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NASAA Releases Annual Survey of Enforcement Activity by State Regulators

Last week the Enforcement Section of the North American Securities Administrators Association (NASAA) issued its annual enforcement survey, providing an overview of state enforcement efforts in 2011. The survey concludes that 6,121 investigations were conducted by the 48 responding regulators last year, resulting in 2,602 enforcement actions, more than $2.2 billion in investor restitution orders, and criminal jail sentences of 1,662 years. State regulators also reported the withdrawal of nearly 2,800 licenses and the denial, revocation or suspension of another 774 licenses. Of note, of the 2,602 enforcement actions 399 were brought against investment advisory firms, nearly double the prior year.Regulators characterized more than 1,400 enforcement cases as fraud, with over 1,000 of those involving unregistered securities and over 900 unregistered firm or individuals. State regulators reported the most common products at the center of enforcement were Regulation D offerings, with real estate investments a close second. The survey also asked respondents to identify top enforcement trends, and regulators reported the following as consistently sited new threats to investors:
  1. Crowdfunding & Internet Offers – The report notes that many states report a recent increase in active investigations involving Internet fraud and that the JOBS Act provisions concerning crowdfunding may “elongate this trend.”
  2. Inappropriate Advice from Investment Advisers – The survey’s authors state that the “Bernie Madoff case opened a number of eyes and ears to the problems that could exist undetected in an investment advisory firm.” The report also notes the shift of oversight from the SEC to the states for mid-size advisers has resulted in the implementation of regular exam schedules by states, which the authors predict will lead to discovery of more problems.
  3. Scam Artists Using Self-Directed IRAs to Mask Fraud – The report explains that state regulators have investigated numerous cases where self-directed IRAs were used to lend credibility to bogus ventures.
  4. EB-5 Investment-for-Visa Schemes – Finally, the report warns that investors should be on alert for false claims that investments in a particular venture are safe or guaranteed due to an influx in foreign cash from the Immigrant Investor Program (known as EB-5).
For further information about the NASAA survey or any other securities related concern, please contact the author at [email protected] or (619)298-2880.

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