SENATE BILL REPORT

SB 6111

BYSenator Moore

Prohibiting a securities employee from resigning employment in lieu of termination following a securities violation.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 2, 1988; February 4, 1988

Majority Report:  That Substitute Senate Bill No. 6111 be substituted therefor, and the substitute bill do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Kreidler, Moore, Rasmussen, Sellar.

Senate Staff:Benson Porter (786-7470)

                  February 4, 1988

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 4, 1988

BACKGROUND:

No provision exists preventing an employee of a broker- dealer or investment advisor, who has committed a violation of the Securities Act of Washington, from resigning his or her position and accepting employment with another firm.  A broker- dealer may be reluctant to terminate an employee who has violated the Securities Act for fear of a potential lawsuit by the employee.

This can create a situation where an employee who may have committed flagrant violations of the Securities Act is allowed to resign and move to another firm where he or she may engage in the same or similar illegal behavior.

SUMMARY:

A broker-dealer or investment advisor is required to terminate an employee who has violated the Securities Act.  By permitting an employee to resign in lieu of terminating the employee, an employer is guilty of a class C felony punishable by imprisonment for a term not to exceed five years, or a fine not to exceed $10,000, or both.

The term "employee" is defined.

EFFECT OF PROPOSED SUBSTITUTE:

A broker-dealer or investment advisor who terminates an employee pursuant to this act is required to notify the Director of Licensing.  The director shall issue an order restraining, suspending or denying this employee's license.

No broker-dealer or investment advisor may hire an employee terminated under this act unless a hearing has been held in which the findings of fact and conclusions of law have been entered reinstating the employee's license or the director suspends the order issued against the employee.

Any broker-dealer or investment advisor who hires an employee in violation of this act is guilty of a class C felony.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Geoff Gibbs, securities industry (against)