State Regulators Release Annual Enforcement Report

Oct 10

The North American Securities Administrators Association (NASAA) today released its annual enforcement report, which shows a reversal in a recent trend as more enforcement actions were taken in 2017 against unregistered individuals or firms than registered members of the securities industry.

In its 2018 Enforcement Report on 2017 Data, which includes responses from 51 jurisdictions throughout the United States, NASAA reported that state securities regulators conducted 4,790 investigations in 2017 and took 2,105 enforcement actions overall. These actions led to more than $486 million in restitution ordered returned to investors, fines of $79 million and criminal relief of 1,985 years, including incarceration and probation.

Reversing a two-year trend, NASAA reported that its U.S. members brought more enforcement actions against unregistered firms and individuals (675 actions) compared to registered individuals and firms (647 actions). Among registered firms and individuals, the report noted that 377 enforcement actions were taken against registered investment adviser firms and their representatives and 270 actions were taken against registered broker-dealer firms and their agents.

The increase in enforcement against unregistered firms or individuals is in part due to an increased focus on fraudulent initial coin offerings (ICOs) and other cryptocurrency-related investment offerings. The Texas State Securities Board was the first state securities regulator to take enforcement action against a cryptocurrency-related investment offering and has to date entered 14 cryptocurrency-related enforcement orders.

The State Securities Board maintains a Cryptocurrency Resources section that includes all enforcement orders, regulatory reports on cryptocurrency fraud, and investor education alerts.

NASAA said enforcement also increased as a result of states enacting legislation based on, or inspired by, NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. The model act mandates reporting to a state securities regulator and state adult protective services agency when an agent or representative has a reasonable belief that financial exploitation of an eligible adult has been attempted or has occurred.

State securities regulators have dual roles as enforcers and gatekeepers. In 2017, NASAA U.S. members revoked, barred or suspended the licenses of more than 300 individuals and firms and denied or conditioned the registrations of more than 575 others. In addition, nearly 3,600 licensing requests were withdrawn after state action or attention, the most in the past four years.

The report also identifies enforcement trends, highlights the cooperation among NASAA members in multi-jurisdictional investigations and combating frauds involving emerging technologies, and notes the ways that NASAA members are responding to securities frauds involving seniors.