Recently the North American Securities Administrators Association (NASAA) released its annual Enforcement Report. The publication highlighted the investigations and enforcement actions taken by state securities regulators to protect investors and maintain the integrity of the U.S. financial markets. Despite the pandemic, state securities regulators were highly successful in obtaining monetary relief for investors and protecting vulnerable adults from financial exploitation.
In its 2022 report, which is based on 2021 data, NASAA revealed that state securities regulators opened 5,337 new investigations and continued their work on 1,692 ongoing investigations. Those 7,029 investigations resulted in 1,661 enforcement actions and led to over $312 million in restitution for investors, as well as fines of more than $145 million. These enforcement proceedings included 196 criminal actions.
State securities regulators reported that they opened investigations against 1,156 registered parties, including 478 Registered Investment Advisers (RIAs) and Investment Adviser Representatives (IARs). State securities regulators filed 267 enforcement actions against RIAs and IARs. These investigations and enforcement actions included:
- Sixty-three actions related to supervision;
- Forty-eight actions involving books and records;
- Forty-eight actions tied to suitability; and
- Twenty-five actions connected to unauthorized or excessive trading.
The report observed that state securities regulators perform critical gatekeeping functions in order to prevent bad actors from operating within the licensed securities industry. Furthermore, state securities regulators help to curb the activities of licensees and registrants where warranted. According to NASAA’s Enforcement Report, in many cases, applicants withdraw or abandon their applications when they are confronted with evidence uncovered by investigations. In certain instances, applicants withdraw or abandon their applications to avoid the potential consequences of enforcement actions. In 2021, more than 4,800 individual license/registration applications were withdrawn because of state investigations or forthcoming actions to deny, suspend or revoke them. The number of application withdrawals increased significantly when compared to 2020.
NASAA’s efforts to protect older investors
The report also demonstrates the growing effectiveness of state legislation or rules based on NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. At the present time, 34 jurisdictions have enacted rules or legislation based on NASAA’s Model Act. The act mandates that certain financial services professionals must notify state securities regulators and state adult protective services agencies when an agent or representative has a reasonable belief that financial exploitation of an eligible adult was attempted or has already occurred.
In 2021, U.S. members of NASAA reported the receipt of 1,428 reports of suspected exploitation, an increase of 35 percent from 2020 and 118 percent from 2019. Furthermore, they opened 356 investigations, which was an increase of 57 percent from 2020 and 98 percent from 2019.
State securities regulators promote compliance by RIAs by taking appropriate steps to identify, investigate and address violations. State securities regulators also take action to protect the public from unlicensed actors and unregistered schemes. NASAA’s Enforcement Report discussed many specific areas where state securities regulators are working diligently to protect investors such as white collar crime, energy scams, and other fraudulent schemes.
State securities regulators’ efforts on behalf of investors rely a great deal upon tips and complaints. In 2021, there were 6,634 tips and complaints. Whether RIAs are state or SEC-registered, avoiding client complaints can help them to avoid becoming an enforcement statistic.
NASAA’s Enforcement Report is available here.
About RIA Compliance Group: RIA Compliance Group is an investment adviser compliance consulting firm based in Delray Beach, Florida. The firm’s mission is to provide affordable, timely, practical, and cost-effective compliance advice. We help investment advisers to comply with the myriad of state and SEC regulations and compliance obligations facing their firms. RIA Compliance Group takes pride in giving personal service and real world compliance advice, not theoretical concepts and legalese. The firm interacts on a daily basis with SEC and state securities regulators.