NCSOS in the News
Financial Fraud in the Time of Coronavirus
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Secretary Marshall recently spoke to Bill Fisher at High Country Radio (WATA-AM) to share some timely advice for spotting, stopping and reporting financial fraud related to the Coronavirus pandemic. Listen in
here
.
Call the NC Investor Hotline at (800) 688-4507 or email us at
secdiv@sosnc.gov
to find out if the individual offering you an investment opportunity is registered to sell securities in North Carolina, and whether the investment opportunity itself is registered. If you suspect investment fraud you can file a complaint on our website at
sosnc.gov
.
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NC Secretary of State Holding Public Hearing on Extension of LPO Crowdfunding Option
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The Secretary of State's Office will hold a public hearing via teleconference on Monday, May 4, at 10 a.m. regarding the proposed extension of rules related to the Local Public Offering (LPO) Option of the state crowdfunding law, known as the NC PACES Act (
18 NCAC 06A .2120
).
The LPO option provides small businesses a means for raising up to $250,000 through a securities offering to North Carolina investors. The LPO option was designed with the concept of helping local entrepreneurs seeking to grow the economies of their communities, an especially urgent need in light of the economic disruption that the Coronavirus pandemic has caused for small businesses.
The public can dial into the teleconference by calling (978) 990-5311 and entering the access code 482848.
The proposed rules are posted on the Secretary of State’s website at
www.sosnc.gov/divisions/general_counsel/open_rulemaking
. Anyone wishing to speak during the hearing is encouraged to send an email to
rules@sosnc.gov
with the subject: “Speak at Hearing.” Speakers are encouraged to make their comments during the hearing brief and submit additional comments in writing. The comment period begins at 8:00 a.m. April 27, 2020 and ends at 5:00 p.m. May 18, 2020.
Comments from the public should be directed to:
Ann B. Wall, General Counsel
Rulemaking Coordinator
NC Department of the Secretary of State
Mailing Address: P.O. Box 29622, Raleigh, NC 29626-0622; phone
(919) 814-5305
;
Physical Address: 2 South Salisbury St., Raleigh, NC 27601-2903.
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NASAA Annual Report on State-Registered Investment
Advisers
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The North American Securities Administrators Association (NASAA) this week released its annual report on the state-registered investment adviser industry and the related regulatory activities of state securities regulators.
“This report outlines the significant resources state securities regulators bring to help state-registered investment advisers, many of which are small- and mid-size businesses, continue to succeed, and to both understand and comply with state securities law,” said Christopher W. Gerold, NASAA President and Chief of the New Jersey Bureau of Securities.
The report highlights the important regulatory policy work, education and training, and coordination efforts of NASAA’s Investment Adviser Section Committee and Project Groups. Major undertakings discussed in the report include the 2019 Coordinated Exams overseen by the Section’s Operations Project Group and the information security model rule package developed by the Section’s Regulatory Review and Policy Project Group and adopted last year by NASAA’s membership.
Alex Glass, Indiana Securities Commissioner and Chair of NASAA’s Investment Adviser Section, said the report indicates that the cybersecurity preparation and practices among state-registered investment advisers continues to concern state securities regulators.
“Our coordinated examinations show that overall deficiencies in just about every category except cybersecurity have decreased since 2015,” Glass said. “NASAA’s new model rule requires investment advisers to adopt policies and procedures regarding information security and to deliver its privacy policy annually to clients. This represents a significant step toward enhancing the cybersecurity and privacy practices of state-registered investment advisers.”
Other highlights of the report include an updated profile of state-registered investment advisers; a discussion of updates to NASAA’s cybersecurity checklist, including the development of detailed guidance on each area of the checklist and a separate data inventory checklist. The report also showcases proactive outreach initiatives to state-registered investment advisers by NASAA member agencies.
Included in the report is a report from NASAA's Operations Project Group, which includes a representative from the NC Secretary of State's Office. The Project Group compiled investment adviser coordinated examination data, including 1,078 examinations submitted by 43 jurisdictions.
