State Regulators Taking More Actions Against Registered Firms

Sep 26

The North American Securities Administrators Association (NASAA) reported Sept. 26 that state securities regulators took more enforcement actions against registered members of the securities industry than non-registered individuals or firms, continuing a trend that began last year.

In its 2017 Enforcement Report on 2016 Data, which includes responses from 50 jurisdictions throughout the United States, NASAA reported that state securities regulators conducted 4,341 investigations in 2016 and took 2,017 enforcement actions overall. These actions led to more than $231 million in restitution ordered returned to investors, fines of $682 million and criminal sentences totaling 1,346 years, including incarceration and probation.

For the second consecutive year, NASAA reported that its U.S. members brought more enforcement actions against registered firms and individuals (620 actions), compared to unregistered individuals and firms (604 actions).

“NASAA members have stepped up efforts to identify and sanction bad actors within the securities industry in order to protect investors and maintain their confidence in the securities markets,” said Keith Woodwell, NASAA Enforcement Section Chair and director of the Utah Division of Securities.

Joseph Rotunda, the director of enforcement for the Texas State Securities Board, is vice-chair of the Enforcement Section.

At the NASAA annual conference this week, the Enforcement Section presented a report that provided additional information about cooperation between state and federal regulators. One case highlighted was the prosecution of William Allen Risinger of Round Rock,  who last year was sentenced to 160 months in federal prison and ordered to pay $3.7 million to the victims of his Ponzi scheme.

An investigator in the enforcement division of the State Securities Board worked with the FBI and the U.S. Attorney's Office in Austin to build the case against Risinger. The U.S. Attorney's Office prosecuted Risinger in U.S. District Court for the Western District of Texas.

State securities regulators also reported a significant increase in investigations of investment adviser firms and representatives, with 700 investigations or a 31 percent increase year-over-year. The report noted that this increase may be due, in part, to heightened state interest in individuals and firms who have transitioned from broker-dealer registration to investment adviser registration in recent years.

State securities regulators also continue to serve a vital gatekeeper function to screen bad actors before they have an opportunity to conduct business with investors. A total of 2,843 securities licenses were withdrawn in 2016 as a result of state action, and an additional 657 licenses were either denied, revoked, suspended or conditioned.

The report also shows that NASAA members:

  • are routinely sharing information with other state and federal regulators and are coordinating enforcement efforts to increase efficiency and eliminate duplication of efforts;
  • are committed to protecting vulnerable senior investors through both enforcement actions and legislative improvements; and
  • are working to counter the threat posed by emerging financial technologies, such as binary options and speculative cryptocurrency trading, through both enforcement and education efforts.