California Code of Regulations

Title 2. Administration

Division 7. Secretary of State

Chapter 12. Victims of Corporate Fraud Compensation Fund

  • 22500. Definitions.
  • 22501. Application for Payment from Victims of Corporate Fraud Compensation Fund.
  • 22502. Additional Application Documentation or Information.
  • 22503. Notice to Judgment Debtor.
  • 22504. Subsequent Service of Correspondence and Notices.
  • 22505. Incomplete Application.
  • 22506. Review and Final Decision on Application.
  • 22507. Form of Decision.

22500. Definitions.

As used in this Chapter:

  1. “Victims of Corporate Fraud Compensation Fund” means the separate account in the State Treasury established pursuant to Corporations Code section 2280 for purposes of carrying out the provisions of that Chapter.
  2. “Party” means either the claimant, the judgment debtor, or the Secretary of State.
  3. “Judgment debtor” means a corporation against which a judgment, arbitration award, or criminal restitution order has been entered for conduct constituting intentional fraud.
  4. Where appropriate to the context the singular number includes the plural and the plural number includes the singular.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Sections 2280 and 2281, Corporations Code.

22501. Application for Payment from Victims of Corporate Fraud Compensation Fund.

  1. The application shall be delivered in person or by certified mail to the Office of the Secretary of State, Business Programs Division, Victims of Corporate Fraud Compensation Fund, 1500 11th Street, Sacramento, California 95814.
  2. The application must be received by the Secretary of State not later than 18 months after the judgment has become final. The application shall be verified by the claimant in the manner specified in Code of Civil Procedure section 446 for the verification of a pleading. If executed outside of California, the information in the application and accompanying documents shall be verified before a person qualified to administer oaths within the jurisdiction where executed or certified under penalty of perjury in accordance with the provisions of Code of Civil Procedure section 2015.5(b). In order to be considered part of an application, claimant responses to itemized lists of deficiencies and requests for additional documents and information shall be verified in the manner prescribed by Code of Civil Procedure section 2015.5.
  3. If any documents or other attachments are submitted with the application, a response to itemized lists of deficiencies, or a response to a request for additional documents and information, a verification by the claimant must be provided that the documents are true and correct copies of the originals, and if such documents purport to be copies of documents filed in court, that they are true and correct copies of the originals filed with the court.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Section 2282, Corporations Code.

