Senate approves securities amendments aimed at enforcing failures‑to‑deliver; debate centers on federal preemption and effects on brokers

The Utah Senate on May 20, 2006, passed Senate Bill 3004, a package of securities amendments intended to strengthen state enforcement against naked short selling and aggregated failures‑to‑deliver that sponsors said have harmed Utah issuers.

Sponsor Senator Kurt Bramble said the bill “closes a loophole in enforcement of existing law” and gives Utah authorities tools to address misconduct that has depressed market equity for some companies. He cited concerns raised by Utah companies, including Overstock, and said the measure would help protect market value and make the state more attractive to publicly held corporations.

Debate on the floor focused on whether the bill duplicates or conflicts with federal securities rules enforced by the SEC and NASD, and whether it could put Utah brokerages at a competitive disadvantage. Senator Waddups relayed a brokerage industry e‑mail warning the bill “is duplicative of changes already in place by the SEC and the NASD” and urged postponement for more analysis. Senator Arendt said her caucus counsel could not definitively resolve the federal preemption question.

Bramble and supporters responded that the conduct targeted—failures to deliver stock at settlement thresholds—was already illegal and that the bill simply provides a mechanism for state enforcement where federal action may be slow. Bramble said Utah had issued subpoenas to brokers who claimed lack of clear state authority to comply.

Senator Hickman raised a question about a private right of action in the amendment that appeared to allow companies to sue for statutory penalties—he referenced a $10,000‑per‑day figure noted in debate—and asked how the company itself would be harmed. Bramble and proponents explained their view that market manipulation can impair a company’s ability to transact and borrow, thus causing real harm beyond shareholders’ losses.

After amendments and floor debate, the Senate adopted the amendment addressing effective‑date and clerical items and passed the bill under suspension of rules by a reported 28‑0 vote with one absent; the measure was referred to the House for further action.

The bill’s supporters said it is narrowly targeted to brokers who repeatedly fail to deliver under an aggregate‑failure threshold and includes protections tied to clearing‑agency lists. Opponents cautioned about potential duplication with federal enforcement and recommended further study prior to enactment; sponsors argued federal preemption would only limit the state where federal law precluded state action but that strengthening Utah law gives local authorities a tool for enforcement.

The Senate record shows questions and clarifications from multiple senators and a call for possible executive consideration (veto) if further concerns were raised to the governor before signature.