Eight years ago, the California legislature established a fund to compensate victims of corporate fraud. Cal. Stats. 2012, Ch. 564. The Secretary of State administers the fund, but has no authority to investigate or bring enforcement actions against corporate fraudsters. In order to be eligible for an award from the fund, the victim must have a final civil court judgment, judgment based on an arbitration award, or a criminal restitution order. Moreover, the civil judgment must be against a corporation based on corporate fraud, misrepresentation, or deceit made with intent to defraud. Cal. Corp. § 2281(g). Apparently, the legislature has concluded victims of fraud committed by limited partnerships, limited liability companies, sole proprietorships and other types of business entities are either less worthy or in need of recompense.
The Covid Made Them Do It . . .
Recently, I learned that the legislature last summer transferred $11.5 million from the fund. According to the Secretary of State, the legislature took this action " to mitigate the worst effects of the public health crisis, encourage economic recovery, and support Californians in need". Consequently, the Secretary of State is providing the following notification to claimants:
"Notice pursuant to California Corporations Code section 2290:At this time, the money deposited in the fund may be insufficient to satisfy any duly authorized award or offer of settlement. When sufficient money has been deposited in the fund, the VCFCF will satisfy the unpaid awards or offers of settlement in the order that the awards or offers of settlement were received."
Supposedly, the money taken from the fund will be repaid. The victims will just have to stand and wait.
The Secretary of State cautions, however, that notwithstanding this legislative mulcting of the fund, claimants must nonetheless observe all statutory and regulatory requirements and deadlines. More information about the fund and how to apply can be found here.
UPDATE: The Secretary of State's office reports that the funds have been restored.