Relates to state notice filed by a debt evading foreign state.
Ayes (8): Foley, Onorato, Breslin, Klein, Adams, Stewart-Cousins, Savino, Peralta
Ayes W/R (2): Krueger, Kruger
Nays (8): Diaz, Farley, Johnson O, DeFrancisco, Bonacic, Golden, Marcellino, Ranzenhofer
Excused (1): Morahan
BILL NUMBER: S7768
TITLE OF BILL : An act to amend the general business law, in relation to the further state notice filing requirement
PURPOSE OF BILL : The New York General Business Law (the "General Business Law") requires any dealer to file a further state notice before it can sell or offer for sale to the public within this state as principal or agent any securities not otherwise exempted from the further state notice filing requirement. Among the exemptions provided from the requirement to file a further state notice is an exemption for securities issued or guaranteed by a foreign government with which the United States is at the time of the sale or offer for sale thereof maintaining diplomatic relations, or by any province or political subdivision of such a government (the "sovereign issuer exemption"). This bill will amend the General Business Law to exclude from the sovereign issuer exemption any securities issued by (1) a foreign state that (i) has had one or more final judgments in an aggregate amount exceeding $100,000,000 entered against it by any state or federal court located in New York, including any final judgment originally issued in a foreign court that is filed or registered in New York; (ii) fails to satisfy any such judgment for a period of more than 2 years after it becomes effective; and (iii) is not a foreign state eligible for (a) financing through the International Development Association (unless such state is eligible for financing from the International Bank for Reconstruction and Development), (b) debt relief under the Enhanced HIPC Initiative (as defined in section 1625(e)(3) of the United States International Financial Institutions Act), or (c) debt relief under the Multilateral Debt Relief Initiative of the International Monetary Fund, or (2) any agency or instrumentality of such a foreign state (any such foreign state, agency or instrumentality, a "debt evading foreign state"). In addition, this bill will amend the General Business Law to provide that no debt evading foreign state shall directly or indirectly sell or offer for sale to the public within this state any securities unless it has (1) filed a further state notice and (2) paid a filing fee in connection therewith in an amount equal to the greater of $15 million or 1.5% of the aggregate offering amount or, in the case of debt securities, the aggregate principal amount, of (a) in the case of an offering pursuant to an effective registration statement under the United States Securities Act of 1933, all securities covered by such registration statement, or (b) in the case of any other offering, all securities offered by such debt evading foreign state or state-owned corporation of a debt evading foreign state (whether in New York or in any other state) as part of the same offering and in any related offering. The bill will further amend the General Business Law to provide that no debt evading foreign state shall complete or continue any sale or offer for sale of securities in this state that is pending on the date that this bill takes effect unless and until such debt evading foreign state has filed a further state notice and paid the filing fee in connection therewith as described herein.
SUMMARY OF PROVISIONS : Section 1 - Amends Subdivision 2 of Section 359-c of the General Business Law to require the department of state to collect an increased filing fee for filing and publishing each further state notice filed by a debt evading foreign state or a state-owned corporation of a debt evading foreign state.
Section 2 - Amends Section 359-c of the General Business Law by adding a new subdivision 3. Subdivision 3 defines the terms "agency or instrumentality of a foreign state", "final judgment", "foreign
state", "debt evading foreign state" and "state-owned corporation of a debt evading foreign state".
Section 3 - Amends Subdivision 8 of Section 359-e by adding a new Paragraph (b). Paragraph (b) requires any debt evading foreign states and state-owned corporation of a debt evading foreign state to file a further state notice and pay the filing fee required under Subdivision 2 of Section 359-c prior to directly or indirectly (1) selling or offering to sell any securities in this state or (2) completing or continuing, as applicable, any sale or offer for sale of securities in this state that is pending on the date on which this bill takes effect.
Section 4 - Amends Paragraph (b) of Subdivision 1 of Section 359-f of the General Business Law to exclude a debt evading foreign state from the sovereign issuer exemption.
Section 5 - Provides that the act will take effective immediately.
JUSTIFICATION : New York taxpayers have invested billions of dollars in debt issued by foreign sovereigns. To facilitate the issuance of their debt to New York citizens and other individuals through New York's capital markets, many foreign sovereigns designate New York as the place of payment and the venue where the foreign sovereign waives sovereign immunity and consents to jurisdiction to be sued in the case of a default. As a result, actions to enforce defaulted debt are frequently brought in state and federal courts located in New York. Although many foreign sovereigns pay their debts responsibly, some foreign sovereigns that are capable of making payments to their creditors instead choose to repudiate their debts and to refuse to pay judgments rendered against them. Because of the difficulties associated with enforcing judgments against foreign sovereigns, New York taxpayers suffer significant losses, and have little legal recourse, when foreign sovereigns choose not to pay their debts. The losses incurred by taxpayers significantly affect New York tax revenue, not only because New York cannot tax interest and other gains that are not paid, but also because investors' losses can be offset against other taxable gains.
