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State Securities Regulators See Spike in Unregistered Advisor Cases

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State securities regulators reported 738 actions against unregistered parties in 2019, a 15% increase in the number of cases brought in the previous year, according to the North American Securities Administrators Association’s recently released enforcement report.

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In 2019, more than 4,800 license/registration applications were withdrawn as a result of state action or attention, a slight increase from approximately 4,500 withdrawals reported during 2018.

“This information is indicative of the measures regulators take to prevent bad actors from entering the market,” NASAA states in its report. “In many cases, applicants withdraw their candidacy for licenses or registrations due to state investigations or forthcoming actions to deny, suspend or revoke their applications.”

State securities regulators conducted 6,525 investigations in 2019, up 23% from the year before, and took 2,755 enforcement actions, up 33% from 2018.

These actions led to $634 million in restitution ordered returned to investors, fines of $80 million and criminal relief of 956 years, including incarceration and probation.

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Among licensed securities professionals, state securities regulators reported actions against 1,218 registered parties, including 200 broker-dealer firms, 391 broker-dealer agents, 193 investment advisors and 434 investment advisor representatives.

The report also points out that to date, 28 jurisdictions have enacted rules or legislation based on the NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation.

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The model act mandates reporting to a state securities regulator and state adult protective services agency when an agent or representative has a reasonable belief that financial exploitation of an eligible adult has been attempted or has occurred.

Of the 28 states with laws based on the NASAA model act, 18 reported receiving 709 reports from broker-dealers and investment advisors, a 66% increase from the year before. The reports resulted in 233 investigations, 92 delayed disbursements and 15 enforcement actions in 2019.

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