October 8, 2013
NASAA 96th Annual Conference
Salt Lake City, Utah
Good afternoon distinguished guests, colleagues, and fellow regulators in the United States, Canada, and Mexico. It is my pleasure to speak to you today as NASAA’s incoming President at our 96th annual conference.
I would like to begin today by thanking a few of my colleagues for their help preparing this year’s Conference and for helping me quickly prepare for my term as President this coming year.
First and foremost, l would like to thank Pennsylvania Commissioner Steve Irwin for his advice and support in getting me to this podium today. Steve is a noble colleague and great friend to us in his neighbor state of Ohio and to all of us adoptees in the larger NASAA family. Thank you, Steve.
I also want to thank former NASAA President, North Carolina Securities Administrator David Massey, and Utah Securities Director, Keith Woodwell, for their work in coordinating this year’s Conference. Thanks also to NASAA’s own Lonnie Martin for supporting Dave and Keith in their efforts. We would be lost without you, Lonnie.
As incoming NASAA President, I really would be lost without the support of the NASAA Corporate Office and the counsel of those that have preceded me. I feel blessed to have been brought into the NASAA fold back in 2008 by former NASAA President, Wisconsin Administrator Patty Struck. Patty, along with the other NASAA Presidents who have served during my five-year tenure in Ohio, have all left an indelible mark on me as a state securities regulator, each of them inspiring me to do better and work harder every day. Thank you, Patty, Fred Joseph, Denny Crawford, David Massey, Jack Herstein, and Heath Abshure for your counsel and continued leadership in this great association.
I would like to say just a few more words about the last guy on that list, Heath Abshure, in recognition of his leadership this past year as NASAA’s President. True to his word, the straight shooter from Arkansas has taken many “shots on goal” this past year to “add a little offense to NASAA’s defense.” Bursting with unparalleled energy, Heath literally started his presidency like a shot from a gun and unveiled for the 113th Congress a fairly aggressive legislative agenda. It is an agenda that, like those before it, seeks to promote NASAA’s core mission of investor protection, but is also an agenda that is ever mindful of business needs to access capital in our recovering economy.
Importantly, it isn’t more or less regulation that Heath or NASAA seeks in this agenda, it is simply smarter regulation. Regulation that does not shy away from the reality that new technologies, even new modes of investing, are moving forward and will continue to evolve, but affirmatively seeks solutions in light of that reality to protect both businesses and investors from fraud, liability and loss. I am very grateful for Heath’s leadership in this area and look forward to partnering with him and all of you in finding solutions that serve us all in the coming year. Please join me in thanking Heath for his efforts as NASAA President.
2013-2014 Leadership Team
Joining Heath and me in the coming year in the pursuit of smarter regulation are the other members of NASAA’s leadership team, starting with the other elected members of the 2013-2014 NASAA Board of Directors:
- President-Elect, Bill Beatty, Washington
- Treasurer, Melanie Lubin, Maryland
- Secretary, Judith Shaw, Maine
- Director, Joe Borg, Alabama
- Director, Doug Brown, Manitoba
- Director, Michael Rothman, Minnesota.
I am also planning on naming the following members as Section Chairs, subject to Board approval:
- Broker-Dealer, John Cronin, Vermont
- Corporation Finance, Jan Owen, California
- Enforcement, Diana Foley, Nevada
- Investment Adviser, Patty Struck, Wisconsin
- Investor Education, Lynne Egan, Montana
Finally, I also plan on naming, subject to Board approval, Former NASAA President and Nebraska Administrator Jack Herstein as New Member Advocate and another Former NASAA President, current Colorado Administrator, Fred Joseph as Ombudsman.
Five Years Since the Financial Meltdown
Now, as I mentioned earlier, I have been a state securities regulator for five years. In fact, I will be celebrating my fifth year anniversary with the Ohio Division of Securities this Thursday. Prior to joining the Division, I spent the bulk of my career in private practice as a general litigator, mostly federal corporate and class action litigation on the defense side. I then spent a few years on the state side while working for the Ohio Attorney General’s Office, primarily on subprime lending issues inside and outside of the securities context.
In both capacities, I was exposed to large multi-state initiatives, initially defending client interests against multi-state claims and later working for the state of Ohio coordinating and pursuing multi-state action. The last thing I did at the Attorney General’s Office before joining the Division of Securities as Commissioner was complete the office’s negotiations with a subprime lender as part of a larger multi-state settlement.
