Over the past several years, the Alabama Securities Commission has done a tremendous job protecting investors and potential investors in our state. Joe Borg, who serves as Director, and his staff, have been very busy and also very effective in their work. Dan Lord, who is with the Commission, wrote an article that will appear as a three-part series in the Report starting this month. I believe that our readers will find the series to be both informative and helpful. I can say without reservation that the Commission under Joe Borg’s leadership has done tremendous work for Alabama citizens. The first of the series is set out below.
A small but very energetic agency within Alabama State Government that has received national accolades as one of the top agencies in its field for the past ten years is uniquely positioned and expertly managed to be the first line of defense for our state’s “main street” investors against securities fraud that could rob them of their financial independence. The Alabama Securities Commission (ASC), simply-stated, has as its critical mission “to protect investors from securities fraud and preserve legitimate capital markets in Alabama.”
ASC Director, Joseph Borg, has been at the helm of the agency since 1994. He has meticulously molded the Commission staff into an efficient and effective body that enjoys an admirable reputation among the nation’s state securities regulators for its leadership in protecting Alabama’s investors from losing their financial futures to fraudulent practices. “During these uncertain economic times, main street investors throughout Alabama and America are worried that they may not have enough savings to guarantee a comfortable retirement,” Borg said. “There is real concern, especially among our retired population, that, due to ever-changing economic circumstances, they may outlive their assets.”
As the current volatile economic drama plays out, Borg said investors may feel compelled to seek questionable investment “alternatives” to help make up for shortfalls in their retirement assets. Unfortunately, financial criminals understand and exploit this mindset to prey on investors’ fears. “Rushing into a potentially ruinous financial decision could make them prime targets for financial fraud,” Borg said. “Many investors looking to shore-up their long-term financial security may succumb to the lure of the ‘quick-fix’ pandered by all manner of so-called independent advisers and financial ‘specialists.’” When unwary investors run afoul of financial scam artists, the ASC is ready, willing and able to step in on their behalf. It is Borg’s and the Commission’s passion to see financial fraud vigorously prosecuted and defrauded investors made as financially whole again as possible.
The ASC is a self-funding agency, not reliant on tax dollars or General Fund appropriations from the Alabama Legislature to conduct its operations. Annual revenues are generated from securities licensing and registration fees, industrial revenue bonds, sale of checks fees, mutual fund exemptions and administrative assessments, among others. Annually, revenues average from $8-12 million after expenses and reserve accounts deposits, with remaining revenues going to the state General Fund. Last year, ASC contributed $8,300,660 to the state General Fund and other state causes after paying all its expenses.
The ASC has 47 employees including six attorneys, ten securities analysts and 12 seasoned special agents with more than 270 years combined law enforcement and investigative experience whose job it is to field investor complaints associated with suspicious, unsuitable and/or illegal investment offerings and the sale of fraudulent and unregistered investment products. Enforcement Division staff work very closely with the agency’s Legal and Audit Divisions and, often, local, state and federal authorities to thoroughly scrutinize complaints, analyze financial transactions and help bring legal action against any person or entity who violates the Alabama Securities Act. ASC is one of only a handful of state securities regulators that have authority to prosecute Alabama’s suspected financial fraud cases and has been recognized as having one of highest conviction rates for criminal securities fraud in the U.S. “In fact,” Borg said, “with our Enforcement Division leading the way, we probably bring more direct criminal financial fraud cases to court, per capita, than any other state. Our record for convictions is unmatched.” (CNN reported that ASC has a 98%-plus conviction rate over the past ten years).
Statistics bear out what Borg says. Over the past five years, Enforcement and Legal Division personnel have coordinated efforts to secure, on average, more than 17 criminal indictments per year for securities fraud. The Courts have also ordered almost $84 million in victim restitution in these cases during the past five years. Agency statistics also show that during the past fiscal year (2009), enforcement actions led to 23 arrests, 24 convictions and helped secure 213 years of prison time for violators of the Alabama Securities Act. Presently, 26 individuals await trial for securities violations. “We intend to send a clear message to financial criminals,” Borg added. “This state will not tolerate financial crimes targeting Alabamians and we will aggressively prosecute offenders, regardless of the complexity of the case or the dollar amount involved.”
The ASC in 2008, together with securities regulators from other states, began to address increasing investor complaints of whether several prominent Wall Street firms had systematically misled their clients by falsely assuring them that auction-rate securities (ARS) were as safe and as easily accessible as cash. When ARS markets failed in February 2008 and investor funds held in these securities were frozen, allegations surfaced that financial firms foresaw the collapse of the ARS market and attempted to mitigate their own exposure while continuing to market the securities to their clients, leaving them with no access to their money and triggering complaints alleging significant personal financial damages. Since the beginning of the ARS investigation, the ASC has entered orders with the firms unfreezing almost $634 million of Alabama retail clients’ funds from nine investment firms and has secured fines and recovered investigative costs totaling almost $2.8 million. The ASC continues to negotiate ARS settlements with additional investment firms.
Alabama Securities Commission
April 2, 2010
The second part of this series will appear in next month’s issue, with the closing portion scheduled for June. We really appreciate Dan’s willingness to furnish this series for our readers. Hopefully, it will prove to be of benefit to our readers.
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