corporate fraud and providing penalties.  An agency within the
Office of the Attorney General could assist district attorneys and county
attorneys in investigating and prosecuting corporate fraud.  As proposed,
S.B. 1059  creates 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.  This bill requires
companies entering into contracts with the state to immediately report any
financial irregularities relating to the contract or the company's
financial position.  S.B.  1059 also establishes criminal and civil
penalties for untimely or inaccurate disclosure of financial reports. 

RULEMAKING AUTHORITY

Rulemaking authority is expressly granted to the governing body of a state
governmental entity in SECTION 3 (Section 2263.004, Government Code) of
this bill. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Chapter 402B, Government Code,  by adding Section
402.0231, as follows: 

 Sec. 402.0231.  CORPORATE INTEGRITY UNIT.  (a)  Defines "corporate
fraud."   
(b)  Provides that a corporate integrity unit is created within the office
of the attorney general to assist in the enforcement of the laws relating
to corporate fraud or other similar illegal activities.  Requires the unit
to assist district attorneys and county attorneys in the investigation and
prosecution of corporate fraud or other similar illegal activities
allegedly committed by corporations, limited liability companies, and
registered limited liability partnerships, to assist state agencies with
investigation of complaints and administrative enforcement actions for
corporate fraud violations, including the assessment of an administrative
penalty or other administrative sanction, and serve as a clearinghouse for
information relating to the investigation and prosecution of corporate
fraud and other similar illegal activities in this state. 

(c)  Requires a state agency or local law enforcement agency to cooperate
with the corporate integrity unit by providing information requested by
the unit as necessary to carry out the purposes of this section, to the
extent allowed by law.  Provides that information disclosed under this
subsection is confidential and not subject to disclosure under Chapter 552
(Public Information). 

SECTION 2.  Amends Chapter 2252Z, Government Code, by adding Section
2252.904, as follows: 

 Sec. 2252.904.  CONTRACTS WITH COMPANIES; FINANCIAL DISCLOSURES.  (a) 
Defines "certified audit," "company," "financial irregularity,"
"independent certified public accountant" and "state governmental entity." 
 
(b)  Requires a company that enters into a contract with a state
governmental entity to  immediately report to the entity any financial
irregularity relating to the contract or the company's financial position
that is detrimental to the interest of the entity and annually during the
contract period submit to the entity a certified audit of the company's
operations. 

(c)  Requires the auditor's opinion in an audit required by Subsection
(b)(2) to state whether the financial statements of the audited company
present fairly, in all material respects and in accordance with generally
accepted accounting principles, its financial position and results of
operations relating to the obligation, receipt, expenditure, and use of
state funds. 

(d)  Provides that a company that violates Subsection (b)(1) commits an
offense. Provides that an offense under this subsection is a Class A
misdemeanor. 

(e)  Provides that a company that violates Subsection (b)(2) is liable to
the state for a civil penalty in an amount not to exceed $10,000.
Authorizes the attorney general to bring suit to recover the civil penalty
imposed under this subsection. 

SECTION 3.  Amends Title 10F, Government Code,  by adding Chapter 2263, as
follows: 

CHAPTER 2263.  ETHICS AND DISCLOSURE REQUIREMENTS FOR OUTSIDE
FINANCIAL ADVISORS AND SERVICE PROVIDERS

Sec. 2263.001.  APPLICABILITY.  (a)  Provides that this chapter applies in
connection with the management or investment of any state funds managed or
invested under certain laws and by or for certain entities. 
   
(b)  Provides that this chapter applies in connection with the management
or investment of state funds without regard to whether the funds are held
in the state treasury. 
  
(c)  Provides that this chapter does not apply to or in connection with a
state governmental entity that does not manage or invest state funds and
for which state funds are managed or invested only by the comptroller. 

 Sec. 2263.002.  DEFINITION.  Defines "financial advisor or service
provider." 

Sec. 2263.003.  CONSTRUCTION WITH OTHER LAW.  Provides that to the extent
of a conflict between this chapter and another law, the law that imposes a
stricter ethics or disclosure requirement controls. 

Sec. 2263.004.  ETHICS REQUIREMENTS FOR OUTSIDE FINANCIAL ADVISORS OR
SERVICE PROVIDERS.  Requires the governing body of a state governmental
entity by rule to adopt standards of conduct applicable to financial
advisors or service providers who are not employees of the state
governmental entity, who provide financial services to the state
governmental entity or advise the state governmental entity or a member of
the governing body of the state governmental entity in connection with the
management or investment of state funds, and who may reasonably be
expected to receive, directly or indirectly, more than $10,000 in
compensation from the entity during a fiscal year or  render important
investment or funds management advice to the entity or a member of the
governing body of the entity, as determined by the governing body. 

Sec. 2263.005.  DISCLOSURE REQUIREMENTS FOR OUTSIDE FINANCIAL ADVISOR OR
SERVICE PROVIDER.  (a)  Requires a financial advisor or service provider
described by Section 2263.004 to disclose in writing to the administrative
head of the applicable state governmental entity and to the state auditor
certain information. 
   
(b)  Requires the financial advisor or service provider to disclose a
relationship described by Subsection (a) without regard to whether the
relationship is a direct, indirect, personal, private, commercial, or
business relationship. 

(c)  Requires a financial advisor or service provider described by Section
2263.004 to file annually a statement with the administrative head of the
applicable state governmental entity and with the state auditor. Requires
the statement to disclose each relationship and pecuniary interest
described by Subsection (a), if any. 

(d)  Requires the annual statement to be filed not later than February 1
on a form prescribed by the governmental entity, other than the state
auditor, receiving the form. Requires the statement to cover the reporting
period of the previous calendar year. Requires the state auditor to
develop and recommend a uniform form that other governmental entities
receiving the form may prescribe. 

(e)  Requires the financial advisor or service provider to  promptly file
a new or amended statement with the administrative head of the applicable
state governmental entity and with the state auditor whenever there is new
information to report under Subsection (a). 

Sec. 2263.006.  PUBLIC INFORMATION.  Provides that Chapter 552 controls
the extent to which information contained in a statement filed under this
chapter is subject to required public disclosure or excepted from required
public disclosure. 

SECTION 4.  Amends Article 1.03B, Texas Miscellaneous Corporation Laws Act
(Article 13021.03, V.T.C.S.), to provide an exception.  

SECTION 5.  Amends Part Five, Texas Miscellaneous Corporation Laws Act
(Article 1302-5.01 et seq., V.T.C.S.),  by adding Article 5.20, as
follows: 

Art. 5.20.  CERTIFICATION OF FALSE OR MISLEADING FINANCIAL REPORT;
CRIMINAL PENALTY.   (a)  Defines "corporate official" and "financial
report." 

(b)  Provides that a corporate official who signs a sworn statement
certifying that information contained in a financial report fairly
represents, as of the period presented in the report, the financial
condition or results of operation of the company issuing the report
commits an offense if the corporate official makes the certification
knowing that the report contains false or misleading information that
affects or may affect the finances or operations  of the issuing company,
as appropriate, in any material respect. 

  (c)  Provides that an offense under this section is a state jail felony.

SECTION 6.  Requires each state governmental entity required to adopt
rules under Chapter 2263, Government Code, as added by this Act, to adopt
its initial rules in time for the rules to take effect not later than
January 1, 2004. 

SECTION 7.  Effective date:  September 1, 2003.