Having worked on both sides of the fence prepared me well for the work I’ve done the past five years at the Division and gives me a unique perspective in the roles I serve for NASAA. While nothing could have fully prepared me for beginning my regulatory career at the onset of one of the most tumultuous times in the financial services industry, my experience has taught me to approach my new regulatory role with caution and deliberation. I was reminded from my defense experience how important it is to get the facts first, before jumping to conclusions.
I learned from my work on the state side, however, that corporate and industry-rocking crises normally do not happen by accident. There are causes – sometimes people, sometimes policies – to blame. When it comes to the most recent financial crisis, there is no shortage of causes or blame to go around. To me, a cavalier attitude regarding the importance of handling other people’s money factors centrally in the mix.
Now, we can and often do reflect on the magnitude of these recent losses on a global scale. In the United States alone, 8.8 million jobs vanished. According to a new report from the Federal Reserve Bank of Dallas, $6-14 trillion, or nearly an entire year of gross domestic product, was lost. That falls somewhere between $50-120,000 for every U.S. household, and the Dallas Fed warns that the actual losses could be twice as much.
None of us wants to see that happen again. Some of us may even be angry and disillusioned with the whole process. But, unless you or someone that you personally rely upon to pay the bills lost their job or their nest egg in the financial crisis (or came close to losing that job or nest egg), it probably is not something that kept you up at night. I am guessing it is not something that disrupts most people’s sleep five years down the road.
If you are a securities regulator, however, chances are you know good, hardworking people in the industry who lost their jobs as the result of the recent financial crisis and know many others who did in fact lose the bulk or entirety of their life savings. Chances are you’ve fielded calls from senior investors who lack the means and the time to make back what they spent a lifetime building. You may even have had the unsettling experience of seeing an investor in that situation break down and cry right before your eyes. The bad acts of a few can have a disastrous impact on the lives of many.
People who have lived through those experiences cannot help but take the handling of investor money seriously, very seriously. It is a natural reaction and, indeed, the very mission of securities regulators to do whatever they can to help those investors recover their losses and prevent that same devastating event from happening to others. In the wake of the recent financial crisis and the speed and complexity with which securities transactions take place in today’s markets, the job of a securities regulator is no easy task.
While it may not be easy, state and provincial securities regulators through NASAA stand united in their commitment to their core missions of investor protection and capital formation. Today, I would like to share some of the goals I have for furthering NASAA’s pursuit for smarter regulation in the year ahead.
Promoting state and provincial regulation
One of the first things I would like to do as NASAA President is to focus our members on getting the word out about all the good work that state and provincial regulators do. I am asking all NASAA members today to commit to sharing at least one success story with the association every year so that our Communications Chief Bob Webster can tell our story in a new annual NASAA report starting with next year’s Spring Conference. In one jurisdiction, it might be shutting down a massive ponzi scheme, in another jurisdiction it might be a key regulatory reform, an important technological upgrade here or a large investor education campaign there.
Our ability to effectively communicate and publicize our strengths and abilities to the outside world, to our friends on the Hill, is what guarantees our continued role in the global securities markets.
Modernizing state and provincial regulation
Another key to preserving and expanding our role in the securities markets is our willingness to modernize state and provincial regulation. Only by working closely with industry and our fellow regulators in embracing today’s technology will we ever reach our full potential. Many people in this room banded together years ago to take securities professional licensing to the next level by creating, first, standardized applications and, later, a centralized, web-based system for processing federal and state licensing applications. Many of those same people continue to work on that very system today, striving to make it better, more useful for industry and regulators alike.
The corporation finance world needs the equivalent of a CRD/IARD system for multi-state offerings. My vision is for there to be a one-stop, automated filing system for every type of corporation finance offering filed in multiple states. A system that has NASAA guidelines, forms, and core state requirements embedded in its design, a system in which all regulatory and industry users can track filing status of an offering in all states in real time.
NASAA has already taken the first major step toward in that direction by setting up the EFD, electronic filing depository for Form D notice filings, a system set to launch in the coming year. I am on a mission to see the system expanded to include Reg A and SCOR filings soon thereafter. NASAA has already worked closely with the American Bar Association to update applicable statements of policy for new Reg A offerings and has proposed a new coordinated review protocol that streamlines the comment and approval process for those offerings across state lines.
The smartest option for investors and business
I believe that one-stop electronic state registration, if done right, will be the smartest way for businesses to raise capital here in the United States. Experienced issuers and their counsel already know the value and enjoy the benefits of state review. State examiners routinely improve the quality of deals, help issuers avoid costly disclosure mishaps, and screen the market for frauds that reduce the amount of capital available to legitimate business interests.
