September 26, 2017
NASAA Annual Conference
Thank you Mike for your generous introduction and for all you’ve accomplished this past year to advance our association.
Good afternoon everyone.
I am humbled to stand before you today as president of the North American Securities Administrators Association.
I want to thank our host and conference chair, Washington Securities Director Bill Beatty, for welcoming us to Seattle, where we’ve heard outstanding speakers and panels discuss how each of us – regulators and industry professionals alike – are adapting to the ever evolving role of technology in our world.
My thanks to our moderators: Frank Borger-Gilligan of Tennessee, Leslie Van Buskirk of Wisconsin, and Greg Strong of Delaware, for bringing these discussions to life.
Special thanks also to NASAA Executive Director Joey Brady and everyone in NASAA’s home office for all of their work behind the scenes to make this conference a success. As we all know, none of this happens without Joey and his extraordinary NASAA Corporate Office team.
Throughout this year’s conference, you’ve had an opportunity to learn more about all that NASAA has accomplished since we met in Providence last September. This work reflects the vision and leadership of my colleague, Mike Rothman, his leadership team and the tremendous army of volunteers in NASAA member agencies throughout North America.
These unsung heroes often go unrecognized despite their countless hours serving on NASAA committees, project groups and task forces.
I’d like to publicly acknowledge one such person, Anna Dennis, the Securities Division Compliance Branch Manager for the Kentucky Department of Financial Institutions.
Earlier today, Kentucky Director of Securities Shonita Bossier accepted on behalf of Anna NASAA’s Outstanding Service Award for her many years of dedicated service on NASAA’s Broker Dealer Investment Product and Services Project Group, culminating in the release of NASAA’s Model Fee Schedule.
Anna was nominated by not one, but two, administrators for her perseverance and hard work which combined to help investors to better find, compare and understand the fees that they are charged.
This is what NASAA is all about. Our strength derives from a network of volunteers – public servants who have the best interests of investors at heart. People like Anna can be found at work from Columbus to Saint John, from Calgary to Austin and every point in between. Shonita, please extend our gratitude to Anna when you return to Frankfort.
I want to offer my personal thanks to my staff back home in Montgomery. With me today from my office is (1) Ed Reed, my Deputy Director going on his 24th year at the Alabama Securities Commission; (2) Amanda Senn, our General counsel; and (3) Ricky Locklar, chief of our Enforcement Division who has been with me over 17 years. Without your dedication and hard work, I could not devote the time and energy necessary to fulfil my responsibilities as NASAA’s president.
Also, I want to introduce my wife Renee, who, despite all the time away from home on NASAA business, always encourages me to do what we here to best and I’m not in this alone. I am honored to be joined by a team of outstanding securities administrators working together to serve and protect investors in the year ahead.
Now, it is my honor to introduce the new NASAA Board of Directors:
- President-elect Mike Pieciak of Vermont,
- Past President Mike Rothman of Minnesota
- Treasurer Tom Cotter of Alberta,
- Secretary Shonita Bossier of Kentucky,
- Pam Epting of Florida,
- Bryan Lantagne of Massachusetts,
- Melanie Lubin of Maryland, and
- Tanya Solov of Illinois.
I look forward to working with each of you. Please join me in a round of applause for the NASAA Board of Directors.
I am also pleased to announce the Section Chairs for the upcoming year, subject to Board approval tomorrow:
- Bill Beatty of Washington will continue as chair of the Corporation Finance Section,
- Frank Borger-Gilligan of Tennessee will serve as the new chair of the Broker-Dealer Section,
- Andrea Seidt of Ohio will continue as chair of the Investment Adviser Section,
- Karen Tyler of North Dakota will continue as chair of the Investor Education Section, and
- Keith Woodwell of Utah will continue as chair of the Enforcement Section.
You see a lot of continuity and experience in our leadership team. The same can be said for NASAA’s home office. We are fortunate to such a strong team in place under NASAA Executive Director Joey Brady. I’d like to recognize Joey and his team: General Counsel Valerie Mirko, Policy Director Mike Canning, Finance and Operations Director Marina Alonso-Mendoza, Communications Director Bob Webster and the team’s newest member, Educational Programs and Conferences Director James Apistolas. And of course, our special thanks to Lonnie Martin for all he has done for more than 20 years to make our conferences and trainings run smoothly.
Both throughout the membership and within the home office, NASAA is focused on building on the progress we’ve made, adapting to meet new challenges and strengthening the collaborations and partnerships made in recent years to provide a stronger safety net for investors of all ages and to continue promoting efficient regulatory frameworks for effective capital formation.
As Mike said in his introduction, this is my third opportunity to lead NASAA. They say the third time’s the charm, so this is my chance to finally get it right!
