Articles Tagged with NASAA

In an effort to inform investors about common fraudulent activities involving individual retirement accounts (“IRAs”), the North American Securities Administrators Association (“NASAA”) has issued an Advisory on third-party custodians of self-directed IRAs and other qualified plans. The advisory was issued to describe the roles and responsibilities a third-party custodian of a self-directed IRA has and to hopefully dispel some of the common misconceptions investors have about third-party custodians. In particular, NASAA warns investors that IRA custodians’ duties are limited to report information to the IRS, and such custodians do not provide any assurance that the IRA owner’s investments are protected against loss.

When creating an IRA, an investor must find an IRS-approved custodian for the account. Custodians are typically banks or brokerage firms. Once the account is opened, investors can deposit funds into the account and invest in opportunities available through the custodian. With a self-directed IRA, the investor has full control over what the funds in the account are invested in, unlike mutual funds or other types of savings accounts.
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The Broker-Dealer section of the North American Securities Administrators Association (“NASAA”) recently sent out a notice of request for comment on a proposed uniform state model rule (“Model Rule”) that would exempt merger and acquisition brokers (“M&A Brokers”) from state securities registration if certain requirements were met. While NASAA’s proposed Model Rule is similar to the recent SEC No-Action letter concerning M&A Brokers and the exemption for M&A Brokers provided by HR 37, there are some notable differences. Comments on the Model Rule must be submitted to NASAA by February 16, 2015.

First, this post will lay out the three current proposals by SEC staff, Congress, and NASAA to create an M&A Broker registration exemption. Second, a comparison between all three will be made in order to highlight how each body plans to regulate and define the scope of the exemption for M&A Brokers. Each comparison will be broken up into key aspects of each proposal’s efforts to create an exemption for M&A Brokers. Third, this post will emphasize the need to create an exemption, along with M&A Brokers, that will encompass other important unregistered actors: Private Placement Brokers.
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On December 15, 2014, the North American Securities Administrators Association (“NASAA”) launched an online electronic filing system to be used for issuers filling Form D, Rule 506 offerings with state securities regulators. The purposes of this new electronic filing depository (“EFD”) website, according to NASAA president William Beatty, are to provide an efficient and streamlined process for regulatory filings and to allow for increased transparency for investors.

Issuers seeking an exemption under Rule 506 must meet certain requirements in order to avoid having to register their public or private offerings with the SEC or state regulators. However, those issuers must still file a notice of exempt offering of securities, or “Form D,” with the SEC and state securities regulators. Instead of the longer and more tedious process of registering with securities regulators, Form D requires only limited information about the issuer, the investors, and the securities offered.
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As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Government Accountability Office (GAO), a non-partisan investigative agency of Congress, conducted a study which criticized the Securities and Exchange Commission’s (SEC) oversight of the Financial Industry Regulatory Authority (FINRA). The purpose of the study was to determine how the SEC has conducted its oversight of FINRA, including the effectiveness of FINRA rules, and how the SEC plans to enhance its oversight.

The GAO found that both the SEC and FINRA do not conduct retrospective reviews of the impact of FINRA’s rules. As a result, the GAO believes that “FINRA may be missing an opportunity to systematically assess whether its rules are achieving their intended purpose and take appropriate action, such as maintaining rules that are effective and modifying or repealing rules that are ineffective or burdensome.” The GAO also noted that the SEC does not conduct sufficient oversight over FINRA’s governance and executive compensation. The SEC has responded to the survey by saying that it is focused primarily on oversight of FINRA’s regulatory departments, which the SEC claims has the biggest impact on investors.
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Commissioner Luis A. Aguilar of the Securities and Exchange Commission (SEC) spoke at the recent NASAA/SEC Rule 19(d) Conference in Washington D.C. He addressed the importance of cooperation and collaboration between federal and state securities regulatory agencies in order to improve investor protection. Commissioner Aguilar also expressed a desire to have a continuing collaborative relationship between the SEC and the North American Securities Administrators Association (NASAA). “I continue to be interested in exploring more opportunities and avenues for the SEC and NASAA to partner and leverage our collective resources to protect investors,” Commissioner Aguilar said, “At a time when regulators are under greater constraints than ever, it makes sense for us to come closer together to further our common goals.”