The top three deficiencies remained the same as the last coordinated exams in 2017 and 2015: books & records, registration, and contracts. Cybersecurity, which made its debut as a deficiency category in 2015, moved up to fourth place, knocking fee related deficiencies down to fifth place.
State securities regulators have regulatory oversight responsibility for more than 17,500 investment advisers with assets under management of $100 million or less.
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Nonprofit Offering Help to Seniors and Others in Need During Pandemic
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The Governor’s Commission on Volunteerism and Community Service has teamed up with a nonprofit that normally coordinates resources during natural disasters such as hurricanes in order to help seniors and others at heightened risk for COVID-19 get food, medicine and other essentials delivered to their homes.
Governor Roy Cooper last week encouraged seniors and the immunocompromised to sign up for help online at
coronacommunity.org
, while urging those who are able to help make deliveries.
The new nonprofit is the brainchild of the founder of Crisis Cleanup, which has been helping marshal resources in hurricane relief since 2012. CoronaCommunity is matching nonprofits with individuals who need deliveries or wellness checks.
Nonprofits login on the backend of the website to select those individuals who need deliveries (food, medical or pet) or well-check calls and find a person locally to assist with these needs.
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One Call Could Save Your Life Savings!
Is that individual offering you an investment opportunity licensed to sell securities in North Carolina? Is the investment opportunity itself registered? Know before you sign!
While registration in and of itself is no guarantee against fraud, not being registered is a very big red warning flag.
We urge you to take five minutes to call our NC Investor Hotline at 1-800-688-4507 to see if the person you have been dealing with – perhaps even for years – is properly registered and/or has a disciplinary history. You can also check to see if the actual investment itself is properly registered.
Pick up the phone and call us. You owe it to yourself and your family to check. And please also consider sharing the information in this newsletter with
YOUR
contacts or your social networks. Doing so will help keep your friends and loved ones safe, too. More information can be found at
https://www.sosnc.gov/divisions/securities/for_investors
.
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Safe Disposal of a Used Computer
You've purchased a new computer. What do you do with your old computer? We're going to share some tips for safely disposing of your old machine.
Let's begin with the assumption that your old computer is still in working condition. Even if you have an older model computer, it may still have value. You can sell it to recoup some of the cost of your new computer. You might also consider donating the old machine to a school, senior center, or some other charitable organization. But remember that you likely have some important and confidential information on your computer. If you use your computer for work, you may also have confidential business and client or customer information. Most people understand that they need to do something about the data on their computer’s hard drive before they get rid of it. But what?
Our first impulse is to simply delete files or reformat the hard drive. Unfortunately, it's not that simple. When files are deleted, the operating system simply changes the first character of the file names to a “$” so that the operating system cannot read it. But there are computer programs called hex editors that make it possible for someone to edit the fundamental binary data that makes up a computer file. That makes it an all too simple task to change that “$” back to the original character, making the file readable again and your data vulnerable to recovery and theft.
What about reformatting the hard drive? Reformatting the hard drive is very similar to file deletion. When you reformat a drive, the operating system only changes the Master Boot Record (MBR). This, too, can be easily reversed by someone with a little training or experience. So with both scenarios, all of the data is still vulnerable.
To be certain that your data is deleted and safe from recovery, you need to use a wipe utility. There are many available, some of which are free. A wipe utility will change all characters to random ones or all zeros. While it is possible to recover the data even after it has been wiped, it can only be done layer by layer, using an electron scanning microscope. This is a very laborious and expensive process and not one a cybercriminal is likely to go through. Some wipe utilities might be referred to as a “DoD wipe” in reference to a process first developed by the US Department of Defense years ago whereby several passes are made using random characters or zeros. It takes a lot of time to run a DoD wipe. For most users, however, a single pass is sufficient. A free version of “KillDisk” is available that should do the trick. Once run, your old computer is safe to go to a new home.
