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Business Compliance Partners Reports Tougher Stance by States Against Violators


Business Compliance Partners warns investment advisers that state regulators are taking a stronger stand against rule violations and handing out tougher sanctions. The North American Securities Administrators Association (“NASAA”) Enforcement Report published on October 23 supports this assessment.

San Diego, Calif. (PRWEB) October 31, 2012

According to the Report, although state regulators filed only 436 criminal actions in 2011 (as opposed to 1,133 in 2010), resulting prison sentences increased by 47 percent. This suggests that state regulators are accepting fewer settlements and plea bargains and issuing stiffer sentences per offense.

In addition, nearly double the number of actions were brought against investment adviser firms than during the previous year. Increases in the number of actions for violations can be expected as the number of state registered investment advisers increases due to the recent switching from SEC registration.

States securities regulators also reported:

  •     More than $2.2 billion in investor restitution orders and levied fines or penalties
    Nearly 2,800 licenses were withdrawn (a 7.7% increase) and 774 licenses were denied, revoked, suspended or conditioned (a 19.6% increase).     Bringing in excess of 800 actions involving unregistered securities, and over 800 actions that involved unregistered firms or individuals     Filing almost 600 enforcement actions that involved the financial abuse of seniors


Business Compliance Partners advises that investment advisers perform more rigorous due diligence and exercise caution when recommending certain products since the Report listed these products as sources of the most complaints. Products listed included:

  •     Regulation D Private Placement Offerings (200 actions)
    Real estate investments or interests (200 actions)     Oil and gas investments or interests (100 actions)


Variable and equity indexed annuities, other structured products, hedge funds and private equity funds were also listed as products generating a higher volume of investor complaints.

In addition to the statistics data requested through the survey, NASAA requested information about the number of actions related to a list of specified products or practices. The list included the products that generated the most complaints among others and Ponzi schemes topped the practices list.

NASAA also asked state securities administrators to identify the top five trends or developments that are most relevant in terms of securities enforcement actions. Promissory notes and other questionable products (increasingly being offered for sale via the Internet), affinity fraud, and fraudulent schemes involving gold and precious metals were among the prominent new trends listed in the Report.

Statistical information collected through the survey for the Report included:

  •     Complaints or inquiries received, and investigations and actions conducted or initiated;
  •     Data on penalties, payments, and costs and restitution resulting from enforcement actions;
    Results of prosecutions for criminal violations, including years sentenced and years of probation; and     The type of actions, the most common products or practices involved and the persons being targeted the most


The Report is based on a survey of securities administrators in the 50 states, and the District of Columbia and the data is a compilation of the enforcement activities in 2011. There was only a 94% response rate to the survey so the actual numbers are higher. State securities regulators reported that they conducted 6,121 investigations (6,356 in 2010) and 2,602 led to criminal, administrative and civil enforcement actions.

Business Compliance Partners counsels investment advisers and other financial services firms to pay particular attention to the findings in the Report because regulators are telegraphing what they will be looking for in future audits. Compliance personnel should beef up compliance efforts including due diligence, supervisory practices and internal reviews, especially if firm personnel are recommending any of the products listed above. Financial services professionals should also ensure that clients have a clear understanding of the risks and costs associated with investing in each product (including the ability to liquidate the investment) and ensure that every facet of client relationships is clearly documented.

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