Commissioner Aguilar discussed four areas in which the SEC and NASAA have worked together to improve investor protection. These areas include the transition of advisers to state regulation, crowdfunding, financial exploitation of the elderly and the creation of the Investor Advisory Committee.
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An independent insurance agent, Glenn Neasham, was convicted on a felony-theft charge in March for selling a complex indexed annuity to an 83-year old client in a California court. He was sentenced to spend ninety days in jail. Prosecutors claimed that Mr. Neasham’s client had exhibited signs of dementia and was not capable of consenting to the transaction.

This case has stirred fear among insurance and securities agents. The state’s then-insurance commissioner stated in 2010, after Mr. Neasham’s arrest, that agents “who steal from vulnerable seniors will not get away with their shameful tricks.” Agents are attracted to indexed annuities because they receive high commissions, which can be 12% or more of the invested amount. As a result of this case and heightened regulatory scrutiny, agents will have to think twice before selling indexed annuities to the elderly. The $14,000, or 8%, commission that Mr. Neasham received was a factor used against him to prove his criminal intent.
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The North American Securities Administrators Association (NASAA) will be holding its annual public policy conference on May 7, 2012 in Washington DC. According to NASAA, “This year’s conference is designed to bring together securities regulators, securities law professionals, financial industry representatives, consumer advocates and legislative and regulatory policymakers for an in-depth look at key financial services policy issues.”

Registration will begin at 10 a.m., followed by a luncheon with a keynote address at 11:30 a.m. The featured speaker this year is U.S. Congresswoman Maxine Waters (D-CA).
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Two states have created a time-table to help mid-sized firms make the switch from Securities and Exchange Commission (SEC) supervision to state regulated supervision. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act, those investment advisers with $100 million or less but more than $25 million in assets under management will be required to register with the state or states in which they do business instead of the SEC. We have already discussed the switch in Mid-Sized Advisers Should Have Already Commenced Transition. Both Iowa and Missouri are helping mid-sized firms in their state by creating time-tables and providing guidance for the transition.
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The Georgia Commissioner of Securities has proposed twelve amendments to investment adviser and broker-dealer rules it promulgated late last year under the Georgia Uniform Securities Act. Although some of the amendments deal with housekeeping issues and typographical errors, several are substantive and of interest to industry participants and their counsel.

A proposed change to Rule 590-4-2-.03 would clarify that Rule 505 Form D filings under the Uniform Limited Offering Exemption must be made within 15 days after the first sale of securities in the state, rather than 15 days prior to the sale, as required by the rule as originally adopted.

The second proposed amendment applies to registration of securities by non-profit entities under Rule 590-4-2-.07, often used for so-called “church bonds.” Under the rule as originally adopted, the application of NASAA Statements of Policy relating to church bonds was permissive rather than mandatory: “The Statements of Policy … may be applied, as applicable, to the proposed offer or sale of a security …” and “may serve as the grounds for the disallowance of the exemption” provided by the Act. Under the amendment, the use of the NASAA Policies is now mandatory, the “may” having been replaced by “shall” in both cases.
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As we first reported on this blog site in September, the North American Securities Administrators Association (NASAA) held a forum, through its Investment Adviser subcommittee, to discuss transition issues for Mid-Sized Advisers under the Dodd-Frank Wall Street Reform Act. As we approach the annual December moratorium on new registrations and renewals, it seems appropriate to review and comment on some of NASAA’s suggestions.

The first step that any Mid-Sized Adviser should take should be to contact his or her state regulatory agency to determine whether it has adopted special rules, forms, or timetables for use. However, the NASAA committee generally provided the following procedure that its state members intended to follow:
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