SECURITIES REGULATORS DISCUSS ENFORCEMENT STATS AND TRENDS

State securities regulators' enforcement efforts were robust in 2010, according to a panel of regulators at NASAA's annual conference last week. Cosgrove Law, LLC provides both civil and criminal representation in the securities and white-collar arena, so it was interested to learn that there was a substantial increase in criminal prosecutions filed by securities regulators in 2010. For “non-fraud” cases, the regulators scored themselves a 32% increase in “failure to supervise” actions, but filed fewer “suitability” actions.

Other interesting statistics: almost half of the state regulators' enforcement actions were brought against non-registered persons in 2010. As for registered individuals, 12% of those actions were brought against investment adviser representatives (IAR's) and 23% were filed against broker-dealer agents. 5% were brought against registered solicitors, and the balance fell upon insurance industry members. The regulators continued to express ire over insurance industry members dually licensed as investment advisers with what they perceive to be an excess concentration or focus upon annuity sales.

Notably, today's Wall Street Journal has an interesting Adviser Alert that shares an important observation: investment advisers are “among regulators' best tipsters.” In our experience, reputable advisers are also likely to recommend legal counsel to new clients whom they observe to have been victimized by their prior broker or adviser or insurance agent. Food for thought.

MORE FALLOUT FROM CDO'S AND CMO'S

APS Financial Corporation (“APS”) recently entered in to a Letter of Acceptance, Waiver and Consent (“AWC”) with the Financial Industry Regulatory Authority (“FINRA”). As a procedural matter, the AWC was submitted to FINRA's Department of Market Regulation for acceptance or rejection.

It should be noted from the outset that APS consented to the terms of the AWC without admitting or denying the findings contained within it, to wit: violations of NASD Rules 2110, 2440 and 3010 due to allegedly unfair pricing practices directed at certain customers purchasing corporate bonds, collateralized debt obligation.

A recent review of the Securities Litigation Commentator and a daily review of the Wall Street Journal amply illustrates the ongoing regulatory and private litigation fall-out born of the 2006 – 2008 CDO and CMO boom. Indeed, even Charles Schwab got hit by the SEC for $119 million for allegedly making misleading statements regarding the risks associated with a bond mutual fund containing mortgage-backed securities. For a more in depth and interesting narrative of the practices and characters associated with the securitization of residential mortgage debt, this author highly recommends Michael Lewis' The Big Short.