State securities regulators doubled the number of enforcement cases brought against investment advisers last year as a tougher regulatory environment led investigators to focus on inappropriate advice or practices that could lead to investor fraud.
State securities regulators doubled the number of enforcement cases brought against investment advisers last year as a tougher regulatory environment led investigators to focus on inappropriate advice or practices that could lead to investor fraud.
In the wake of the Bernard Madoff Ponzi scheme and the Dodd-Frank law's mandate that the Securities and Exchange Commission examine advisers more often, states are implementing regular examination schedules, concentrating on the midsize firms that shifted from SEC oversight to state jurisdiction, according to a statement released yesterday by the North American Securities Administrators Association Inc.
In its annual list of significant threats to investors, NASAA called inappropriate practices involving investment advisers a new threat to investors. It specifically pointed out the need to verify the background of anyone offering investment advice or a financial opportunity.
“Investors should insist on working only with licensed brokers and investment advisers in dealing with both traditional and alternative securities investments, and should quickly report any suspicion of investment fraud to their state securities regulator,” NASAA president Jack Herstein, assistant director of the Nebraska Department of Banking and Finance, said in the statement.
Last year, there were about 400 state actions against investment advisory firms, almost double the 208 in 2010, NASAA said, based on preliminary data.
The actions included those involving client services, ranging from providing bad advice to outright fraud, and compliance issues like undercapitalization or unethical marketing practices.
State securities officials expect the number of cases against advisers to continue rising this year.
Increased examinations by state regulators will probably uncover even more problems at advisory firms, which will benefit investors, said Missouri securities commissioner Matt Kitzi, chairman of NASAA's enforcement section. “A lot of midsize advisers haven't been examined by regulators in many years and, in some cases, not ever,” he said.
Other new products or practices that investors should be looking out for include Internet fundraising, also called crowdfunding; use of self-directed individual retirement accounts to hide fraud; and investment-for-visa schemes, which prey on foreigners.
The annual list of top risks also comprise investments in gold and other precious metals, questionable oil-and-gas drilling programs, promissory notes, real estate investment schemes, private offerings and unlicensed sales reps' giving liquidation recommendations.
