Social media scams, crypto fraud on the rise: NASAA report

Investigations and enforcement actions taken by state securities regulators are soaring thanks to advances in technology and social media, according to a report released Tuesday by the North American Securities Administrators Association.

NASAA’s 2023 Enforcement Report reveals state securities regulators were responsible for nearly $1 billion in monetary relief ordered as the result of enforcement actions in 2022. In total, state securities regulators investigated 8,538 cases in 2022, up from 7,029 in 2021.

Regulators also initiated 1,163 enforcement actions, including 136 criminal actions, 59 civil actions, and 825 administrative actions, the report said.

Furthermore, state regulators clawed back $702 million in restitution and more than $223 million in fines, in addition to nearly 5,337 months in prison sentences and 9,520 months of supervised release, the NASAA said.

“This data shows that state securities regulators remain vigilant when it comes to protecting investors,” Claire McHenry, NASAA president and deputy director of the Nebraska Department of Banking and Finance, said in a statement. “It is critically important that investors feel safe when they are investing their hard-earned money and have trust in the public markets. Our members are on the front lines of this fight, and we will continue to go after bad actors and scammers intent on doing harm to Main Street investors.”

The number of investigations involving social media and internet scams skyrocketed in 2022, with 172 cases opened in 2022 compared to 127 cases in 2021. State securities regulators reported filing 125 enforcement actions involving investments tied to digital assets, up about 30% from the previous year.

“The scams are growing quick,” said Joe Rotunda, enforcement director for the Texas State Securities Board.

Rotunda noted how quickly fraudsters adapt to changing technology. For the first time this year, NASAA asked state regulators how worried they were about artificial intelligence being used by scammers. Forty-four percent said they thought there would be many frauds involving AI, and 36 percent said they thought scams involving AI could become “the top threat” to investors.

Those responses “definitely show how quickly bad actors can capitalize on a new technology or widespread interest in a new technology,” Rotunda said. “This is something that wasn’t in the conversation a year ago,” he said.

Elsewhere, the report showed, state securities regulators revoked 57 licenses, barred 63 individuals and 31 firms from the industry, and suspended the licenses of an additional 42 registrants in 2022. NASAA members also denied slightly more than 600 license applications, the highest number of such actions in recent years, the report said.

Finally, fighting elder abuse was a priority of state securities regulators in 2022. According to the report, they opened 680 investigations and filed 133 enforcement actions involving at least one older investor. And while cases pertaining to older investors have historically involved traditional products that provide certainty, such as promissory notes, in 2022 the top issues were internet scams and digital assets, the NASAA report said.