In drama, the third act is when everything comes together. The audience learns the fate of the characters and the big questions are answered. To begin my third act, I’d like to return to my first act when we gathered in San Francisco in 2001.
I want to share something I had planned to say during my first speech as NASAA president, which unfortunately was scheduled for September 11, 2001, a day forever etched in our memories. Our conference was cut short as we turned to more important matters: country, family and colleagues in need. Looking back, my notes for that speech included this thought: “As regulators, our jobs have never been more important, or more demanding. And given our limited resources, we simply have to do a better job of coordinating, of sharing and of supporting one another. Our cooperation with the industry has never been greater, and we are continuing to listen to each other.”
That’s as true today as it was 16 years ago.
It’s important to remember that our work is not done alone, and it is not done in a vacuum. NASAA’s very existence is a testament to the importance of collaboration between regulators from jurisdictions in the United States, Canada and Mexico. But as any local cop will tell you, the single most important relationship you can build is one with the community, the community you are responsible to serve and protect.
As the cops on the security beat, some of our most important resources aren’t only fellow regulators but the many upstanding actors in the industry we regulate. We appreciate that the vast majority of financial professionals are doing the right thing for the right reason and we encourage you to work with us to identify those who are not.
This mutual trust is one of our strongest assets in the fight against fraud. Working hard, playing by the rules and staying vigilant in identifying problems proactively is what we do best, together. That means our discussions must not be confined to regulatory check-ins or a checklist of problems, but rather a collaborative and ongoing dialogue that offers and shapes new solutions.
We may not agree on every issue and there are unresolved matters on our table that we need to address, including unpaid arbitration awards. But we have shown that our solid working relationships throughout the industry enable us to work together to do what’s right for investors.
Our work together to confront the exploitation of seniors and vulnerable investors is a case in point.
Through NASAA’s Senior and Diminished Capacity Committee, chaired by Past-President Judith Shaw of Maine, we have worked closely with a diverse group from industry, academia, adult protective services, law enforcement, and senior advocacy organizations to help bring senior financial exploitation out of the shadows.
We also are encouraged by the industry’s response to the NASAA Model Fee Disclosure Schedule that I mentioned earlier. This effort, under the leadership of Bryan Lantagne of Massachusetts, would not have been possible without the spirit of collaboration that propelled a working group that included FINRA, securities firms and their associations: the Financial Services Institute and the Securities Industry Financial Markets Association.
We look forward to working with FSI and SIFMA in the coming year to encourage the use of the NASAA model fee schedule by even more of their members and to look for other collaborative projects with the securities industry to benefit investors.
As we’ve heard over the past few days, the industry is in the midst of a rush of technological change and disruption. We’ve gained insight into how technology is changing the way companies raise capital, how investors plan and save for their future and even how as regulators we carry out our responsibilities.
Just think, 10 years ago, very few of us had an iPhone or any other kind of smartphone.
Today, it seems that nearly everyone carries a phone in their pockets or purses with more computing power than what launched man to the moon.
At our NASAA, technology is playing a greater role in improving efficiencies for industry and regulators. For example, since its beginning a little less than three years ago, NASAA’s Electronic Filing Depository has been used to facilitate more than 112,00 notice filings, including initial filings, amendments, terminations and renewals, with state securities regulators. Not only is EFD proving efficient for issuers, but since its launch EFD has saved about 900 reams for paper – so it’s also good for the environment. NASAA is exploring ways to bring the uniformity and ease of use of EFD to other filings as well.
Instead of a revolution in technology, it is more of an evolution. Almost a century after NASAA was founded, the driving goal of our work hasn’t changed much—but the tools of our industry have changed dramatically. With today’s technological advances, financial transactions that were once unthinkably large now happen at a pace that was once unthinkably fast.
It is incumbent upon us, as regulators, to do more than keep pace with technological advances. We must anticipate and be prepared to face the challenges these advances bring.
For example, cyber criminals targeting North American financial institutions threaten the structure and stability of the entire sector. NASAA members are working together and with other financial regulators to identify specific threats and develop strategies to protect our financial infrastructure. In particular, NASAA will continue its participation as a member of the Treasury Department’s Financial and Banking Information Infrastructure Committee, or FBIIC. I also look forward to working with our colleagues at the National Association of Insurance Commissioners, the Conference of State Bank Supervisors, the SEC and FINRA on a collaborative approach to cybersecurity issues.
Knowing that cybersecurity is a growing challenge for regulators and industry alike, NASAA convened its first Cybersecurity Roundtable earlier this year. During the roundtable we learned from the perspectives of law enforcement, industry, and fellow regulators about the nature of the cyber threats facing the financial services industry and the regulatory efforts underway to address those threats. This collaborative approach will help in our consideration of a possible model cybersecurity rule for investment advisers during the coming year.
