By John M. Jascob, J.D., LL.M.
The membership of the North American Securities Administrators Association (NASAA) has approved a model act for use by states in establishing restitution assistance funds for victims of securities violations. The model act, which states may either adopt as legislation or implement by regulation, establishes a state securities restitution assistance fund, outlines eligibility requirements for victims seeking restitution assistance, sets payment caps on the amount of awards, prohibits and forfeits awards in certain circumstances, and provides for recovery mechanisms.
"State securities regulators are focused on protecting the interests of investors and this model act provides states with one more a tool to help securities fraud victims on their way to financial recovery," said NASAA President and West Virginia Senior Deputy Securities Commissioner Lisa Hopkins in a news release. The NASAA membership approved the model act during a meeting held in conjunction with the association’s 2021 Virtual Public Policy Symposium.
Initially proposed in July 2020, the NASAA Model Act to Create a Restitution Assistance Fund for Victims of Securities Violations draws upon similar legislation in Indiana, Montana, Vermont, Kansas, and Maine. The model act creates a securities restitution assistance fund within the adopting jurisdiction to provide funds for restitution assistance for victims that were awarded restitution in a final order or legal proceeding and have not received the full amount of the restitution ordered.
Eligibility. Persons eligible for restitution include: (1) natural persons who were residents of the adopting jurisdiction at the time of the securities violation; and (2) non-natural persons domiciled in the jurisdiction at the time of the violation. Applications for restitution assistance under the model act must be received not more than one year after the date of the final order awarding restitution to the victim. The model act prohibits a jurisdiction from awarding restitution assistance if the victim: (1) sustained the monetary injury primarily as a result of participating or assisting in a securities violation or attempting to commit a violation; or (2) profited or would have profited from a securities violation.
Restitution assistance payments are capped at: (1) the lesser of $25,000 or 25 percent of the amount of unpaid restitution awarded in the final order; or (2) the lesser of $50,000 or 50 percent of the amount of unpaid restitution awarded in the final order if the victim is a vulnerable person. The model act defines a "vulnerable person" as: (1) a person over a certain age to be specified by the adopting jurisdiction; or (2) an individual protected under the jurisdiction’s statute protecting vulnerable persons.
Funding. The model act does not specifically prescribe funding sources for the restitution assistance fund, leaving these to be identified and considered by each jurisdiction. As discussed in the act’s prefatory notes, possible sources of funding might include: civil fines or administrative penalties assessed by the jurisdiction; funds received for deposit into the jurisdiction’s enforcement account; appropriations by the legislature; gifts, grants, bequests, or other donations or voluntary contributions received by the jurisdiction; and transfers from an investor education and protection fund.
NASAA’s news release observed that Indiana has issued approximately $1 million in awards to 102 claimants under its restitution assistance statute, while Montana has awarded approximately $1.8 million to 134 claimants. The average age of a restitution recipient was 64 years old in Indiana, and 82 percent of restitution recipients were over 60 years old in Montana.