Fraud and schemes have plagued the stock market since its inception. It is too alluring for some to resist trying to get an undeserved piece of the large amounts of money moved around on the market. Cleverly disguised, fraudulent schemes must always be anticipated and monitored for accordingly. Throughout the stock market’s history numerous rules and regulations have been enacted in attempt to deter deceptive practices, but as the adage goes, where there’s a will, there’s a way.
In today’s world there are many rules and regulation in place to protect investors against fraud, but there are always loopholes and gaps that allow for some to cheat the system. There is a regulation in place, the 1996 Securities Market Improvement Act, which determines whether securities should be monitored at a state or federal level, but is this current system effective in monitoring and protecting investors against fraud?Supervision and Acts
To understand where these securities rules and regulations come into play, it is important to understand their history. A great place to begin is at the lowest point of America’s stock market history, the infamous crash.
Shortly after the stock market crash of 1929, the U.S. Congress passed two momentous proposals in effort to regulate the stock market and protect investors against fraud, The Securities Act of 1933 and the Securities Exchange Act of 1934.
A regulatory body, called the Securities and Exchange Commission or SEC, was created by section 4 of the Securities Exchange Act of 1934 as an independent agency of the United States government. The SEC was formed to regulate and enforce federally established securities laws and served to establish a government-supervised financial industry. The goal of the SEC was to restore investor confidence in the turbulent and oftentimes fraudulent post-crash marketplace.
While the SEC monitored and regulated securities on a federal level, individual states also enforced statewide securities regulation, to combat fraud at a local level. These state enforced rules and regulations are termed, Blue-sky laws. Blue-sky laws regulate the offerings and sales of securities within a certain state to protect investors against fraud. Most of these laws require securities to be registered at a state level prior to being sold within the state.Dual Regulation Woes
While registering securities at both state and federal levels served to regulate against fraud at two levels, federal securities laws and state Blue-sky laws oftentimes not only duplicated one another, but added a bit of a headache to the registration and regulation processes as well.
As a first step toward highlighting the need to do away with dual regulations, The Revised Uniform Securities Act of 1985 or RUSA was enacted. RUSA did not remove state-level security registration processes, but it served to prepare for legislative activity that would. It also included an exception on registering securities traded on NASDAQ at a state level, which most states passed in to law between 1985 and 1990.
To further deal with the confusion and other issues that dual regulation caused, in 1996, the US Congress passed the National Securities Market Improvement Act or NSMIA, which amended Section 18 of the 1933 Act. This Act applies to securities listed on the American Stock Exchange, the New York Stock Exchange, and NASDAQ.NSMIA
NSMIA was adopted as an attempt to create a federally controlled, uniform securities registration code to follow. The code eliminated the need for securities owners of nationally traded stocks and mutual funds to register at both state and federal levels, and thereby pre-empted all state Blue-sky laws. NIMSA did however, preserve states rights to maintain anti-fraud authority over all securities traded within its borders.
While the ability of states to prosecute violations of state-based securities antifraud statutes was left intact, states lost control over much of their securities regulatory authority. This loss of state control can be seen well in the investment advisor arena as NSMIA specifically removed states’ power to regulate securities controlled by investment advisers with Assets Under Management or AUM, totaling over 25 million dollars (including private placements) instead placing them under regulation of the SEC.Loopholes
Since everything was so simple as to who would govern securities and registration, things were much easier and fraud was reduced, right? Well to a certain degree it was, but there are of course loopholes to the NIMSA act, such as Regulation D Rule 506 offerings, which are exempt from registration requirements.
Regulation D allows for the sale of securities to be exempt from registration with the SEC, if one of three rules are met and as long a company files a Form D with the SEC after their securities are sold. Form D is notice that contains the names and contact information about a company’s CEO’s and stock promoters, but little else.
Regulation D companies that also use the Rule 506 exemption can raise unlimited amounts of money without ever registering with the SEC, and since NSMIA, they are not regulated by the states either, so they enjoy basically no regulatory scrutiny.
This lack of regulation has opened the door to fraud and many argue that it could be easily stopped in its early stages if states were given more regulatory powers.Should state regulatory ability be re-instated?
There have been discussions by states securities officials that there should be a legislative reform effort to revise state and federal regulatory authority. If states were permitted to exercise regulatory enforcement to address fraud in the beginning stages, then it could be stopped before investors suffer significant losses.
The North American Securities Administrators Association President, Fred Joseph has urged for the adjustment of the AUM or Assets Under Management from 25 million to 100 million arguing that even small investment advisors typically manage more that 25 million. He has also asked that Congress increase state authority to enforce regulation over large investment advisors to counter fraud.
Overall, the arguments seem to be that states should be able to have increased authority to screen for securities fraud at its earlier level when there may just be evidence of slightly deceptive practices instead of downright fraud. This early detection could save investors from the harm of unregulated securities fraud.
Archive for the ‘National Security’ Category
Stating a Case- The 1996 National Securities Market Improvement Act
Wednesday, December 15th, 2010National security involves more than securing borders
Thursday, August 26th, 2010Jerry EricksonPublished: October 14, 2009
By now you’ve heard about Hosam Maher Husein Smadi. He’s the 19-year-old who was arrested on charges of attempting to blow up a Dallas skyscraper. The plan was uncovered when the F.B.I. became suspicious of Mr. Smadi.
