The sale of interest in a municipality's lease obligations without prior consent constitutes securities fraud in California under a bill signed into law last week by Gov. Pete Wilson.

The measure was sponsored by Assemblyman Louis Caldera, who represents Los Angeles County in the state Legislature. The county in recent years has uncovered several unauthorized sales of its leases as certificates of participation, one of which the county encountered when it was trying to market its own lease equipment offering.

"This is an important anti-fraud measure," Caldera said, because it will "protect a public entity from having to compete with its own offerings."

Caldera said some critics of the bill have said that it could interfere with the liquidity of lease investments. The critics worry that institutional investors may shun small leases in the belief that they would not be able to resell them easily.

On the other hand, Caldera said some California banks and financial institutions support the measure because it was needed "to make clear what was acceptable practice in this area."

Caldera emphasized that the bill does not prevent the reoffering of leases as certificates altogether. "It just means that if you want to package them and sell them, you'll have to have approval, and some of the benefit ought to go to the public entity," he said.

Caldera served as a Los Angeles county attorney and as a bond attorney with O'Melveny and Myers before entering office. He said he has no plans to sponsor further bills on leasing in the state, but as the co-chairman of the Legislature's finance and insurance committee, he will continue to be active in public finance issues.

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