22502. Additional Application Documentation or Information.

  1. If the final judgment does not contain a specific finding of fraud, misrepresentation, or deceit made with intent to defraud, the claimant shall provide additional documentation supporting the claim of fraud against the judgment debtor, including evidence submitted to the court to obtain the underlying judgment or a detailed narrative statement of facts explaining the allegations of the complaint.
  2. If the final judgment does not expressly set forth the amount of damages that were awarded for actual loss and compensatory damages that are payable from the fund, the verified application shall include copies of documentation supporting the amount of the actual and direct loss. For purposes of this section, sufficient proof of actual and direct loss may include copies of bank account statements showing or confirming particular transactions, copies of the front and back of checks made payable to the judgment debtor that have been negotiated, credit card statements showing or confirming particular transactions, or similar documentation demonstrating financial loss directly resulting from the fraudulent acts by the judgment debtor.
  3. The verified application shall include a description of searches and inquiries conducted by or on behalf of the claimant with respect to each defendant's assets available to be sold or applied to satisfaction of the judgment, including copies of documentation proving that the claimant has sufficiently pursued collection efforts against all judgment debtors and all other persons liable to the claimant for the fraud that is the basis for the underlying judgment. For purposes of this section, “sufficient collection efforts” may include filing abstracts of judgment in counties where the judgment debtor may have assets, filing a notice of judgment lien, conducting one or more debtor exams in order to identify and locate assets, obtaining writs of execution and levying upon assets, or other attempts to find and attach assets for collection. In the case of a bankruptcy, sufficient collection efforts may include participating in the bankruptcy proceedings to protect the debt from discharge or to protect the right to proceed with a civil suit or other collection efforts, or other types of activities to protect and proceed with collection efforts. In the case of a corporate bankruptcy, sufficient collection efforts may include protecting the right to proceed with a civil suit or to proceed with other collection efforts, participating in any distributions of assets set up by a receiver or other court appointed liquidator of available assets, or other types of activities to protect and proceed with collection efforts. A court's determination or finding of the judgment debtor insolvency or lack of assets may be submitted in satisfaction of this requirement.
  4. If the final judgment was obtained by default, by stipulation or consent, or was obtained pursuant to Code of Civil Procedure section 594, or was defended by a trustee in bankruptcy, the Secretary of State may request that the claimant provide additional documents and information including, but not limited to, the following:
    1. An explanation of the computation of the amount of the claim, including an itemization of all sums recovered from any source applied to the satisfaction of the judgment. The itemization shall identify the person or entity from which the sum was obtained, the manner in which the recovery was obtained, and sum of the recovery.
    2. A certified copy of the final judgment entered by the court.
    3. A copy of the civil complaint upon which the judgment for intentional fraud was issued, if applicable. If one or more amendments or amended complaints were filed, a copy of all amendments and all prior versions of the complaint. The copies should be endorsed by the clerk of the court or bear other evidence that they are a copy of the actual document filed with the court.
    4. A copy of the notice of entry of judgment, if any, or clerk's certificate of mailing, if any. If the matter was submitted to arbitration, a copy of the arbitration decision. If the original judgment was appealed, copies of the appellate decision and remittitur.
    5. Copies of any findings of fact, conclusions of law, jury verdicts, jury special verdicts, statements of decision, memorandum decisions, or any other indication by the court or jury, as the case may be, of its decision on the issue of intentional fraud and the reasons for the decision. If the matter was submitted to arbitration, all documentation submitted to the arbitrator or arbitrators supporting the arbitration award. If the application is based on a criminal restitution order, a copy of the criminal complaint or criminal indictment and any other pleadings, orders and documentation supporting the criminal restitution order.
    6. A description and itemization by the claimant of the basis for each element of damages or restitution awarded.
    7. A listing of all persons and entities that might be potentially liable to the claimant for the fraud that is the basis of the civil judgment, arbitration award, or criminal restitution order and if any person or entity was not named as a defendant or was dismissed from the underlying lawsuit, or if any person or entity was not a party to the arbitration or was dismissed from the arbitration of the claims that are the basis of the underlying arbitration award, a statement of the reasons for failing to pursue a person or entity potentially liable to the claimant for the fraud that is the basis of the civil judgment, arbitration award, or criminal restitution order.
    8. Copies of any pre-trial or post trial motions, briefs, settlement conference statements, orders or rulings or briefs submitted in arbitration by any party.
    9. Copies of the answer, cross-complaints, answers to cross-complaints, and all amendments or other subsequent versions of any of those documents.
    10. Copies of all depositions, interrogatories, requests for admission, and other discovery taken in the underlying action by any party, describing the party or parties taking the deposition(s), the party propounding the interrogatories, the party propounding the requests for admission, or the party propounding the other discovery requests, the deponent(s), the party responding to any discovery request.
    11. A list of the names of any witnesses who testified at the underlying trial, or arbitration of the claims that are the basis of the underlying lawsuit, arbitration award or criminal restitution order and the present or last known addresses of the witnesses to the extent known by the claimant.
    12. If the claimant claimed any loss related to the fraud as a deduction on the claimant's tax return or returns, a description of the amount of the tax benefit derived therefrom.
  5. If any of the items in subdivision (d) are required to be included in the initial application and are not included in the initial application, or if any of the items in subdivision (d) are requested by the Secretary of State and are not supplied, the claimant shall provide a statement under penalty of perjury that the claimant has made a diligent effort to locate and produce the items but has been unable to locate the items or has found that the items do not exist.
  6. All documents or copies of documents submitted to meet the requirements of this section must be clear and legible.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Sections 2282(d) and 2288, Corporations Code.

22503. Notice to Judgment Debtor.

Upon receipt of the application, the Secretary of State shall provide the following notice to the judgment debtor's designated agent for service of process:

NOTICE: Based upon a judgment entered against you in favor of _(name of claimant)__, application for payment from the Victims of Corporate Fraud Compensation Fund is being made to the Secretary of State.

If payment is made from the Victims of Corporate Fraud Compensation Fund, your corporation will be automatically assessed the amount of the payment plus interest at the prevailing legal rate by the Secretary of State. If your corporation does not pay the assessed amount, your corporation will be suspended and cannot be reinstated until the Victims of Corporate Fraud Compensation Fund has been reimbursed for the amount paid plus interest at the prevailing legal rate.

If you wish to contest payment of the application by the Secretary of State, you must submit a written response to the application which must be addressed to the Secretary of State at the Office of the Secretary of State, Business Programs Division, Victims of Corporate Fraud Compensation Fund, P.O. Box 15659, Sacramento, California 95852 within 30 days after mailing of this notice and mail or deliver a copy of that response to the claimant. The response must contain the name, title, and address of the officer, director, managing agent, or other responsible person authorized to represent the corporation and the address at which the corporation wishes to receive correspondence and notices relating to the application, and a telephone number at which the corporation's representative can be reached during regular business hours. If the corporation is represented by an attorney in objecting to the application, the response shall contain the name, business address, and telephone number of the attorney.

