NASAA President Delivers Keynote Address at SIFMA Conference

WASHINGTON, D.C. (March 19, 2013) – The lack of civil recovery options for harmed investors is weakening the confidence of investors in financial products and markets, the president of the North American Securities Administrators Association (NASAA) said in a keynote speech delivered today at the Securities Industry and Financial Markets Association (SIFMA) Compliance and Legal Society Annual Meeting in Scottsdale, Arizona.

“The virtual elimination of litigation as a dispute resolution option through mandatory arbitration clauses, coupled with increasing procedural and evidentiary burdens, will have profound effects on investors and their confidence in investment products and markets. Most troubling is that these remedies are decreasing just as the era of crowdfunding and general solicitation in Regulation D, Rule 506 offerings is about to launch.  This presents particular risks to small investors,” said Heath Abshure, NASAA president and Arkansas Securities Commissioner.

Both crowdfunding and general solicitation of Regulation D, Rule 506 offerings are called for in the JOBS Act. Securities and Exchange Commission rulemaking is underway in both areas and SEC Chair-nominee Mary Jo White has indicated that the final rules should be adopted soon.

“Once that occurs, the number of small investments in small, private companies will greatly increase,” Abshure said. “Unfortunately, crowdfunding and the expanded use of Regulation D, Rule 506 is set to launch against a backdrop where investor class action recourse is increasingly limited. Our goals are to advocate against further restrictions to class actions, through both legislative means and appellate litigation.” Abshure added that one of NASAA’s legislative priorities is to advocate for amendments to federal law to permit private lawsuits for fraud associated with small offerings.

Abshure noted that a recent decision a FINRA enforcement proceeding against Charles Schwab & Co., in which a FINRA hearing panel ruled that Schwab could force all of its customer disputes into arbitration and prohibit investors from bringing class action lawsuits, has heightened NASAA’s longstanding concerns about mandatory pre-dispute arbitration provisions.

“NASAA believes the ruling is wrong on the merits and is bad public policy. This is especially true given that Section 921 of the Dodd-Frank Act provided the SEC with rulemaking authority to prohibit or impose conditions on the use of mandatory pre-dispute arbitration agreements.”

NASAA will encourage the SEC to exercise its authority to propose or adopt rules prohibiting or conditioning pre-dispute agreements mandating arbitration.  “If the SEC is unwilling or unable to take action then we will encourage Congress to pass legislation that would dramatically curb the use of these mandatory provisions,” he said.

Abshure also emphasized NASAA’s long support for the extension of fiduciary duty to broker-dealers. He said a recent SEC request for additional information and data in connection with extending a fiduciary duty to broker-dealers is “a positive step, but it is only a first step. NASAA will continue to urge the SEC to exercise its discretion, pursuant to Section 913 of the Dodd-Frank Act, to engage in rulemaking to subject broker-dealers to fiduciary duty,” he said.

The complete speech text is available here.

For more information:

Bob Webster | Director of Communications

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