Ponzi scam artists will have greater freedom to flourish if state regulators get expanded oversight of registered investment advisory firms, according to attorneys on a panel today at the annual Financial Services Institute conference in New Orleans.
Ponzi scam artists will have greater freedom to flourish if state regulators get expanded oversight of registered investment advisory firms, according to attorneys on a panel today at the annual Financial Services Institute conference in New Orleans.
Regulatory reform legislation being considered by both the Senate and the House would increase the threshold for state jurisdiction over RIA firms to those companies with $100 million in assets under management. Currently, the Securities and Exchange Commission is charged with overseeing RIAs with more than $25 million in assets.
Some state securities regulators are not up to the challenge of expanded oversight, the panelists concluded. The worry is that unscrupulous advisers would take advantage of such a regulatory gap.
“The likelihood of Ponzis increases with the $100 million mark,” said Neal Sullivan, partner with Bingham McCutchen LLP.
Fifteen states do not have a routine exam program for RIAs, said David Bellaire, general counsel and director of government affairs for the FSI. In particular, New York has no ability to conduct routine exams of firms, he added. Regarding Bernard L. Madoff's $65 billion Ponzi scheme, Mr. Bellaire said: “New York was not in a position to do what it needed to do.”
Last night, Joseph Borg, director of the Alabama Securities Commission, said increased oversight by states would mean a change for Alabama, as larger RIA firms have a more complex mix of business than what state regulators have seen in the past.