As the N.Y Times reported on October 12, 2009, Mr. Smadi’s plan unraveled in 2008:
“But by the spring of 2008, he caught the attention of the F.B.I. by posting incendiary remarks about wanting to kill Americans on Jihadist Web sites. Over the summer, he met with agents posing as members of Al Qaeda and planned to bomb the Fountain Place office building in downtown Dallas, according to an indictment unsealed on Thursday.
His arrest on terrorism charges came after he parked a truck that he had been told was carrying explosives in the building’s underground garage, according to court documents.”
So, good work on the part of the F.B.I. However, what is also troubling about this case is the fact that Mr. Smadi apparently entered the U.S. on a tourist visa and had overstayed. Specifically, he had come to the United States from Jordan in early 2007 on a six-month tourist visa according to immigration officials. When he entered, he would have been given a date by which he was required to leave the U.S. The fact is that he failed to leave as required. Despite the fact that he overstayed, and that his visa had expired, this didn’t set off any type of process or alarm with immigration officials. Unfortunately, the simple fact is that despite the fact that we are more than 8 years post 9/11, the U.S. still doesn’t have a system to verify that foreigner travelers have left the U.S. as and when required.
As you can imagine, as the facts surrounding Mr. Smadi’s case have been revealed, there is now a rising chorus in Congress for Department of Homeland Security to develop an electronic exit monitoring system. Representative Lamar Smith of Texas, the senior Republican on the House Judiciary Committee, said the Smadi case “points to a real need for an entry and exit system if we are serious about reducing illegal immigration.”
Senator Charles E. Schumer, Democrat of New York and chairman of the Judiciary Committee’s sub-committee on immigration, said he would try to steer money from the economic stimulus program to build an exit monitoring system.
As all of us have seen when traveling, U.S. security has definitely been stepped up post 9/11. However, it is a huge gap in the entry/exit system that there are no biometric inspections, and/or process or system that would allow officials to monitor when travelers have left the U.S.
Officials have advised that establishing and implementing a monitoring program will be very expensive. Assuming this is the case, if we’re going to allow people into the U.S., we must be able to develop a system that effectively tracks when they leave. This is particularly so if the Obama administration is realistic about getting support for an immigration overhaul.
As to the particulars concerning Mr. Smadi, his ability to assimilate into U.S. life after overstaying is not a pretty picture. After he decided he wasn’t leaving the U.S. as required, he was able to enroll in a high school, obtain a California identification card, secure employment with separate employers in two states, rent an apartment and a home, and purchase a gun and ammunition. Let’s just agree that there were no controls in place to see what Mr. Smadi was up to and leave it at that.
Mr. Smadi’s case is a clear reminder that there are people who would like to inflict more damage to the U.S. similar to that of 9/11. Having effective border security is obviously very important in the overall scheme of providing protection from those who would do us harm. However, it’s also critical to be able to monitor those who are allowed into the U.S. and then take timely and appropriate steps if they choose to overstay. Congress should immediately take up the issue of electronic monitoring and develop and implement a plan that addresses a problem that should have been dealt with years ago.
Jerry Erickson is the managing partner of Szabo, Zelnick, & Erickson, P.C. (www.szelaw.com), in Woodbridge, Virginia. He is the senior attorney in the firm’s Business Immigration Section. He has practiced law for over 20 years and represents clients in numerous complex areas of immigration law. He can be reached at jerickson@szelaw.com or (703) 494-7171.
The above information is provided for informational purposes only. The information should not be construed as legal advice and does not constitute an engagement of the Szabo, Zelnick & Erickson, P.C. law firm or establish an attorney-client relationship with any of its attorneys. An attorney-client relationship with our firm is only created by signing a written agreement with our firm.
Oil Is A National Security Issue, The Next Great Space Race
Thursday, August 5th, 2010Any of you who know me understand that I have considered oil as a national security issue for many years. Even as Obama calls for clean energy technology the truth is little or nothing practical has been done to lead us to these goals and time is slipping away.
While this a simple issue to understand, what is not simple is actually breaking free from oil. However, if we do not we will be tossing our children to a living hell racked with war and terrorism. As seen by 9/11 not only are we buying oil from people who wish to destroy us, we are killing our environment in the process.
The Solution as I see it:
Stage 1 Authorization of short term oil production and drilling in the US, Increased Mileage standards and Production through Ethanol thorough cellulose based waste material. I believe we can accomplish this thought myco culture of waste materials
Stage 2.
Authorization of Nuclear plants for electricity generation, Solar Cell Embedding in All National Highway systems to form a massive solar grid, and hybrid tax incentives.
Stage 3. Use nuclear plants to develop Hydrogen along with the electricity. From there we would take the hydrogen and use it as a new combustion martial allowing us to retrofit the million and million if vehicles on the road.
In conclusion, the only way this will occur is if it’s called a National security issue and the Army Core of engineers and other are called in as they were with the Highway systems, the dam and infrastructure systems, the great space race and many more.