Enforcement Report Issued by State Securities Regulators Emphasize RIAs


The North American Securities Administrators Association (NASAA) recently released its Enforcement Report for 2012. A copy can be found here.

NASAA is an association primarily comprised of state securities regulators. Through the association, its members engage in multi-state enforcement actions and other collaborative activities. NASAA’s Enforcement Section tracks trends in securities fraud and oversees the activities of various Project Groups, including: Internet fraud investigations, oil/gas ventures, Reg D investigations, securities investigation database and enforcement zones.

The Enforcement Report contains a multitude of interesting statistics. According to NASAA:

  • The majority of fraud cases involved unregistered persons and/or selling unregistered securities.
  • The most reported securities fraud violations (in order of frequency reported by states) concerned Rule 506 or Reg D offerings, real estate investment schemes, Ponzi schemes, oil & gas investments, and structured products.
  • Interestingly, the NASAA noticed a spike in actions against investment advisor firms, with a total of 399 actions reported, almost twice that reported one year earlier. The number of actions filed investment advisor exceeded the number of actions filed against broker-dealers (359 actions).
  • State securities regulators opened 6,121 investigations, filed 2,602 enforcement actions, and ordered investor restitution of $2.2 billion.
  • Enforcement “trends and developments” reported by the states included the securities fraud violations noted above, as well as bogus promissory notes and affinity fraud.
  • “New threats” include crowdfunding and internet offers, “inappropriate advice” from RIAs, “scam artists” using self-directed IRAs, and EB-5 investment-for-visa schemes.

Regulatory Headaches Coming for Mid-Sized RIAs

The Enforcement Report is interesting because it suggests that mid-sized RIAs will be subject to heightened scrutiny by the states. According to the Report: “The 2010 Dodd-Frank Act laid the groundwork for a major regulatory shift, transferring thousands of mid-sized investment advisors to primary supervision by state regulators, rather than the SEC.” It went on to conclude: “As the states implement regular examination schedules and analyze investment advisors that have not been audited in many years, more problems are likely to be discovered.”

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