The most egregious example of a foreign sovereign that is capable of paying its debt, but that chooses not to, is the Republic of Argentina. In 2001, Argentina defaulted on $81.2 billion of debt, which is the largest sovereign debt default in history. Argentina refused to negotiate with its bondholders until 2005. and then offered the bondholders an exchange worth about 25-cents on the dollar on a take-it-or-leave-it basis.
Approximately 76 percent of bondholders accepted the exchange offer, and Argentina repudiated the remaining portion of its debt. Argentina has repudiated these debts while claiming, in a recent filing with the Securities and Exchange Commission, to have a debt-to-gross domestic product ratio of 49.1% -less than the ratios of Canada, the United Kingdom, France, Germany, and a variety of other European countries and, a budget surplus in each year from 2004 to 2008.
Dozens of lawsuits have been filed in the United States District Court for the Southern District of New York as a result of the Argentina debt default. The two largest creditors alone have claims and judgments of over $3 billion. Judge Thomas P. Griesa, the most senior judge in the Southern District, has repeatedly observed that Argentina has never offered to pay the judgments rendered against it and instead focused all of its efforts on protecting its assets from creditors. In May 2009, Judge Griesa held that Argentina was in civil contempt of court for failing to comply with court orders and drew an adverse
inference that Argentina had removed assets from New York in violation of court orders.
The economic impact of this debt repudiation has been substantial. The direct net costs to New York holders of defaulted Argentina debt currently total $902 million, including $452 million in capital losses, $382 million in foregone interest payments, and $180 million in foregone investment returns, less nearly $112 million in tax benefits created by the losses or foregone income. From December 2001 to December 2008, the indirect costs of the Argentina debt default, through lost tax revenue, total approximately $329 million.
This bill seeks to offset a portion of the adverse effect that debt evading foreign states have on New York tax revenue by imposing an increased filing fee on the filing of a further state notice by a debt evading foreign state or an agency or instrumentality of a debt evading foreign state that is seeking to directly or indirectly offer or sell securities in New York. The amount of the filing fee shall be equal to the greater of $15 million or 1.5% of the aggregate offering amount or, in the case of debt securities, the aggregate principal amount, of (a) in the case of an offering pursuant to an effective registration statement under the United States Securities Act of 1933, all securities covered by such registration statement, or (b) in the case of any other offering, all securities offered by such debt evading foreign state or state-owned corporation of a debt evading foreign state (whether in New York or in any other state) as part of the same offering and in any related offering.
LEGISLATIVE HISTORY : New bill.
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS : At present, at least one debt evading foreign state, the Republic of Argentina, is contemplating a securities offering that is likely to include sales or offers for the sale of securities in New York. Argentina has filed a registration statement with the Securities and Exchange Commission relating to the offer and sale of securities having an aggregate principal amount of up to $15 billion. If Argentina sought to offer or sell any securities covered by such registration statement in New York, this bill would require Argentina to file a further state notice and pay a filing fee of up to $225 million for this offering. In addition, it is estimated that this bill would raise revenue of an additional $30 million per year from offerings by provinces and political subdivisions of Argentina.
EFFECTIVE DATE : This act shall take effect immediately.
