The North American Securities Administrators Association (NASAA) on Sept. 10 released its annual enforcement report, which shows state securities regulators were responsible for more than $1 billion in monetary relief ordered as a result of state enforcement actions in 2018.
In its 2019 Enforcement Report on 2018 Data, which includes responses from 50 states and the District of Columbia, NASAA reported that state securities regulators conducted 5,320 investigations in 2018 and took 2,067 enforcement actions overall. These actions led to more than $558 million in restitution ordered returned to investors, fines of $490 million and criminal relief of 1,753 years, including incarceration and probation.
The report also includes the first statistics documenting the effectiveness of state legislation or rules based on NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. To date, 23 jurisdictions have enacted rules or legislation based on the NASAA model act, including four in 2019.
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. Of the 23 states with laws based on the NASAA model act, 14 reported receiving 426 reports from broker-dealers and investment advisers, resulting in 81 investigations, 57 delayed disbursements, and 32 enforcement actions in 2018.
For the 2018 survey year, NASAA’s U.S. members reported enforcement actions involving registered and unregistered actors in equal numbers. States reported acting against 639 registered individuals and firms in the securities industry (broker-dealers and investment advisers), and 639 unregistered individuals and firms. Within the licensed securities industry, NASAA’s U.S. members reported a five-year high in the proportion of enforcement actions involving investment adviser investment adviser firms.
For the 2018 survey year, states reported that 17% of their actions involved investment adviser firms, more than any other category of registered individuals. That share has nearly doubled since 2014, when these firms represented only 9% of respondents.
Overall, state securities regulators continued to take strong steps to prevent bad actors from operating within the licensed securities industry, and to limit the activity of licensees and registrants. In 2018, as the result of formal enforcement actions, NASAA’s U.S. members imposed licensing sanctions on nearly 1,000 respondents. In addition, more than 4,500 license/registration requests were withdrawn as a result of state action or attention. While not always the case, many license/registration requests are withdrawn as a state is preparing to take action to deny, suspend or revoke a license/registration.
Looking ahead, NASAA’s U.S. members again reported an increase in investigations of unregistered individuals, to no fewer than 700 in the 2018 survey year. This number has risen for three consecutive years, more than doubling from 335 in 2015.
Given the ongoing state enforcement efforts against fraudulent activity involving cryptocurrencies, it would not be surprising to see a sustained high level of investigations and actions against unregistered individuals and firms in the coming years.
– North American Securities Administrators Association