A look into the future: NASAA’s enforcement actions

With technological advancements come new threats to financial firms and investors. Although many investors use technology and innovation, such as cryptocurrencies and the metaverse, to benefit their clients, there are bad actors who do not. In fact, bad actors are able to use these new technologies to more effectively conceal their identities, launder money, market and sell illegal goods and impersonate trustworthy parties.

In a recent, annual enforcement actions report, the North American Securities Administrators Associations (NASAA) offers an overview of recent securities enforcement efforts in the United States. The report summarizes these efforts using information compiled from the NASAA’s most recent annual survey of U.S. members, or state securities regulators. In the report, the NASAA identifies threats against investors, including technological advancements such as cryptocurrency and the metaverse. In the report, the regulator says, “State securities regulators have been, are and will continue to work to protect investors from threats derived from the past, the present and the future. Simply put, our mission is an important today as it was more than a century ago and will be a century from now.”

Enforcement actions for bad actions who leverage cryptocurrencies

State regulators quickly recognized that white collar criminals and other bad actors could leverage cryptocurrencies to perpetuate high-tech fraudulent schemes. Based on inquiries, complaints and investigations from state and territorial securities, state regulators identified scams tied to cryptocurrencies and digital assets as the top threat to investors in 2022. The enforcement actions the NASAA has implemented include:

  • Filing charges against firms engaging in fraudulent schemes using cryptocurrency and caused the scheme to collapse within days. The charges led to indictments.
  • Requiring firms to comply with applicable securities laws while ensuring the protection of investors.
  • Issuing fines of $50 million.
  • Opening 215 investigations of parties suspected of illegally or fraudulently offering securities relating to digital assets, an increase of about 70% from the previous reporting year.
  • Filing 89 enforcement actions against firms accused of misconduct involving products incorporating digital assets, an increase of 43% over the past year and 100% over the past two years.

As the market for investments incorporating cryptocurrencies continues to evolve, state securities regulators continue working to promote confidence in this new market while ensuring legitimate firms embracing blockchain technology can lawfully raise capital from the public.

Enforcement actions for bad actions who leverage metaverses

State securities regulators are uniquely positioned to identify changes in the market that impact retail investors. With that said, many recognize that metaverses are becoming increasingly popular to leverage for investments. Although there are investors who are using these options to benefit their clients, there are some who are using them to do harm.

Over the past five years, state regulators have filed 2,391 records with the Securities and Exchange Commission (SEC) that refer to the metaverse. More than 2,100 of these records were filed in 2022. That means that nearly all the securities filings referring to the metaverse were submitted within the nine months before this report was published. Enforcement actions include:

  • Filing charges.
  • Requiring firms to comply with applicable securities laws while ensuring the protection of investors.
  • Filing securities actions to stop fraudulent metaverse securities.
  • Forcing firms to shut down operations.

In April 2022, state regulators coordinated and filed the first securities actions to stop a fraudulent metaverse securities offering. This situation is still unfolding, but so far these regulators have effectively shut down the accused organization.

What does this mean for your compliance program in 2022

With hefty ramifications for failing to adhere to the NASAA’s regulations, firms must ensure that they remain compliant or risk the financial and reputational consequences. In other words, now is the time to take the steps necessary to protect your firm.

How?

  1. Familiarize yourself with the NASAA’s commitments and expectations.
  2. Determine the role of technology and automation in your firm’s compliance program.
  3. Solidify your firm’s tactical compliance strategies.

Many firms face the need to change their product line-up, service offerings, geographies served or all of the above in order to stay competitive in today’s fast-moving landscape. However, while innovation may be the cornerstone to on-going growth and success, ensuring your compliance program keeps up with those innovations is just as critical to navigating this changing landscape. Protecting your firm and your clients from bad actors taking advantage of new risk points.

With a holistic view of your firm and its compliance program, you can better track whether your firm is adhering to the NASAA’s regulations and ongoing priorities, catch any red flags ahead of time and avoid being the subject of the NASAA’s enforcement actions in 2022.

Ready to learn more about how the ComplySci Platform can help you remain in compliance today and tomorrow? Schedule a demo today!