Fund for Corporate Fraud Victims

Corporations Code Title 1, Division 1, Chapter 22.5 created the victims of corporate fraud compensation fund.

Section 2280 established the Victims of Corporate Fraud Compensation Fund in the State Treasury. The fund is administered by the Secretary of State for the sole purpose of providing restitution to the victims of a corporate fraud.

Section 2281 defines the following terms: “agent,” “application,” “claimant,” “complaint,” “corporation,” “court of competent jurisdiction” “final judgment,” “fund,” and “judgment debtor.”

Section 2282 provides that, when an aggrieved person obtains a final judgment in a court of competent jurisdiction against a corporation based upon the corporation’s fraud, misrepresentation, or deceit, made with intent to defraud, or obtains a criminal restitution order against an agent based upon the agent’s fraud, misrepresentation, or deceit, made with intent to defraud while acting in the agent’s capacity as the corporation’s officer or director, the aggrieved person may, upon the judgment becoming final and after diligent collection efforts are made, file an application with the Secretary of State for payment from the fund.

Section 2282.1 requires the Secretary of State to provide notice to the corporation and all agents named in the application that a claimant has submitted an application for payment from the fund and provide within that notice, as prescribed by the Secretary of State, the method to contest the payment from the fund.

Section 2282.2 requires the response by the corporation to be by an officer or director and contain proof of service showing that a copy of the response was sent to the claimant, or if the claimant is represented by an attorney for purposes of the application, to the claimant’s attorney, at the address specified in the application for the claimant or the claimant’s attorney.

Section 2283 requires the Secretary of State, if the application fails to comply with specified requirements, to mail an itemized list of deficiencies within 21 calendar days after receipt of the application by a single claimant or within 40 calendar days after receipt of the application by multiple claimants.

Section 2284 requires the Secretary of State to render a final written decision on the application within 90 calendar days after a completed application has been received unless the claimant agrees in writing to extend the time within which the Secretary of State may render a decision.

Section 2285 requires the Secretary of State to give written notice, as prescribed by the Secretary of State, of a decision rendered with respect to the application to the claimant.

Section 2286 requires the Secretary of State to give notice, as prescribed by the Secretary of State, to the corporation and all agents named in the application that the Secretary of State has made a decision to award funds to the claimant and shall provide a copy of the decision to the corporation and all agents named in the application.

Section 2287 states that a claimant against whom the Secretary of State has rendered a decision denying an application may, within six months after the mailing of the notice of the denial, file a verified petition in superior court for an Order Directing Payment Out of the Victims of Corporate Fraud Compensation Fund based upon the grounds set forth in the application to the Secretary of State. 

Section 2288 states that, whenever the court proceeds upon a petition, the court must order payment out of the fund only upon a determination that the aggrieved party has a valid cause of action. The Secretary of State may defend any action on behalf of the fund and have recourse to all appropriate means of defense and review.

Section 2289 specifies that the liability of the fund cannot exceed $50,000 for any one claimant per single judgment finding fraud, misrepresentation, or deceit, made with the intent to defraud.

Section 2290 provides that, if at any time the money deposited in the fund is insufficient to satisfy any duly authorized award or offer of settlement, the Secretary of State is required, when sufficient money has been deposited in the fund, satisfy the unpaid awards or offer of settlement, in the order that the awards or offers of settlement were originally filed.

Section 2291 states that any sums received by the Secretary of State pursuant to any provisions of this chapter are to be deposited in the State Treasury and credited to the fund.

Section 2292 makes it unlawful for any person or the agent of any person to file with the Secretary of State any notice, statement, or other document required under the provisions of this chapter that is false or untrue or contains any willful, material misstatement of fact.

Section 2293 explains that, when the Secretary of State has paid from the fund any sum to the claimant, the Secretary of State must be subrogated to all of the rights of the claimant and the claimant assigns all of his or her right, title, and interest in the judgment to the Secretary of State and any amount and interest so recovered by the Secretary of State on the judgment is to be deposited in the fund.

Section 2293.1 states that, if the Secretary of State pays from the fund any amount in settlement of a claim or toward satisfaction of a final judgment against a corporation or its agent, the corporation or its agent is required to pay to the fund the amount paid plus interest at the prevailing legal rate applicable to a judgment rendered in any court of this state, within 30 calendar days of the date that the Secretary of State provided notice of the payment of the award or compromise.

Section 2294 prohibits the Secretary of State from making any award to a claimant from the fund if the claimant has received payment from any other restitution funds or for the portions of the judgment that the claimant has collected from the corporation or its agent or any other defendant in the underlying judgment.

Section 2295 explains that the failure of an aggrieved person to comply with all of the provisions of this chapter constitutes a waiver of any rights hereunder.