More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
The number of advisors barred by state securities regulators jumped significantly in 2012, with 3,564 licenses being withdrawn — a 27% increase over the 2,796 withdrawn in 2011—and 736 licenses were denied, revoked, suspended or conditioned.
The increase is attributable “in part” to the completion of the switching of a 2,100 advisors from federal to state registration as mandated by the Dodd-Frank Act, according to the North American Securities Administrators Association’s annual enforcement survey.
The report is based on the results of a survey of NASAA members during spring 2013. This year, 49 of 51 U.S. state and district regulators responded to the survey.
Andrea Seidt, NASAA president and Ohio securities commissioner, said in releasing the data that “closer scrutiny of licensing applications resulted in a noticeable increase in the number of licensing withdrawals in the past year." They survey "shows several important trends in investor protection and securities regulation, including continued investor reliance on state regulators to address both traditional areas of securities fraud and emerging issues.”
NASAA noted the “marked increase” in interagency coordination during the 2012 reporting period, with 770 outgoing referrals from state securities regulators to other regulators and law enforcement agencies and 604 incoming referrals to state securities regulators from other agencies.
The majority of the investment fraud cases reported by state securities regulators continued to involve unregistered individuals selling unregistered securities, the report said. States reported 580 actions involving unregistered securities and 576 actions involving unregistered firms or individuals.
Other notable findings from 2012 include:
• State securities regulators received 10,272 complaints from aggrieved investors and conducted 5,865 investigations in the 2012 reporting period.
• Approximately 2,500 administrative, civil and criminal enforcement actions involving more than 3,300 respondents and defendants were reported by the states.
• The states reported criminal actions resulting in 1,361 years of incarceration and 347 years of probation.
• States imposed more than $694 million in investor restitution orders and levied fines or penalties and collected costs in excess of $157 million.
For the third consecutive year, Regulation D Rule 506 private offerings were the most reported products at the heart of state securities enforcement actions, the survey found.
Emerging state enforcement trends included the increased presence of questionable securities offerings made through the Internet, and “problem areas” like affinity fraud, gold and precious metals, annuities, real estate investment trusts and foreign currency trading programs.
Check out ‘Alarming’ Number of Broker Arbitration Records Wiped Clean: Study on ThinkAdvisor.