STATE OF NEW YORK ________________________________________________________________________ 7768 IN SENATE May 7, 2010 ___________Introduced by Sen. FOLEY -- read twice and ordered printed, and when printed to be committed to the Committee on Consumer Protection AN ACT to amend the general business law, in relation to the further state notice filing requirement THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision 2 of section 359-c of the general business law, as amended by chapter 166 of the laws of 1991, is amended to read as follows: 2. The department of state shall collect a fee of seventy-five dollars for filing and publishing each state notice and each further state notice, EXCEPT THAT, IN THE CASE OF A FURTHER STATE NOTICE FILED BY A DEBT EVADING FOREIGN STATE OR A STATE-OWNED CORPORATION OF A DEBT EVAD- ING FOREIGN STATE, THE DEPARTMENT OF STATE SHALL COLLECT A FEE FOR FILING AND PUBLISHING EACH SUCH FURTHER STATE NOTICE IN AN AMOUNT EQUAL TO THE GREATER OF FIFTEEN MILLION DOLLARS OR ONE AND A HALF PERCENT OF THE AGGREGATE OFFERING AMOUNT OR, IN THE CASE OF DEBT SECURITIES, THE AGGREGATE PRINCIPAL AMOUNT, OF (A) IN THE CASE OF AN OFFERING PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES SECURI- TIES ACT OF 1933, ALL SECURITIES COVERED BY SUCH REGISTRATION STATEMENT, OR (B) IN THE CASE OF ANY OTHER OFFERING, ALL SECURITIES OFFERED BY SUCH DEBT EVADING FOREIGN STATE OR STATE-OWNED CORPORATION OF A DEBT EVADING FOREIGN STATE (WHETHER IN NEW YORK OR IN ANY OTHER STATE) AS PART OF THE SAME OFFERING AND IN ANY RELATED OFFERING. S 2. Section 359-c of the general business law is amended by adding a new subdivision 3 to read as follows: 3. THE FOLLOWING TERMS, WHENEVER USED OR REFERRED TO IN THIS ARTICLE, SHALL HAVE THE FOLLOWING MEANING UNLESS A DIFFERENT MEANING CLEARLY APPEARS FROM THE CONTEXT: (A) "AGENCY OR INSTRUMENTALITY OF A FOREIGN STATE" SHALL MEAN ANY ENTITY: (1) WHICH IS A SEPARATE LEGAL PERSON, CORPORATE OR OTHERWISE, AND (2) WHICH IS AN ORGAN OF A FOREIGN STATE OR A PROVINCE OR POLITICAL SUBDIVISION THEREOF, OR A MAJORITY OF WHOSE SHARES OR OTHER OWNERSHIPEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD17217-02-0 S. 7768 2
INTEREST IS OWNED BY A FOREIGN STATE OR A PROVINCE OR POLITICAL SUBDIVI- SION THEREOF, AND (3) WHICH IS NEITHER A CITIZEN OF A STATE OF THE UNITED STATES, NOR CREATED UNDER THE LAWS OF OF ANY THIRD COUNTRY. (B) "FINAL JUDGMENT" SHALL MEAN ANY JUDGMENT THAT IS NO LONGER ELIGI- BLE TO BE APPEALED TO ANY COURT. (C) "FOREIGN STATE" SHALL MEAN ANY GOVERNMENTAL UNIT OTHER THAN THE UNITED STATES, OR ANY STATE, DISTRICT, COMMONWEALTH, TERRITORY, OR INSU- LAR POSSESSION THEREOF, AND INCLUDES A PROVINCE OR POLITICAL SUBDIVISION OF A FOREIGN STATE. (D) (1) "DEBT EVADING FOREIGN STATE" SHALL MEAN ANY FOREIGN STATE THAT: (I) HAS ONE OR MORE FINAL JUDGMENTS ENTERED AGAINST IT BY ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, INCLUDING ANY FINAL JUDGMENT ORIGINALLY ISSUED IN A FOREIGN COURT THAT IS FILED OR REGISTERED IN NEW YORK, IN THE COMBINED AMOUNT OF WHICH JUDGMENTS EXCEED ONE HUNDRED MILLION DOLLARS; (II) FAILS TO SATISFY IN FULL ANY SUCH JUDGMENT FOR A PERIOD OF MORE THAN TWO YEARS AFTER THE JUDGMENT BECOMES A FINAL JUDGMENT, REGARDLESS OF WHETHER SUCH JUDGMENT BECAME A FINAL JUDGMENT BEFORE THE DATE OF THE ENACTMENT OF THIS SUBDIVISION; AND (III) IS NOT A FOREIGN STATE ELIGIBLE FOR: (A) FINANCING THROUGH THE INTERNATIONAL DEVELOPMENT ASSOCIATION (UNLESS SUCH STATE IS ELIGIBLE FOR FINANCING FROM THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT); OR (B) DEBT RELIEF UNDER THE ENHANCED HIPC INITIATIVE (AS DEFINED IN SECTION 1625(E)(3) OF THE UNITED STATES INTERNATIONAL FINANCIAL INSTI- TUTIONS ACT); OR (C) DEBT RELIEF UNDER THE MULTILATERAL DEBT RELIEF INITIATIVE OF THE INTERNATIONAL MONETARY FUND. (2) FOR PURPOSES OF THIS SUBDIVISION, REFERENCES TO A DEBT EVADING FOREIGN STATE SHALL INCLUDE ANY AGENCY OR INSTRUMENTALITY OF A FOREIGN STATE AND STATE-OWNED CORPORATION OF A DEBT EVADING FOREIGN STATE, AS DEFINED IN THIS SUBDIVISION. (E) "STATE-OWNED CORPORATION OF A DEBT EVADING FOREIGN STATE" SHALL MEAN ANY CORPORATION OR ENTITY, OTHER THAN A NATURAL PERSON: (1) THAT IS AN AGENCY OR INSTRUMENTALITY OF A FOREIGN STATE THAT IS A DEBT EVADING