Denise Voigt Crawford
Texas Securities Commissioner
President, North American Securities Administrators Association
November 18, 1997
NASAA Annual Conference
San Antonio, Texas
Good afternoon. I am so pleased to stand before you today as NASAA’s incoming President. It is both an honor and a privilege to serve an association that has done so much to protect investors, especially small investors, and to encourage capital formation, especially small business capital formation.
As I contemplated these remarks, I began to think about my grandfather. When I was little girl, Grandad served as the County Commissioner of a Central Texas Precinct. If you’re not from these parts, let me tell you, in those days there was virtually no more important elected official than the County Commissioner. You know why? Roads. In case you haven’t noticed, Texas is a very big state and, at that time, it was mainly rural. The County Commissioner was responsible for building and maintaining the roads.
I remember many occasions riding with my Grandfather in his pickup truck as he went about his work. I was very proud of him — the man everyone called “Commissioner.” Even as a child, I recognized the importance of his work and why others respected him so much. The thing about Grandad was that he clearly understood what it was he was supposed to do and he did it very well. In modern day terms, we would say that he “achieved excellence.”
By the way, he was reelected many times. This afternoon, I would like to share with you my goals for NASAA this year. There aren’t very many of them, and this is intentional. I believe that we should only do a few things, but that we should do them extremely well. To that end, I offer the following agenda.
Clearly, enforcement is our number one priority. For us, investor fraud and abuse is not an abstraction, but, sadly, a daily occurrence. We see first-hand what it means for an older person to lose his life savings, for a family to lose the means with which to send their daughter to college, or a parent to lose crucial funds needed to care for a dependent child unable to care for himself. When these tragic events occur, the investing public turns to us for assistance and redress.
Our proximity to individual investors puts us in the best position of all law enforcement officials to deal aggressively with securities law violators. There are advantages to being the local cop on the beat. We should maximize these advantages.
We all know that the threat of incarceration operates as a powerful deterrent to would-be scam artists and thieves. Last year one state, Texas, obtained 116 criminal convictions. This year, I would like to see more NASAA members bring criminal cases to assure that securities law violators are not just subjected to monetary penalties as a cost of doing business, but are taken off the streets.
Increasingly, those who defraud investors will feel the sting of criminal prosecution at the state level.
I want to turn now to the topic of small investment adviser firms. Investment advisers comprise the fastest growing segment of the securities industry. As the industry moves from commission to fee-based compensation, this trend is likely to continue.
Historically, the SEC’s inspection cycle for small investment advisers was so lengthy as to be non-existent. Few states had meaningful inspection programs. Investors were vulnerable to fraud and abuse. It was against this backdrop that Congress acted.
In one of the most interesting developments I have witnessed as a securities regulator, Congress granted to the states sole jurisdiction over small investment adviser firms. This unusual jurisdictional grant has precipitated much activity on the state level.
We are changing state laws and regulations to comport with the federal law. We are seeking–and obtaining–the necessary appropriations to fund much-needed inspection programs. Where it makes sense, states currently without an investment adviser law are working to enact needed legislation.
What lies ahead?
1998 will be the year that our blueprint, the NASAA Investment Adviser Memorandum of Understanding, becomes reality. NASAA will devote enormous time and resources to create the national network of state regulation envisioned by Congress. Working in close cooperation with the SEC, we will develop an investment adviser database. We will provide first class training for state examiners and carefully coordinate our examinations. Since we believe investment adviser representatives must exhibit a minimum level of competence, we will design an entry-level competency exam for state registered investment adviser representatives.
As we fill in the details of this new regulatory regime, it is crucial that we make the system as uniform as possible. I know for a fact that state regulators are sincerely committed to achieving uniform investment adviser regulation. Our commitment, combined with a degree of patience on the part of affected firms, investment adviser representatives, and their counsel, is the best way to achieve the result we all desire.
Another “core function” of state securities regulation is dealer and agent licensing. Recently, the SEC completed a Congressionally mandated study on the uniformity of state licensing regulations. While we all need to review the report in-depth, I have some initial observations.In the report, the SEC said that for local regulation to be effective, states should have the power to license associated persons transacting business in their jurisdictions. However, the SEC also set forth several areas in need of improvement and specifically referenced the limitations of the Central Registration Depository (CRD) system. Indeed, it appears that almost every matter cited in the report as demonstrating a lack of uniformity could be addressed through changes to the CRD.
The absence of a state-of-the-art regulatory tool is a problem for the regulators of an industry that prides itself on state-of-the-art-technology. We must get this remedied as soon as possible. NASAA members are committed to working with the National Association of Securities Dealers Regulation (NASDR) to deliver a modernized CRD that will better serve the needs of the industry, regulators and, of course, investors. This will be a major priority for the year ahead.
If I were to list the things for which I am most grateful as a securities regulator, I would certainly include the terrific cooperative working relationship I have enjoyed with Hal Degenhardt of the SEC’s Ft. Worth office, and Tom McNatt of the NASD’s Dallas office. This year I intend to work closely with SEC Chairman Arthur Levitt and NASDR President Mary Shapiro, not just on the tough issues of the day, but also on ways to better assure long-term cooperative relationships between our respective organizations.
When considering state, federal, and industry cooperation, I think the best example is the Industry Regulatory Council on Continuing Education. All of us recognize the importance of continuing education and the defense it helps to provide against sales abuses. The Council is comprised of representatives of the securities industry, selfregulatory organizations, the SEC, and NASAA. Their joint efforts have resulted in a national program that is accepted by all regulatory agencies. Since 1995, nearly 200,000 people have completed the continuing education work sessions.
