Apart from ensuring investment advisors, broker dealers and registered representatives aren't misbehaving, state regulators are increasingly focusing on newer threats to investors, according to the newly released 2024 Enforcement Report from NASAA.
The North American Securities Administrators Association's annual report detailed a significant rise in enforcement actions against errant broker-dealers, investment advisers, and their representativesas well as a stronger emphasis on technology-related fraud, especially in the realm of digital assets and social media.
Looking back on 2023, the report said state securities regulators initiated 8,768 investigations, including 5,155 new cases and 3,613 ongoing ones. A large chunk of these involved traditional investment products and registered parties, with new investigations launched into 204 broker-dealers, 184 agents, 404 investment advisers, and 190 investment adviser representatives. From there, regulators brought 103 enforcement actions against broker-dealers, 42 against agents, 113 against investment advisers, and 142 against investment adviser representatives.
Breaking down the resulting sanctions, NASAA said thirty-one individuals and 21 firms had their licenses revoked, while 72 individuals and 14 firms were barred from the industry entirely. Additionally, 23 individuals and 10 firms had their licenses suspended.
Beyond that, over 400 license applications were denied, and more than 5,000 applications were withdrawn before state regulators could take further action.
The report also emphasized the evolving nature of financial fraud, particularly as it relates to technological innovation. In a Tuesday statement, NASAA President Leslie Van Buskirk spoke out against opportunistic bad actors who abuse the hype around tech themes.
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“Fraudsters often exploit the buzz that comes with innovation and technology to take advantage of investors... bad actors find significant opportunities to try and rip off investors,” Van Buskirk said.
Of the new NASAA investigations in 2023, 343 cases involved digital assets excluding non-fungible tokens (NFTs) and staking, while 144 cases focused on staking, and 205 centered on social media fraud. Taken together, the numbers mark a significant increase in social media scams and crypto fraud compared to 2022.
All in all, NASAA Enforcement Section Committee Co-chair Amanda Senn said the report reaffirmed state regulators' "long-standing commitment to stopping investment scams and getting justice for victims.”
As part of their scrutiny of digital fraud, state regulators prioritized protecting older investors, opening 1,305 investigations and filed 131 enforcement actions involving 2,869 senior investors. Out of the 1,000 plus investigations, state regulators looked into nearly 500 cases internet and social media fraud, and another 182 related to digital assets excluding NFTs and staking, reflecting elderly investors' vulnerability to tech-linked schemes.
"For a second year in a row, digital assets, promissory notes, pyramid/Ponzi schemes, and scams involving the internet and social media were listed as the top threats to the investing public," the report said. "On the horizon, securities regulators expect to see more impersonation, pyramid, and romance scams involving digital assets and cryptocurrency, and the increased use of crypto ATMs to perpetuate these frauds."
Meanwhile, state regulators reported receiving 7,914 tips and complaints from the public in 2023, a substantial rise from previous years. They also received 1,467 referrals from other agencies, with the SEC and Finra accounting for 608 of those referrals.
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