State securities cops target structured products, gold scams

Broker-dealers’ sales of structured products, including private-placement notes and reverse convertibles, remain a top concern of state securities regulators, according to Joseph Borg, director of the Alabama Securities Commission.
During a panel discussion yesterday at the annual meeting of the North American Securities Administration Association Inc., Mr. Borg said states are also worried about real estate investment pools, in which investors never hold title to properties.
In the South, “blind real estate pools sold by very small broker-dealers” are drawing attention from state regulators, he said.
In the Southwest, gold scams remain a problem, said Matthew Neubert, director of the securities division of the Arizona Corporation Commission. Those schemes involve a company’s offering investors some new or secret way to extract gold from the earth, including one pitch that promises to find gold by injecting platinum into volcanic ash, he said.
Meanwhile, the business model of independent-contractor broker-dealers, in which representatives are often hundreds or thousands of miles away from their compliance officers, remains suspect with state regulators.
“The liability is selling away, or outside business activity,” said Tanya Solov, director of securities for the Illinois Securities Department.
Selling away is industry shorthand for reps’ offering a product to clients without the broker-dealer’s knowledge or approval. Some firms allow reps to have outside businesses, as long as it is disclosed.
“Sometimes, the reps believe this is a legitimate investment,” said Ms. Solov, who added that her office recently investigated small branch offices of independent firms where multimillion-dollar fraud allegedly occurred.

Related Topics: Structured Products