RIA Compliance Blog
In our previous post regarding state-registered investment advisers, we examined the landscape and discussed common deficiencies found in state adviser examinations. In this post, we will discuss enforcement actions typically aimed at state-registered investment advisers, as well as current enforcement trends such as fraud pertaining to emerging markets and protection of senior investors.
Earlier in 2018, the North American Securities Administrators Association (NASAA) published its 2018 Enforcement Report. This report contains information and statistics regarding NASAA members’ enforcement actions in 2017 and highlights current trends in enforcement actions aimed at state-registered investment advisers.
According to the Report, NASAA members received 7,998 complaints that resulted in 4,790 investigations. Once the investigations were completed, NASAA members initiated 2,105 enforcement actions, over half of which were administrative actions. Criminal actions made up the second largest number of enforcement actions, followed by civil and other types of enforcement actions.
NASAA members reported that they ordered about $486 million to be returned to investors in 2017 and ordered about $79 million in fines or penalties. Approximately $7.5 million was ordered to be paid for the benefit of investor education, and about $7.3 million in costs. The Report provides that other sanctions NASAA members have reported have included criminal sentences and restraints on the ability to participate in the securities industry, such as suspensions or bars.
The Report also details occasions where securities regulators from different states and provinces have worked together in enforcement cases. For example, in 2018 securities regulators from the United States and Canada came together to investigate issuers of fraudulent cryptocurrency offerings. Earlier, in 2017 regulators from Massachusetts and Alabama worked together to investigate a state-registered investment adviser’s alleged sale of unregistered securities.
The protection of senior and other vulnerable adults is a top priority for NASAA and its members. As of now, eighteen states have enacted legislation based on NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. These states have reported about 500 instances of possible financial exploitation of seniors.
The Report also highlighted the fact that 2017 was the first year where the number of enforcement actions brought against investment adviser firms and representatives was greater than the number of enforcement actions against broker-dealer firms and agents.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.