The North American Securities Administrators Association (NASAA), the group that represents state, provincial and territorial securities regulators, has published their annual enforcement report for 2017. Each year, NASAA correlates a summary of all the legal actions, including penalties and criminal prosecution from the US, Canada and Mexico.
In the US, there are both Federal and State securities regulators with each maintaining investigation and enforcement powers pertaining to the issuance and sale of securities.
This years report shares the following data points:
- 7,988 complaints received
- 4,790 investigations initiated
- The majority of actions are administrative (1,682) with 255 being criminal investigations
- $79 million in fines assessed
- $486 million returned to investors
- 1551 aggregate years of incarceration
- Unregistered securities is the largest sector of enforcement
- NASAA U.S. members reported actions in 2017 against 675 unregistered individuals and firms (an increase of 24% over the prior year) and 647 registered individuals and firms (a 9% increase)
While the game of fraud, scams, and Ponzi schemes remains the same, the methods are constantly updated for the times. In May of 2018, NASAA members launched “Operation Cryptosweep” – a coordinated effort targeting initial coin offerings (ICOs) which are fraudulent or simply unregistered securities.
NASAA states:
“U.S. state securities regulators joined with Canadian securities regulators to launch a coordinated international sweep of promoters and issuers of illegal and fraudulent cryptocurrency offerings. NASAA organized the participation of more than 40 agencies in “Operation Cryptosweep,” an initiative that included more than 200 inquiries and investigations of suspicious cryptocurrency offerings. NASAA members quickly uncovered extensive fraud in this new market.”
As of the date of the report, 50 enforcement actions had been taken against a diverse group of cryptocurrency operations.
NASAA says that bad actors will capitalize on new markets and “trendy” financial products. While stating that some legitimate businesses were trying to “properly raise capital” by selling securities tied to crypto and related blockchain technologies, state authorities “quickly learned the market was saturated with fraud.”
Expect many more state based enforcement actions targeting crypto in the near future.