More On Legal & Compliancefrom The Advisor's Professional Library
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The North American Securities Administrators Association (NASAA) released findings of a report on Oct. 19 that found a 51% increase in the number of enforcement actions by state securities regulators in 2010, which led to a nearly 200% increase from the previous year in the amount of money ordered returned to investors.
According to the NASAA report, which is based on the results of a survey of NASAA members during the spring of 2011, state securities regulators conducted 7,063 investigations in 2010, which led to 3,475 enforcement actions, up from 2,294 enforcement actions in the previous year.
Enforcement actions, NASAA said, include criminal, administrative and civil actions. Nearly 1,000 of these actions involved financial abuse of seniors.
State-initiated enforcement actions resulted in $14.1 billion ordered returned to investors, with an actual reportable return of more than $12 billion, or 90% of ordered restitution, in the same year.
Jack Herstein (left), NASAA president and assistant director of the Nebraska Department of Banking & Finance Bureau of Securities, said that much of this restitution is attributable to repurchases of auction rate securities (ARS) stemming from state-led actions.
One of those was a settlement in principle that was reached between E*TRADE Securities LLC and state securities regulators to return approximately $100 million to the firm’s clients who have had their funds frozen in the ARS market since 2008. The firm also must pay a $5 million fine.
In 2010, more than 3,242 investment advisor and broker licenses were withdrawn, denied, revoked, suspended or conditioned due to state actions, down 5% from 3,406 in 2009. States levied fines or penalties of $171 million in 2010 and prison time resulting from state actions totaled 1,134 years.
The majority of the investment fraud cases reported by state securities regulators featured unregistered individuals selling unregistered securities. Nearly 900 reported actions involved unregistered securities, and almost 800 actions involved unregistered firms or individuals.
Two specific products or investments were identified by state regulators far more than any other specific item: Rule 506 or Reg D offerings and real estate investments or interests, according to the report.
Forty-five U.S. NASAA members responded to the survey, a response rate of 88%. The data, statistics and trends included in the report provide a general overview of the state of state enforcement efforts.