If You Did This, It Would Be Fraud!


All fees, reimbursements, assessments, and other money or amounts charged and collected by the Department are required to be deposited into the the State Corporations Fund. Cal. Gov’t Code § 13978.6(b). The legislature created the fund to “effectively support the Department of Corporations” in its administration of the laws subject to its jurisdiction. Id.

In this recent post, I lamented the procedure by which SB 538 (Hill) was gutted and amended shortly before the key policy committee hearing in the Senate. Since that time, the bill has moved to the Third Reading stage and is eligible for eligible for floor debate and final vote. Among other things, SB 538 would for the first time impose annual renewal fees of up to $35 on licensed broker-dealer agents and investment adviser representatives. According to the analysis prepared by the Senate Appropriations Committee, this new fee is needed because historic funding shortfalls have prevented the Department of Corporations from performing regular, periodic regulatory examinations of its broker-dealers, their agents, or its investment advisers or their representatives.

It is estimated that this new fee would generate $7.8 million to $9.8 million for the Department. This all sounds plausible except when you consider that the Department is already required to assess broker-dealers fro their pro rata share of all costs and expenses incurred in the administration of the Department’s broker-dealer program. Cal. Corp. Code § 25608(0).

So, why the funding shortfall? It turns out that the legislature has borrowed $18.5 million from the Corporations Fund. The fees and assessments paid by the Department’s licensees into the fund established by law for the support of the Department have been taken. Now, those same licensees are in effect being asked to pay again.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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