The North American Securities Administrators Association (NASAA) Enforcement Report provides an overview of state enforcement efforts for the 2015 fiscal year. The goal of NASAA's members is to identify misconduct and to take action against violators of the laws in order to protect the integrity of the markets. In 2015, state securities regulators brought more than 2,000 enforcement actions against over 2,700 respondents. The vast majority of these actions were administrative in nature (1,630 actions), followed by criminal (253 actions), civil (152 actions), and other (39 actions).
Types of Relief
There are a number of types of relief that NASAA's U.S. members can impose. One form of relief is monetary sanctions. More than half of the sanctions for the 2015 fiscal year required restitution, totaling $538 million. Other forms of monetary relief include fines and penalties, investor education, and costs.
A second form of relief imposed by NASAA's U.S. members is criminal sanctions. The majority of those incarcerated for violations of securities regulations received sentences that combined resulted in 849 years of jail time. Along the same lines as criminal sanctions, state securities regulators were able to deny or limit the activity of licenses and registrations of law breakers. While some individuals had their licenses merely suspended, revoked, or denied, most individuals had their licenses withdrawn as a result of state action.
So how do structured notes fit into this equation? In 2015, the most reported products and schemes are those that many would expect: Ponzi schemes, real estate investment program fraud, oil and gas investment program fraud, Internet fraud, and affinity fraud. However, state securities regulators launched numerous investigations into structured products as well. Accordingly, market participants pay significant attention to state law and the activities of state securities regulators, in addition to the regulatory structures imposed by the SEC and FINRA.
People Targeted by Fraudsters
The study shows that particular categories of vulnerable adults, primarily senior investors, were targeted by fraudsters disproportionately. Often, this fraud was perpetrated by use of the Internet. Others used the Internet to target a different age range, single women, through Internet dating. In one case highlight, an individual operated a "sweetheart" investment scheme with more than 30 victims that he met through online dating services.
The case also highlights "gatekeeper fraud," which is a fraud that is perpetrated by an intermediary who is supposed to provide an important service to benefit investors. In one example, an estate planning attorney used his position of trust as a lawyer to gain the confidence of elderly victims and perpetrate a fraudulent scheme that totaled approximately $10 million.
Types of Respondents
A large percentage of the enforcement actions brought by NASAA's U.S. members in 2015 involved unregistered individuals and unregistered firms. Notably, more registered members of the industry were named as respondents than unregistered members for the first time since NASAA began conducting enforcement surveys. For instance, in 2015 NASAA's U.S. members brought enforcement actions against 812 registered industry members, while they brought enforcement actions against 791 unregistered industry members. Whether the number of registered industry members involved in enforcement actions will continue to climb, how this will impact the securities markets in the coming year, and how NASAA will respond remain to be seen.