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Regulation and Compliance > State Regulation > NASAA

Registered Advisors Hit by More State Enforcement Actions in 2015: NASAA Survey

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Breaking a long-held pattern, state securities regulators brought more enforcement actions last year against registered individuals and firms than unregistered ones for infractions that ran the gamut from fraud to books and records violations.

That’s according to the North American Securities Administrators Association’s just-released annual enforcement survey, which also noted that a high percentage of frauds were perpetrated through the internet and via gatekeepers like CPAs and lawyers.

In 2015, NASAA’s U.S. members brought enforcement actions against 812 registered industry members, as compared with 791 unregistered individuals and firms.

State securities regulators levied 212 actions involving books and records violations; 70 actions involving suitability; 65 actions involving failure to supervise; and more than 200 actions involving other dishonest or unethical practices by registrants.

Dozens of other actions involved unauthorized trading, churning, selling away and fraud, according to the report.

Other schemes high on NASAA U.S. members’ warning list involve private-placement transactions pursuant to Rule 506, where certain state securities laws are preempted by federal law, the report notes.

During 2015, state securities regulators conducted more than 5,000 investigations.

Through NASAA’s U.S. members’ vigilance, in 2015, state securities regulators brought more than 2,000 enforcement actions against more than 2,700 respondents.

In addition, more than 250 individuals had their licenses/registrations revoked or were barred from the industry, and more than 475 licenses/registrations were denied, suspended or conditioned as a result of state action.

The most common fraudulent investment products involved real estate or oil and gas ventures, while state securities regulators continued to launch numerous investigations and enforcement actions involving variable and indexed annuities, hedge funds, life settlements/viaticals.

State securities regulators’ enforcement priorities included Ponzi schemes, internet fraud, gate-keeper fraud and senior fraud.

In releasing the report, Mike Rothman, NASAA President and Minnesota Commerce Commissioner, noted that gatekeeper fraud is “particularly pernicious because of the violation of trust it represents. Intermediaries, or gatekeepers such as accountants or attorneys, are supposed to provide important services that benefit investors.”

“Unfortunately, state securities regulators often must take enforcement action against gatekeepers who abuse their position of trust to carry out investment fraud,” he said.

The report notes one such infraction in which the Securities and Business Investments Division of the Connecticut Department of Banking filed two separate actions against James E. Neilsen, a CPA and former registered broker-dealer agent, who took advantage of his unfettered access to his CPA clients’ sensitive financial information and abused his position of trust to twice scam his CPA clients through fraudulent securities offerings.

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