The response must be verified by an officer or director and must include a proof of service showing a copy of the response was sent to _(name and address of claimant or claimant's attorney)_. If you fail to do so, you will have waived your right to present your objections to payment of the application.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Sections 2282.1 and 2282.2, Corporations Code

22504. Subsequent Service of Correspondence and Notices.

After initial submission of the application to the Secretary of State and service on the judgment debtor by the Secretary of State as provided by Corporations Code sections 2282 and 2282.1, and after service of a response by the judgment debtor as provided by Corporations Code section 2282.2, if any, all parties shall be served with subsequent correspondence and notices by first class mail as follows:

  1. The Secretary of State shall be served at: Office of the Secretary of State, Business Programs Division, Victims of Corporate Fraud Compensation Fund, P.O. Box 15659, Sacramento, California 95852.
  2. The claimant shall be served at the claimant's address as specified in the application, or if the claimant is represented by an attorney for purposes of the application, at the address of the attorney as specified in the application.
  3. The judgment debtor shall be served at the address as specified in the judgment debtor's response, or if the judgment debtor is represented by an attorney in objecting to the payment of the application, at the address of the attorney as specified in the response.

If the claimant or judgment debtor later wishes to be served at an address other than as specified above, such party shall notify all other parties by first class mail of the new address.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Sections 2282.2, 2283, 2284, 2285, 2286 and 2287, Corporations Code.

22505. Incomplete Application.

  1. In the event that the claimant has not completed diligent collection efforts prior to submission of the application to the Secretary of State, claimant still may submit an application within 18 months of the judgment becoming final but shall include a verified statement that diligent collection efforts have not been completed and request that the Secretary of State delay a decision on the application pending the completion of collection efforts. The Secretary of State may agree to delay making a decision on such application for a period of time, not to exceed one year, until claimant submits a verified statement that diligent collection efforts have been completed, or the period of time expires, whichever is earlier. The Secretary of State's time to act upon such application pursuant to California Corporations Code sections 2283 and 2284 does not commence until the Secretary of State's receipt of claimant's verified statement that diligent collection efforts have been completed, or the period of time expires. As used in this section, diligent collection efforts includes ongoing litigation against additional defendants responsible for claimant's loss and proceedings in bankruptcy court. Failure to complete diligent collection efforts may be the sole basis for the denial of an application.
  2. For purposes of Corporations Code section 2283(b), an irreconcilable dispute between claimant and the Secretary of State may arise if, after receipt of the second itemized list of deficiencies or request for additional documents and information, claimant provides notice to the Secretary of State in writing that claimant believes that the application is complete and the Secretary of State does not deem the application complete within 21 days from the receipt of claimant's notice.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Sections 2282 and 2283, Corporations Code.

22506. Review and Final Decision on Application.

  1. In considering and investigating an application, the Secretary of State may use all appropriate means of investigation and discovery available under Article 2 (commencing with Section 11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code.
  2. The claimant's acceptance of an award or compromise offer must be in writing and must be received by the Secretary of State within the time prescribed. Acceptance shall also require the claimant's execution of the documents necessary for the issuance of payment on the award including, but not limited to, an assignment pursuant to Corporations Code section 2293 and any forms required by the Controller for payment (e.g. STD 204 Payee Data Record).
  3. Discussions or negotiations regarding the terms of an offer to compromise within 60 calendar days of the offer shall not be deemed a refusal to accept the settlement. Failure to accept the offer within 60 calendar days or an express written refusal to accept the offer within 60 calendar days of the offer shall constitute a refusal to accept a settlement resulting in the denial of the application pursuant to Corporations Code section 2284.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Section 2284, Corporations Code.

22507. Form of Decision.

  1. If the application is denied, the notice to the claimant and judgment debtor shall include the following:
    Claimant's application has been denied. If the claimant wishes to pursue the application in court, the claimant must file a petition in a California superior court not later than six months after receipt of this notice, pursuant to California Corporations Code Section 2287. If the underlying judgment is a California state court judgment, a petition shall be filed in the court in which the underlying judgment was entered. If the underlying judgment is a federal court judgment, a petition shall be filed in (1) the superior court of any county within California that would have been a proper venue if the underlying lawsuit had been filed in a California state court, or (2) the Superior Court of the County of Sacramento.
  2. If the final decision of the Secretary of State is to make a payment to the claimant from the Victims of Corporate Fraud Compensation Fund, the following notice shall be given to the judgment debtor along with a copy of the decision of the Secretary of State:
    The decision of the Secretary of State on the application of (name of claimant) is to pay $________(amount of payment) from the Victims of Corporate Fraud Compensation Fund. A copy of that decision is enclosed. Pursuant to Corporations Code section 2293.1, your corporation must pay the amount of the payment plus interest at the prevailing legal rate to the Victims of Corporate Fraud Compensation Fund within 30 calendar days of this notice. If your corporation does not pay the assessed amount, your corporation will be suspended and will not be eligible for reinstatement until you have reimbursed the Victims of Corporate Fraud Compensation Fund for this payment plus interest at the prevailing legal rate. Payment must be sent to the Office of the Secretary of State, Business Programs Division, Victims of Corporate Fraud Compensation Fund, P.O. Box 15659, Sacramento, California 95852.

Note: Authority cited: Section 2280, Corporations Code.
Reference: Sections 2284, 2285, 2286, 2287, 2288 and 2293.1, Corporations Code.