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October 25, 2012 at 09:23 AM
Enforcement actions taken against investment advisory firms by state securities regulators nearly doubled to 399 in 2011—accounting for 15% of all enforcement actions handled by state securities regulators, according to the North American Securities Administrators Association’s (NASAA) annual enforcement report.
Prison time resulting from state-initiated actions totaled 1,662 years, up 47% from the year before, and the number of advisors and broker-dealers removed or barred from the industry spiked as well, according to NASAA’s report, released this week.
Of the 6,121 investigations state securities regulators conducted last year, 2,602 of them led to criminal, administrative and civil enforcement actions, NASAA said, with the report also noting that financial abuse of seniors was identified in nearly 600 reported enforcement actions.
State securities regulators also removed or barred unscrupulous brokers and advisors from the licensed community. In 2011, nearly 2,800 licenses were withdrawn due to state action, up 7.7% from the year before; and 774 licenses were denied, revoked, suspended or conditioned, up 20% from 2010.
Matt Kitzi, Missouri securities commissioner and chair of NASAA’s Enforcement Section, said in late August when announcing NASAA’s annual list of top investor threats that he expects to see more advisor violations as state regulators start examining midsize advisors—those with $25 million to $100 million in assets under management—that transferred from federal to state registration under the Dodd-Frank “switch” in July.
Many midsize advisors “have not been examined in many years or ever,” Kitzi said. “We think we’ll continue to find more enforcement issues with these advisors.”
State-initiated enforcement actions resulted in more than $2.2 billion in investor restitution orders in 2011. Heath Abshure, NASAA president and Arkansas securities commissioner, said in a statement announcing the report findings that much of this restitution is attributable to repurchases of auction rate securities (ARS) stemming from state-led actions.
