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State Securities Regulators Report Tripling of Digital Asset Enforcement Actions

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What You Need to Know

  • Internet and social media fraud are also on the rise, NASAA found.
  • State regulators reported 2,202 enforcement actions in 2020 leading to $306 million in restitution.
  • Self-directed IRA scams targeting seniors and retirees are growing.

State securities regulators “reported a tripling of enforcement actions involving digital assets and almost twice as many cases involving bad actors using self-directed individual retirement accounts,” in 2020, according to Joe Borg, director of the Alabama Securities Commission and co-chair of the North American Securities Administrator Association’s Enforcement Section.

According to NASAA’s 2021 Enforcement Report on 2020 data, state securities regulators took 2,202 enforcement actions in 2020, which led to $306 million in restitution orders, fines of $42 million and criminal sentences of 919 years, including incarceration and probation.

In the NASAA report, which includes responses from 50 jurisdictions throughout the United States, state securities regulators reported actions against 497 registered parties, including 153 investment advisors, 115 investment advisor representatives, 110 broker-dealer firms and 119 broker-dealer agents.

For the 2020 reporting year, state securities regulators brought 619 enforcement actions against unregistered parties, the NASAA report states.

“The data in this year’s report show a tremendous commitment of resources put toward stopping schemes tied to precious metals and other commodities, digital assets, and internet and social media fraud that spread during the pandemic,” Borg said.

As to online investment scams, in 2020, state regulators opened 214 investigations and brought 84 enforcement actions involving securities offerings promoted through the internet and social media. This is up from 141 investigations opened and 64 enforcement actions levied against online schemes in 2019.

Self-directed IRA scams targeting seniors and retirees are growing, and state securities regulators are taking their concerns to Washington, according to Melanie Lubin, Maryland Securities Commissioner and NASAA president.

Lubin said Tuesday during the group’s annual meeting that NASAA was “optimistic that several lawmakers will join NASAA to examine policy solutions around self-directed individual retirement accounts. We know that gaps in the oversight of SD-IRAS increasingly threaten the retirement security of millions of Americans, and we’re working with Congress to address those gaps.”

NASAA’s enforcement report also stated that to date, 32 jurisdictions have enacted rules or legislation based on the NASAA model act, which 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 these 32 states, 24 reported receiving 1,102 reports from broker-dealers and investment advisors, a 55% increase from the year before.

Firms also notified state securities regulators that they had delayed disbursements of funds 139 times.

“These reports resulted in 245 investigations, 139 delayed disbursements, and 65 enforcement actions in 2020,” according to the report. “Overall, states reported taking 290 enforcement actions involving 1,017 victims.”

Pictured: Joe Borg, co-chair of NASAA’s Enforcement Section