FOREIGN STATE; OR (2) A MAJORITY OF THE SHARES OR OTHER OWNERSHIP INTEREST OF WHICH IS HELD, EITHER DIRECTLY OR INDIRECTLY, BY A DEBT EVADING FOREIGN STATE OR BY AN AGENCY OR INSTRUMENTALITY OF A FOREIGN STATE THAT IS A DEBT EVAD- ING FOREIGN STATE. S 3. Subdivision 8 of section 359-e of the general business law, as added by chapter 692 of the laws of 1959, is amended to read as follows: 8. (A) After this subdivision as hereby amended takes effect no dealer shall sell or offer for sale to the public within this state as princi- pal or agent, any securities issued or to be issued which are not exempted from the provisions of this subdivision by section three hundred
[and]fifty-nine-f hereof unless and until such dealer shall cause to be filed a "further state notice" containing the information, other than the names of partners, required to be published by subdivi- sion two of this section, but opposite the heading "name of dealer", if the person or persons causing such notice to be filed are acting pursu- ant to the provisions of this subdivision, there shall be added either the words "syndicate manager" or "syndicate managers" as the case may be; and in addition thereto and as part of each such further stateS. 7768 3
notice the name of the security or securities, name, post office address and state or country of incorporation or organization of the corpo- ration, association, common law trust or similar organization issuing or to issue the security or securities to be sold or offered for sale, in the following form: FURTHER STATE NOTICE Name of security or securities ......................................... Name of issuer of securities ........................................... Post Office address of issuer of securities ............................ The state or country in which organized ................................ Two or more dealers may jointly file such further state notice required by this subdivision, and a dealer or exchange must file a further state notice for each issue about to be offered which has not heretofore been published by the issuer. A syndicate manager or co-man- ager with an office in this state may file on behalf of an entire syndi- cate. (B) NO DEBT EVADING FOREIGN STATE SHALL DIRECTLY OR INDIRECTLY (WHETH- ER THROUGH A BROKER OR AGENT, IN AN UNDERWRITTEN OFFERING OR OTHERWISE) SELL OR OFFER FOR SALE TO THE PUBLIC WITHIN THIS STATE ANY SECURITIES ISSUED OR TO BE ISSUED UNLESS AND UNTIL SUCH DEBT EVADING FOREIGN STATE SHALL HAVE: (1) CAUSED TO BE FILED A "FURTHER STATE NOTICE" CONTAINING THE NAME OF THE SECURITY OR SECURITIES TO BE SOLD OR OFFERED FOR SALE AND THE NAME, POST OFFICE ADDRESS AND, IF APPLICABLE, THE STATE OR COUN- TRY OF INCORPORATION OR ORGANIZATION OF THE CORPORATION OR ENTITY ISSU- ING OR TO ISSUE THE SECURITY OR SECURITIES TO BE SOLD OR OFFERED FOR SALE, IN THE FORM SET FORTH IN PARAGRAPH (A) OF THIS SUBDIVISION; AND (2) PAID ANY FEES REQUIRED TO BE PAID BY IT PURSUANT TO SUBDIVISION TWO OF SECTION THREE HUNDRED FIFTY-NINE-C OF THIS ARTICLE. NO SALE OR OFFER FOR SALE TO THE PUBLIC WITHIN THIS STATE BY A DEBT EVADING FOREIGN STATE (WHETHER MADE DIRECTLY OR INDIRECTLY, THROUGH A BROKER OR AGENT, IN AN UNDERWRITTEN OFFERING OR OTHERWISE) OF SECURITIES ISSUED OR TO BE ISSUED THAT IS PENDING ON THE DATE THIS PARAGRAPH TAKES EFFECT MAY BE CONSUM- MATED (IN THE CASE OF A SALE) OR CONTINUE (IN THE CASE OF AN OFFER FOR SALE) UNLESS AND UNTIL SUCH DEBT EVADING FOREIGN STATE SHALL HAVE COMPLIED WITH THE REQUIREMENTS OF THE FIRST SENTENCE OF THIS PARAGRAPH. AS USED IN THIS PARAGRAPH, THE TERMS "SALE" AND "OFFER FOR SALE" SHALL INCLUDE, WITHOUT LIMITATION, ANY EXCHANGE OFFER BY A DEBT EVADING FOREIGN STATE AND ANY EXCHANGE OF SECURITIES PURSUANT TO SUCH AN OFFER. S 4. Paragraph (b) of subdivision 1 of section 359-f of the general business law, as amended by chapter 980 of the laws of 1946, is amended to read as follows: (b) Any security issued or guaranteed by the Dominion of Canada or by any foreign government with which the United States is at the time of the sale or offer for sale thereof maintaining diplomatic relations (OTHER THAN A DEBT EVADING FOREIGN STATE), or by any province or poli- tical subdivision thereof. S 5. This act shall take effect immediately.