Thursday, September 15, 2016

NASAA enforcement report provides stats on actions and penalties, most common failures

By Amy Leisinger, J.D.

The North American Securities Administrators Association (NASAA) has released its 2016 Enforcement Report, noting that state securities regulators conducted over 5,000 investigations in 2015 and brought just over 2,000 enforcement actions, with restitution and fines totaling nearly $800 million. According to the organization, for the first time since data collection began, more registered industry members than non-registered members were named in enforcement actions.

“The vigorous, fair and effective enforcement of state securities laws through formal administrative, civil and criminal actions is a critical priority for NASAA members,” said NASAA President Mike Rothman.

Enforcement statistics. In its report on 2015 data, NASAA found that its U.S. members brought enforcement actions against 812 registered industry members, compared to 791 unregistered members. In the aggregate, in addition to payment of costs and expenses, respondents in enforcement actions paid more than $538 million in restitution to investors and $230 million in fines and received criminal penalties totaling 1,282 years, which includes incarceration, probation, and deferred adjudication. State securities regulators also limited the activity of potential and existing licensees and registrants, NASAA noted, with approximately 3,000 license requests withdrawn and over 700 requests denied. In addition, more than 250 individuals had their licenses revoked and/or found themselves barred from the industry.

In 2015, NASAA stated, most state enforcement actions involved some type of fraud and the most common fraudulent investment products involved real estate or oil and gas ventures State securities regulators also launched numerous investigations and enforcement actions involving variable and indexed annuities, hedge funds, life settlements, and structured products. The most common type of fraud remains Ponzi schemes, and victims were often targeted online or as a result of age or identifiable affinity group, the organization noted.

State priorities. The report also identified enforcement priorities of state securities agencies, including, among others, classic Ponzi and pyramid schemes and gatekeeper fraud. More than half of NASAA members reported Ponzi schemes as one of their top five types of fraud for the survey period, according to NASAA, and while pursuing scheme masterminds, regulators focus on institutions that enable the schemes through oversight failures. In addition, members must often take enforcement action against gatekeepers or intermediaries (such as attorneys and accountants) that abuse their positions to carry out investment fraud. These individuals and entities provide important services for the benefit of investors, and their participation and/or complacency in fraudulent activities is particularly malevolent in light their positions of trust, NASAA concluded.