It is this type of cooperative effort that all of us should encourage and support. Let’s take this fine example and use it as a model for future projects of common interest. For sometime now, NASAA has been actively involved in the debate over financial services modernization. State securities regulators welcome banks and insurance companies into the securities business, however, we think that investors should receive the same level of protection regardless of where they purchase their securities. To that end, NASAA will continue to provide a strong voice for functional regulation. This is the best way to assure that the expert regulator in each area of financial services is overseeing those activities, consistently and fairly, and, from the perspective of the regulated, to assure a level playing field.
As some of you know, I got my start in securities registration. I have been very proud of NASAA’s efforts to date to improve various aspects of state registration of securities. Small Corporate Offering Registration (SCOR), Regional Review, and Coordinated Equity Review (CER) are quite innovative. The fact that they further uniformity is an added benefit.
Although greater uniformity is desirable, I believe that complete uniformity in this context is neither practical nor wise.
The combination of registration requirements and exemptions that works best in a large state with a large capital market and predominately urban population might not work well at all in a state with vastly dissimilar characteristics. A populace that is familiar with certain types of regionally produced products may need less regulatory protections as to investments relating to those products.
In the area of small business capital formation, states should function as laboratories. It would be a shame to stifle innovation in the corporate finance area by dictating standards that are too rigid. Moreover, many state initiatives created for the benefit of small, local businesses have ultimately been adopted in other states, thereby benefitting even more businesses. The new NASAA exemption for sales to individual accredited investors, rules designed to facilitate computerized “matching services” of issuers and investors, as well as initiatives to increase venture capital investment all fall into this category. NASAA certainly will continue to experiment with new protocols to improve the capital formation process, especially as it relates to small business. However, we all should recognize that local regulation of offerings will always be somewhat non-uniform. And I believe that is not a bad thing if, in return, we continue to help foster innovative capital
formation techniques that adequately protect investors.
Now, I would like to talk about a priority for this year that is particularly exciting. As you know, for the last few years, NASAA presidents have had to spend much of their time defending the important role of state securities regulation. Fortunately, it looks as though I will be able to pursue a more constructive, forward-looking agenda. For as long as I can remember, NASAA has been successful at issuing warnings to enable investors to better protect themselves. I believe that NASAA is now ready to confront the most serious crisis facing the investment markets in America — financial illiteracy. What we should be most concerned about today is that the people who are now entering the marketplace, the ones who will have to make increasingly more complicated decisions with each passing year, are, for all practical purposes, financially illiterate. That may sound a little harsh, but it’s true. A recent survey by the non-profit Investor Protection Trust (IPT) showed that four out of five of today’s investors do not understand even the most basic concepts of investing. This certainly bodes ill for the next generation!
This is a problem that I want NASAA to address. This is where I want us to show real leadership in making sure that state securities regulators make a concrete difference. Now, I won’t go into all of the details today, although I do want to give you a “sneak preview” of what is to come later this week in Washington, D.C., where we will unveil the most extensive and well-thought-out investor education campaign ever mounted in secondary classrooms. I will announce that my first act as NASAA President will be to spearhead a massive investor education project modeled on one that was pioneered by the Texas State Securities Board. This is an investor education effort that will reach classrooms all across North America. And all of this is going to be available to the members of NASAA on a fully customized basis for each jurisdiction.
I want you to know why I am so excited about this particular goal. Reason No. 1: We — and by that I mean, all of North America — needs it. Reason No. 2: It works. And I say that because I’ve seen it work.
Recently, I went to, and spoke at, a teachers’ meeting where more than 250 high school instructors found out that the Texas Teaching Guide was available to them, free of charge. I helped to answer their questions and even suggested ways of presenting certain information to students.
Many of these teachers had been searching for years for a classroom guide designed to fill the “gap” of investor education. And I have to tell you something: this was exciting! This was a chance for me to make a real difference in the lives of thousands of Texas school children. Now, I want NASAA to seize this opportunity to have a major impact on the investment success of the next generation of investors.
We all know that state securities regulation, by necessity, will always be in large part about putting crooks in jail as well as processing licenses and registrations. But nobody says that we can’t do other things that need to be done to assist the people that we are responsible for protecting. As we approach the 21st Century, we should define our investor protection mission so that it encompasses investor education that works!
To sum up, here — in plain English — are my goals for NASAA this year:
1. Institute more criminal proceedings.
2. Implement the Investment Adviser MOU in a uniform manner.
3. Modernize the CRD.
4. Improve the securities registration process.
5. Educate high school students about personal finance.
By focusing on these goals, I am confident that we will achieve maximum results in our investor protection efforts.
Now, with your indulgence, I would like to thank several people who have had a major influence upon my career as a securities regulator.
First, I would like to thank Richard Latham, former Texas Securities Commissioner, a man who, a number of years ago, decided to name me his General Counsel. He set an excellent example of integrity and leadership that I have tried very hard to emulate. I also want to thank the current and most recent past members of the Texas State Securities Board who encouraged me to not just be active in NASAA, but to assume the responsibilities of serving as NASAA President. I want to thank the staff of the Agency whose unqualified support makes it possible for me to serve in this capacity this year. And most of all, I want to thank my husband, Rod Crawford, for his love, support, and
It is pretty amazing to think that eighty-one individuals have served as NASAA President before me. All of us in NASAA owe those men and women our gratitude for their willingness to volunteer to head the Association and assure that it continues to serve the public trust. I especially want to thank Mark Griffin for handing over a healthy organization, and I hope to do the same for Peter Hildreth a year from now.
In closing, I especially want to thank the members of NASAA for giving me this singular honor. I look forward to working together with you, my esteemed colleagues, to implement these goals. And I commit that I will do my very best to live up to the trust you have placed in me.
November 18, 1997