As we’ve heard throughout this conference, the advent of new “public private offerings” under Rule 506 and crowdfunding are expected to create a tsunami of new investment opportunities for investors. Just peruse the web today for any kind of investment opportunity – real estate, oil, gas, gold, you name it – and you can see it already developing. Yes, there are good deals out there, probably some real gems, but it will become increasingly difficult to find those gems amongst the real gambles and, well, real losers that are also out there for general consumption.
Intuitively, investors and securities professionals will be looking for ways to separate good deals from bad. Many will consider whether an offering was subject to regulatory review or not. And, if not, they will ask themselves whether the opportunity is a safe enough bet for them to invest their hard earned money in or bank their reputation on. In Ohio, they should consider the fact that unregistered products consistently top Ohio’s list of key investor threats. In 2012, the Division saw eight securities fraud cases result in a criminal indictment or conviction. Seven of those cases involved the sale of unregistered securities, all courtesy of the unregulated market.
If they don’t already realize it, shrewd investors and securities professionals will soon see that state review generally yields safer opportunities for them on the whole than opportunities floated in a market with little or no review. Over time, savvy businesses will seize upon this in deciding whether or not to register their securities. If they are given a convenient, one-stop state option that is simpler but has greater integrity than the methods they have available at the federal level, I believe their choice will be clear.
I welcome anyone with an interest in the issue of centralized state filing to contact me with your thoughts on this important initiative.
Moving on with both Dodd-Frank and JOBS Act
The next item on my agenda is a call for everyone in this room to work together to find solutions that balance investor and business interests in putting both Dodd-Frank and JOBS Act-related rulemakings to bed. Cost-benefit analysis is important, but our reluctance to share necessary information and our inability to find common ground should not stall policy that both investors and businesses want and need. It is important that we work together to help the SEC move past these gargantuan rulemaking initiatives so that its staff can get back to their day job, protecting investors.
The SEC cannot be expected to do its day job, much less crank out hundreds of Dodd-Frank and JOBS Act-related rules, without proper funding. It simply cannot. It has been 5 years since the meltdown. Isn’t it time to pause, stop burying the SEC with studies and rulemaking mandates, and give its new Chair, new leadership, and staff a fighting chance to regulate our markets? Chair White should not have to lie awake at night worried about what might be going on inside federally registered investment advisers. The SEC should be able to hire enough examiners to answer that question for her.
On that note, everyone in this room should be lobbying Congress to help Chair White fix this problem. But not with an SRO, that is not the solution. Properly funding the SEC’s exam program this year and in future years is the key to closing this particular chapter of Dodd-Frank. I implore our leaders on the Hill to do the right thing and give the SEC the resources it needs to do its job.
Restoring investor confidence
As NASAA Presidents before me, I cannot look to the future without asking what we regulators and policymakers can do to better protect investors. Especially in times of economic recovery, after a significant financial crisis, we need to find ways to preserve investor wealth and restore investor confidence in the integrity of our financial markets. We need to do all we can to root out fraud, lock up the crooks, and make civil penalties commensurate with the offense in an effort to deter future frauds. Nothing infuriates investors and the general public more than seeing fraudsters continue about their business without penalty.
Another way to regain investor trust and elevate their confidence in our markets is to raise securities professionals’ standard of care. I am glad to see growing consensus on this issue and am optimistic that if we work together and speak with one voice, we could see many more securities professionals acting in their client’s best interest in the very near future. The more we splinter off on ancillary issues, of course, the longer this whole process will take.
There are other thorny areas where consensus is lacking and the traditional battle lines remain intact. The elimination of mandatory pre-dispute arbitration clauses and the expansion of federal aiding and abetting liability are two such examples. We should not let the fact that we have not yet reached agreement on those issues or any other issue stand in the way of further discussion. As was the case with the fiduciary duty issue, respectfully tackling these challenges lets investors know that we are all focused on giving them a fair shake, a necessary component to restoring investor confidence in our securities markets.
Communication remains key
The final thought I have for the coming year is the importance of communication. In so many ways, we are all in this together. The best way for us to restore integrity to our markets is to restore investor confidence in us (as regulators) and you (as industry). It would be great for investors to see us working with, not against, each other. I hope we are able to build upon the interests that we share and are forthright but respectful on any issues that divide us. I certainly will do my best to move NASSA forward in this manner.
In closing, I want to thank my husband, Rich, my staff here in the audience, and my staff back at home in the Buckeye State. I also would like to thank Ohio Department of Commerce Director, Andre Porter, for his support. Serving as NASAA President with two young children and a steady Ohio docket is a huge commitment that I simply could not undertake without the blessing and support of my home team. I thank them and each of our members for giving me this wonderful opportunity. You can be sure it is an opportunity that I will not squander. Thank you.
October 8, 2013