Coercive action on the rise as state regulators prosecute pandemic fraudsters
State enforcement of regulations occurred at a higher level in 2020 than in recent years, even though many regulators were working from home due to the coronavirus pandemic, according to a report released Wednesday .
State securities regulators initiated 5,501 new investigations last year and conducted 2,202 comprehensive enforcement actions – including 206 criminal, 116 civil and 1,788 administrative – the North American Securities Administrators Association revealed in its execution report 2021. The total number of investigations and enforcement actions was higher than for any year from 2016 to 2018. They were eclipsed by the totals for 2019.
State regulators paid $ 306 million in restitution to aggrieved investors in 2020 and imposed $ 42 million in fines. Both figures were lower than those recorded in recent years.
NASAA report, which is based on 2020 data, indicates growing state-level execution activity involving digital assets, commodities and precious metals, social media and individual retirement accounts self-managed.
“State securities regulators are at the forefront of the ongoing fight against financial abuse and investment fraud,” Melanie Senter Lubin, NASAA President and Securities Commissioner from Maryland. said in a press release. “This report shows that state law enforcement activity remained strong in 2020 despite the challenges of the COVID-19 pandemic.”
Like most investors, state regulators have been working remotely during the outbreak. But a lot of investigative work can be done electronically, which has allowed them to pursue many cases.
“I think a lot of this has to do with the technology and the fact that the resources of state securities regulators have continued and the work has continued even during the pandemic,” Joe Borg said, director of the Alabama Securities Commission and co-chair of NASAA. journalists on a conference call. “I think we have seen some slowdown on the criminal side, but, again, remember that there is a lag between the opening of an investigation and the progress of the cases.”
State regulators have launched investigations because they were trying to prevent scams linked to the pandemic, such as fraudsters who pedal bogus investments linked to so-called cures.
“We were trying to be more proactive than reactive to a greater extent, and that’s exactly, I think, one of the reasons you’ll see higher numbers. [of investigations] but maybe less restitution or recovery, ”Borg said. “When you’re proactive, you try to prevent this from happening in the first place. “
PROBLEM AREA: SELF-MANAGED ARI
One area where state regulators are seeing increasing harm to investors is in self-administered retirement accounts. The NASAA report suggested that the issue is focused on alternative investments, such as real estate, private company stocks, promissory notes, oil and gas deals, and cryptocurrencies that aren’t. allowed in traditional IRAs.
The NASAA report says the number of enforcement actions involving self-directed retirement accounts rose to 53 in 2020 from 24 in 2019.
“These schemes allow crooks to access an investor’s 401 (k) and IRA savings after they are transferred to the SDIRA, and they can be devastating for an investor’s retirement,” the NASAA report states. “The problem is compounded by the fact that custodians generally do not assess the quality of any investment in SDIRA or its promoters.
Fraudsters take advantage of investors’ lack of knowledge about the lower level of protection of self-directed accounts compared to traditional IRAs, Borg said.
“It has become the new vehicle of trust for crooks to convince people ‘you don’t send me money, you are in control’,” Borg said. “There is an IRA custodian. After all, they call it trust companies. Scammers… are using this as their new trust factor.
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