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The Number of Crooked Financial Advisors Surges

By Hal M. Bundrick for MainStreet

NEW YORK (MainStreet) The number of crooked financial advisors is on the rise, and seniors should be particularly wary, according to the North American Securities Administrators Association (NASAA). As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, more than 2,000 investment advisors moved from federal to state regulation, and with that transition came more rigorous oversight of stockbrokers and investment advisers.

According to the NASAA's annual enforcement survey, the number of securities licenses forfeited due to state enforcement actions increased by 27%, from 2,796 to 3,564. In addition, 736 licenses were denied, revoked, suspended or issued with conditions.

"Closer scrutiny of licensing applications has resulted in a noticeable increase in the number of licensing withdrawals in the past year," says Andrea Seidt, NASAA President and Ohio Securities Commissioner. "Our survey shows several important trends in investor protection and securities regulation, including continued investor reliance on state regulators to address both traditional areas of securities fraud and emerging issues."

But enforcement of investment fraud extends beyond licensed advisors and includes unlicensed, rogue brokers selling unregistered securities. States reported 580 actions involving unregistered securities and 576 actions involving unregistered firms or individuals. Private offerings were at the top of the list for enforcement actions, for the third straight year. An increasing number of these investment scams are posted on the Internet. Oil and gas schemes were the second most reported scam.

The NASAA also notes a rising number of "affinity" frauds, where investors are targeted by scammers claiming to represent a social, religious or charitable organization. Investment frauds frequently feature "to good to be true" offerings of real estate, gold and precious metals, annuities and foreign currency trading programs.

The report also notes that 15% of state enforcement actions involved financial abuse of seniors. Promissory notes, private offerings and investment contracts account for over half of the cases targeting older investors, many times resulting from a "free lunch" seminar invitation.

State securities regulators conducted 5,865 investigations in 2012, which led to 2,496 criminal, administrative and civil enforcement actions. Prison time resulting from state-initiated actions totaled 1,361 years.

Enforcement actions from state regulator investigations netted nearly $700 million in investor restitution orders in 2012, plus fines, penalties and collected costs in excess of $157 million.

--Written by Hal M. Bundrick for MainStreet

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