Representatives of the North American Securities Administrators Association (NASAA) requested federal funds to enhance their regulation and enforcement of state securities laws in testimony before the House Financial Services Committee on March 20, 2009. Delaware Securities Commissioner James Ropp, while touting state enforcement efforts, said that additional resources were needed during the economic downturn in order to “help vulnerable investors looking to recover their losses.” Among other things, Ropp suggested deputizing state securities attorneys to serve as special prosecutors for complex securities cases and strengthening penalties for those who commit securities fraud, especially against seniors. Ropp also suggested increasing opportunities for fraud victims to seek compensation through private actions.
NASAA’s request should receive favorable consideration. In recent years, state securities regulators have taken the lead on uncovering and dealing with most major frauds in the capital markets. State regulators have been responsible for initiating actions on the Prudential Limited Partnership scandal, the Tech Wreck/analyst abuses and the auction-rate securities fiasco, among many others. While the SEC and the Financial Services Regulatory Authority have been criticized for lax enforcement, state securities regulators, who play more of a “beat cop” role in the securities markets, have been aggressively protecting investors’ interests.
Massachusetts Secretary of State William Galvin also testified. He suggested changing the current mandatory arbitration system, by which investors typically recover little or nothing for their losses, and which is, according to Galvin, a “pro-industry” system. Galvin also urged Congress to require securities brokers to hold fiduciary responsibilities to their clients. Unlike investment advisors, brokers presently do not consistently have fiduciary responsibilities under either federal or state laws, although some states do impose such responsibilities.
Other issues of importance to the state regulators include permitting states oversight over private securities offerings presently exempt from state scrutiny (Rule 506, Reg D offerings) and allowing state representatives to serve on the President’s Working Group on Financial Markets.
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