State lawmakers are moving to curb the ability of regulators to seek documents from some private companies because of a fight with one firm that doesn’t want to cough up the information.
SB 1145, given preliminary House approval Monday, would allow anyone who gets a subpoena from the Arizona Corporation Commission to object to it and challenge it in court. It also would allow the company to claim that some of what the commission wants is a trade secret.
Commission lobbyist Nick Debus said that could result in delays of months, if not longer, in shutting down frauds and schemes that are taking the money of Arizona residents.
More significant, Mark Dinell, the commission’s securities director, said it effectively gags his agency.
“It stop us from warning the public if something is going wrong,” he said.
Rep. Pamela Powers Hannley sided with the commission, saying the agency “has been doing a good job for the most part.” She worried about “unnecessary delays” in curbing the activities of bad actors.
But the majority agreed with Rep. Travis Grantham, R-Gilbert, who said some curbs are necessary.
“We have to be very careful about the power we give a commission to just reach into people’s lives and take personal property from them,” he said.
The legislation exists because of Timothy and Stacey Wales, the owners of Kadima.Ventures, who told lawmakers about the multi-year fight they have had to shield their records from the commission.
More significant, they said they have no investors, which should make their business interests off-limits to the commission’s securities division which is seeking the documents.
Dinell, whose agency is supposed to protect investors from fraudulent schemes, provided lawmakers with no specifics of the nature of the inquiry.
As to the claim the commission has no authority, Dinell said Timothy Wales refused to tell investigators whether he had investors.
“He took the Fifth Amendment, which is his right,” Dinell told lawmakers. And he said he heard Wales say there were no investors was when the legislation was heard in committee.
The bill exists because of Kadima.Ventures, a Chandler firm, and a subpoena that Stacey Wales said demanded “all of our bank statements, financial documents, tax returns … without telling us why or the promise of confidentiality of the very sensitive information we hand over.”
According to the company’s web site, the firm is involved with developing and release of new technologies, marketing, software development and consulting.
Timothy Wales told lawmakers he has about 20 employees and anywhere from 100 to 190 independent contractors. And he told them they need to curb the commission’s powers.
“There’s zero oversight,” he said. “We’re just the first one to stand up to them.”
And he said the commission has been sneaky: He said the subpoena was sent to the firm in a FedEx box listed as coming from someone in Alaska.
Dinell did not dispute that.
He said that subpoenas are normally sent by certified mail. When people refused to accept, Dinell said, they then are served by commission law-enforcement personnel.
And if that fails, Dinell said the commission resorts to other methods.
Debus said the commission never has released confidential information. In fact, he told lawmakers, if that were the only provision in SB 1145 there would be no objection.
The problem, he said, is the delay while companies seek judicial review of any commission demand for information. The result, Debus said, is “tying our hands, not allowing us to prevent frauds and scams from operating while we’re waiting for months, if not longer, on a judge to rule whether or not our subpoena is even valid.”
The spat also has revealed a schism of sorts within the commission itself.
At one point all five regulators voted to oppose the legislation.
But Andy Tobin has since withdrawn his objection, saying what he was told about the bill by staffers “is a far stretch from the advice I was given.”
“I now withdraw my opposition from this legislation as I feel misled.”
Timothy Sandefur of the Goldwater Institute, which supports the curbs on the commission, told lawmakers that Commissioner Justin Olson now has no objection to the bill.
That’s not entirely true.
In his own letter to Senate leadership, Olson said he was willing to work with the Goldwater Institute to make changes to the bill that would make it acceptable. Only with that change, Olson said, would he support the measure.
The measure now needs a final roll-call vote in the House. The Senate already has approved virtually identical language.