NEW YORK (MainStreet) — Rogue brokers are a shifty lot. Their tactics can go well beyond the maladroit Madoff-with-your-money Ponzi schemers. A crooked financial broker will trade on illegal stock tips and then eat the evidence. Or rip off $1.3 million from his parents. But most securities laws violators are less cunning – and easier to spot.
The North American Securities Administrators Association (NASAA) is a voluntary organization representing the state regulators that help protect investors. In a new survey of enforcement actions taken through the end of 2013, the NASAA reports securities laws violators are getting more prison time than ever. In fact, 1,816 years of time behind bars were levied against investment crooks from enforcement actions by state securities regulators -- an increase of 33% over the same period a year before.
Nearly 5,000 state investigations yielded an average of 5.5-year sentences, according to William Beatty, NASAA president and director of the Washington Securities Division.
“State securities regulators continue to serve as a strong line of defense to protect the public against investor fraud,” Beatty said. “The increase in jail time reflects the increasing complexity and heinousness of the crimes state securities regulators investigate and the criminals they help bring to justice.”
But the most surprising fact of all: investors could have easily prevented being duped by most of these securities shysters. The NASAA says the majority (44%) of investment fraud cases reported by state securities regulators involved unregistered individuals or firms. Without a license to sell securities, you know for a fact that whatever a rogue broker is pitching is absolutely illegal.
It’s an easy fraud to prevent. Before investing with any firm or financial advisor, check out their registration, background and qualifications through the Investment Advisor Public Disclosure website or through FINRA’s BrokerCheck.
But even if a firm or advisor is legit, he can still be dealing outside of the law. Nearly one-third of actions taken through state regulators were aimed at registered broker-dealer firms or their brokers. Another 19% involved registered investment advisor firms or their reps. The NASAA says the licenses of 3,438 broker-dealers, investment advisors and their representatives were either withdrawn, denied, revoked, suspended or conditioned by state securities regulators last year.
And more than $600 million was returned to investors with $72 million in fines or penalties charged to the perpetrators.
--Written by Hal M. Bundrick for MainStreet