The North American Securities Administrators Association (NASAA) has released its annual enforcement report, which shows increasing numbers of investigations and enforcement actions taken by state securities regulators involving digital assets, precious metals, social media, and self-directed individual retirement accounts.
NASAA reported that in 2020, state securities regulators opened 5,501 new investigations and continued to work on 2,572 ongoing investigations for a total of 8,073 investigations conducted in 2020. Of the 8,073 investigations, state securities regulators took 2,202 enforcement actions in 2020.
These actions led to $306 million in restitution ordered returned to investors, fines of $42 million and criminal relief of 919 years, including incarceration and probation. The full report can be read here.
According to the report, state regulators opened 196 investigations and 67 enforcement actions involving Regulation D private offerings in 2020. This includes 69 investigations and 24 enforcement actions relating to Rule 506(c), which generally permits issuers to publicly advertise unregistered securities so long as they limit sales to accredited investors.
“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. For example, states reported a tripling of enforcement actions involving digital assets and almost twice as many cases involving bad actors using self-directed individual retirement accounts,” said Joseph Borg, director of the Alabama Securities Commission and co-chair of NASAA’s enforcement section.
In 2020, there were 53 enforcement actions involving self-directed IRAs, compared to 24 the year before.
In addition, state regulators are reporting an uptick in commodities fraud – particularly investment schemes tied to gold or silver coins that target senior citizens.
In 2020, state regulators opened 147 investigations of commodities, up from 69 investigations in 2019. They also reported an uptick in enforcement actions brought against promoters of commodities schemes, filing 42 enforcement actions in 2020 compared to 23 enforcement actions in 2019.
According to the report, the top products subject to investigation were promissory notes (339), stocks/equities (220), internet/social media (214), real estate (155), and commodities/precious metals (147).
Within the licensed securities industry, state securities regulators reported actions against 497 registered parties, including 153 investment advisers, 115 investment adviser 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.
In 2020, more than 3,600 license/registration applications were withdrawn after state action. NASAA said that in many cases, applicants withdraw their candidacy for licenses or registrations due to state investigations or forthcoming actions to deny, suspend or revoke their applications.
In addition to the license withdrawals, state securities regulators imposed approximately 801 other licensing sanctions upon individuals and firms in 2020.
Formed in 1919, NASAA is the non-profit association of state, provincial, and territorial securities regulators in the United States, Canada and Mexico. NASAA has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.