Ponzi scam artists will have greater freedom to flourish if state regulators are assigned expanded oversight of RIA firms, according to panelists at the Financial Services Institute Inc.'s annual conference last week.
Ponzi scam artists will have greater freedom to flourish if state regulators are assigned expanded oversight of registered investment advisory firms, according to panelists at the Financial Services Institute Inc.'s annual conference last week in New Orleans.
Regulatory-reform legislation being considered by both the Senate and the House would increase the threshold for state jurisdiction over RIA firms to those companies with at least $100 million in assets under management. Currently, the Securities and Exchange Commission is charged with overseeing RIAs with at least $25 million in assets.
The panelists argued that some state regulators aren't up to the challenge of expanded oversight, and that unscrupulous advisers would take advantage of such a regulatory gap.
“The likelihood of Ponzis increases with the $100 million mark,” said Neal Sullivan, a partner with Bingham McCutchen LLP.
Fifteen states have no routine exam program for RIAs, said David Bellaire, general counsel and director of government affairs for the FSI. In particular, New York has no ability to conduct routine exams of firms, he added.
Regarding Bernard L. Madoff's $65 billion Ponzi scheme, Mr. Bellaire said: “New York was not in a position to do what it needed to do.”
In a separate session, Joseph Borg, director of the Alabama Securities Commission, said that increased oversight by states would mean a change for his state, as larger RIA firms have a more complex mix of business than what state regulators have seen in the past.
E-mail Bruce Kelly at bkelly@investmentnews.com.
