NASAA Enforcement Report: A Surge Of Investigations, Scams

The North American Securities Administrators Association (NASAA) recently released its 2023 NASAA Enforcement Report, based on data provided by 48 U.S states and territories. The report found a significant increase in the number of investigations regarding internet, social media and digital assets matters.

Rise in Internet, Social Media, and Digital Asset Scams

NASAA’s report details a rise in internet and social media scams in 2022, with 172 cases opened in 2022, compared to 127 cases in 2021. The states also reported filing 125 enforcement actions involving investments tied to digital assets. This is an increase of almost 30% from 2021.

Client Targeting: Sophistication in Scam Techniques

Client targeting has become more sophisticated. In 2022, U.S. and Canadian securities regulators coordinated various investigations of large, highly complex businesses accused of concealing significant risks associated with products tied to digital assets. Many of these cases involved the sale of investments in interest-bearing accounts, often referred to as “earn accounts” or “crypto savings accounts.” Promoters of certain earn accounts marketed their products as the cryptocurrency equivalent of savings accounts that are traditionally provided by regulated banks and credit unions.

Vulnerable and Senior Adults: An Increasing Target

Vulnerable senior adults also continued to be a target of scamsters. The number of reports by securities industry participants of possible financial exploitation on seniors to states securities regulators increased 93% from 1,428 in 2021 to 2,761 in 2022, resulting in nearly 550 investigations. These reports primarily deal with efforts by scammers to move clients’ money away from legitimate registered firms to fraudulent investments generally offered by unregistered firms and individuals.

State Licensing: Gatekeepers and Regulatory Measures

One last area of focus of the report related to state licensing “gate keepers.” States instituted these gate keepers to screen out bad actors before they have a chance to conduct business with unsuspecting investors. For example, many licensing matters are resolved through means other than litigation, such as when a candidate abandons an application before state agencies can file cases seeking the denial, suspension, or revocation of licenses.

These situations arise frequently. In 2022 alone, state agencies reported that 5,956 individuals and 291 firms withdrew their applications for licensure. In addition to withdrawals, state securities regulators revoked 57 licenses, barred 63 individuals and 31 firms from the industry, and suspended the licenses of an additional 42 registrants. U.S. NASAA members also denied slightly more than 600 license applications.

Compliance and Education

Although this report discusses scams occurring primarily in the unregistered side of the securities industry, all firms should educate Compliance, Supervision and Sales staff so they can be diligent in their dealings with their clients. In addition to training, firms should have processes in place to ensure compliant onboarding and licensing.  

Oyster Consulting’s experts provide practical advice when it comes to your firm’s policies and supervisory review procedures. Our consultants ensure that you have the processes and procedures in place to protect you and your clients from the threats of today’s world.