As important as cybersecurity is, we realize that we must expand our scope to address a range of issues related to financial technology, or “fintech.” I am very pleased to announce that NASAA President-elect Mike Pieciak of Vermont will head a new board-level NASAA committee focused on fintech.
Under Mike’s direction, this leadership team will keep a finger on the pulse of current and emerging issues in financial technology, including robo-advisers, crowdfunding or alternative investment platforms, and digital technologies and cryptocurrency used in securities transactions. The committee will provide guidance and make recommendations to NASAA and its Board to address the regulatory and enforcement aspects of fintech and to provide resources for regulators and industry members to address fintech issues. I’ve also asked the committee to convene a Fintech Roundtable next year, similar to our successful Cybersecurity Roundtable. So, stay tuned for details.
In many ways cybersecurity and fintech are the “Wild West” of today. Like the Wild West, there is a rush of individuals looking for their fortunes as new financial products, companies and even currencies continue to launch and evolve with the latest technology.
Like the Wild West, vigilant law enforcement is constantly being challenged by new threats—from sophisticated ransomware attacks and hacks of large investment firms, to simple email scams targeting unsuspecting individuals. And, as in those days gone by, many of the rules and boundaries are still being drawn and defined—but regulators already have an important role to play in protecting citizens.
Of course, there are some differences as well. As pointed out by The Wall Street Journal, unlike the Wild West, I ride a motorcycle not a horse.
As you’ve seen here in Seattle, the heartland of technology, innovation isn’t going to slow anytime soon, and we must not either.
We must continue taking steps to educate investors about protecting themselves against cyberattacks. We must continue helping firms guard against attacks including efforts to hobble operations or steal critical client information. And we must continue working to pull cyber criminals from behind their keyboards and place them in front of the law.
As the local cops on the securities beat, enforcement against fraud has always been the heart of our work – our bread and butter. Our history is best told through the stories of the victims we have helped, the crimes we have stopped and the criminals we have punished.
It’s not easy, but it’s certainly possible, to go back and calculate the impact of our work. We can count the number of enforcement actions we have taken, the number of dollars we have returned to victims, the number of families and seniors whose life savings we have protected; and the number of scammers we have put behind bars.
And we do count all of this. I’ll say more about that in a minute—but I’m sure you already know the numbers are quite significant. However there’s also a larger, more incalculable value we provide through enforcement.
We provide victims the opportunity for justice and for closure, both as they seek to recover financially and as they seek justice against those who have taken advantage of them. We provide the sense of security to the industry and our communities that law and order will prevail—that bad brokers won’t ruin the reputation of the industry or plunder individuals who would otherwise trust their investments to a law-abiding institution. We provide a stark warning to would-be-fraudsters that crime does not pay.
In the past five years alone, NASAA member agencies were responsible for sending criminals away for almost 6,500 years behind bars and having $2.4 billion ordered returned to investors.
While it’s easy to be impressed by the sheer numbers that reflect our enforcement success, it’s hard not to be moved by the stories of the individuals we fight for—seniors retiring after a lifetime of hard work, new parents looking to save up for their first mortgage, college graduates looking to start and plan their financial future.
When we talk about enforcement, we are talking about protecting the hopes, dreams and futures of our citizens.
Let me tell you about two Alabama men, who both served their country with distinction only to be swindled by a financial criminal.
An investigation by my staff at the Alabama Securities Commission found that an 86-year-old retired U.S. Air Force pilot and a 91-year-old retired World War II U.S. Navy veteran lost several hundred thousand dollars in a bogus investment opportunity offered by a former North Alabama attorney.
Our investigation revealed that both veterans were offered promissory notes in exchange for their money, which was to be invested in real estate and medical technology. The veterans were promised returns from 8-to-12 percent on their investments. In reality, our investigators concluded that the culprit used the majority of investor funds to pay previous investors in a Ponzi-type scheme and for his personal benefit.
I am very pleased to say that upon investigation by our Enforcement Division and subsequent prosecution by the our Legal Division, the defendant pled guilty to three counts of securities fraud, was sentenced to 20 years imprisonment, and ordered to pay more than $4 million in restitution to multiple victims, including the two senior military veterans.
Yes, I am proud of the strong record of investor protection built by the Alabama Securities Commission and its dedicated staff. And I am comforted in knowing that we are not alone.
The securities agencies that make up NASAA’s membership throughout the United States, Canada, and Mexico have a strong history of investor protection; and as I said at the outset, I am humbled to lead NASAA in the year ahead to continue advancing this proud legacy.