Borg: “Real people will suffer as a result of this misguided and irresponsible legislation.”
WASHINGTON, D.C. (June 13, 2018) – The North American Securities Administrators Association (NASAA) today urged Congress to reject legislation that would tie the hands of states in policing fraud by publicly traded companies.
“H.R. 5037 is a misguided and dangerous bill,” testified Joseph P. Borg, NASAA President and Alabama Securities Commission Director in reference to “The Securities Fraud Act of 2018.” The bill and other measures was the subject of a hearing examining securities law enforcement conducted by the House Subcommittee on Capital Markets, Securities, and Investment.
“In more than 24 years as a securities regulator, I don’t believe that I’ve ever seen a legislative proposal that so alarms and offends me,” Borg testified. “Should Congress pass this bill, my office’s efforts, as well as those of my colleagues, to protect investors from serious violations of the securities laws would be eviscerated. Real investors and real people will suffer as a result of this misguided and irresponsible legislation.”
H.R. 5037 would undercut the long-standing authority of state securities regulators by preempting their civil antifraud authority for certain violations of state securities law, as well as hampering or preventing state prosecutions of criminal securities fraud. Borg said H.R. 5037 specifically would force state regulators, state courts and state prosecutors to comply with federal legal requirements applicable to securities fraud cases. This requirement, he said, “would have a chilling effect” on the ability of states to bring criminal securities fraud prosecutions if not halt all such actions altogether. “I imagine that the fraudsters, including the ones my office has prosecuted, would be pleased with such a result,” Borg testified.
Borg also noted that the legislation poses a “direct threat to state pension funds” by depriving defrauded investors of a choice in forum in seeking recourse for their claims. For example, the legislation would prevent all private litigants from seeking relief in state courts for securities fraud claims involving covered securities, requiring them to litigate in federal courts.
“Enacting policies that would make it more difficult, and in some cases impossible, for state regulators – the regulators closest to Main Street investors – to hold accountable the most powerful companies on Wall Street serves no valid interest,” Borg testified. “While state regulators are judicious in exercising their enforcement authority against publicly traded companies, states’ authority to pursue enforcement activity against issuers of securities, and to do so independently when appropriate, is a major deterrent to fraud and one of many reasons investors have confidence in America’s capital markets.”
Borg also noted that H.R. 5037 would shift policies in a direction “diametrically opposed” to those encouraged by the current Administration, which favors states’ rights, and encourages the exercise of state authority with regard to enforcement activity.
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Bob Webster, Director of Communications
– NASAA –