If selling or repurposing your computer is not something you wish to do, or your hard drive is no longer working, you should recycle your computer in accordance with state and local environmental ordinances. Every computer contains toxic chemicals like mercury and lead, so it’s important that you check with your county’s or city’s waste management department to find out how or where you can safely recycle the old computer. Before you dispose of it, though, you will want to destroy your hard drive. The easiest way to do that is to render it useless by smashing it with a hammer or driving a nail or drill bit through it. There are online tutorials showing you how to do this. But if you decide to go this route, please do it outside using safety glasses and protective clothing.
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Securities Helpline for Seniors: Celebrating 5 Years of Senior Investor Protection
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FINRA's latest episode of its UNscripted podcast shines the spotlight on its Securities Helpline for Seniors, now in its fifth year.
In this
episode
, Senior Helpline managers Brooke Hickman and Rob Mascio take a look back at how the Helpline has helped senior investors, notable trends, and explain how the Helpline has developed not just as a resource for seniors, but as a resource for broker-dealers as well.
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NASAA Forms COVID-19 Enforcement Task Force
The North American Securities Administrators Association (NASAA) has
announced
the formation of the COVID-19 Enforcement Task Force, consisting of state and provincial securities regulators, to identify and stop potential threats to investors stemming from the COVID-19 pandemic.
“The objective of the task force is to proactively identify COVID-19-related threats to investors, including but not limited to fraudulent offerings, investment frauds, and unregistered regulated activities, within the jurisdiction of NASAA member states and provinces, and to disrupt, discourage and deter those activities,” said Christopher W. Gerold, NASAA President and Chief of the New Jersey Bureau of Securities.
Modeled after NASAA’s successful
Operation Cryptosweep
, the new initiative is being led by NASAA’s Enforcement Section and its Enforcement Technology Project Group. The Task Force is using online investigative techniques to identify websites and social media posts that may be offering or promoting fraudulent offerings, investment frauds, and unregistered regulated activities.
“Just as state and provincial securities led the way in protecting investors from fraudulent cryptocurrency-based schemes in 2018, we stand ready to protect investors from COVID-19-related schemes during this unprecedented time,” Gerold said.
The task force will hold its first meeting this week, said Joseph P. Borg, NASAA Enforcement Section Chair and Director of the Alabama Securities Commission. Individual jurisdictions working as part of the task force will be responsible for taking regulatory action to address identified threats.
As part of its work, the task force will be examining a recent spike in Internet domain names linked to the pandemic. The task force has identified as many as 200,000 coronavirus-related domains as of April 20, 2020. Most of these domain names appear to have been created within the past three months. Through the task force, state and provincial securities regulators will be analyzing these domains to identify those offering securities and/or investment advice, and will pursue those that appear to pose a viable threat to investors.
“Fraudsters are ramping up as a result of this crisis. Some jurisdictions have already taken enforcement actions against illegal investment schemes and we fully expect the task force to uncover many more. Our goal is to get and stay ahead of the curve,” Borg said.
SEC Announces Investor Advisory Committee Meeting Focusing on COVID-19
The Securities and Exchange Commission's
Investor Advisory Committee
will hold a public meeting on May 4, 2020, by remote means. The meeting will begin at 2 p.m. ET, is open to the public via live webcast, and will be archived on the committee's website for later viewing.
The committee will hold two discussions: a discussion of public company disclosure considerations in a COVID-19 pandemic context, and a discussion of public company shareholder engagement/virtual shareholder meetings in a COVID-19 pandemic context. The full agenda is available
here
.
Members of the committee represent a wide variety of investor interests, including those of individual and institutional investors, senior citizens, and state securities commissions. For a full list of committee members, see the committee's
webpage
.
The Investor Advisory Committee was established to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The committee is authorized to submit findings and recommendations to the Commission.
FINRA Statement on SEC’s OCIE Risk Alerts for Reg BI and Form CRS
On April 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released Risk Alerts for
Reg BI
and
Form CRS
. These Risk Alerts set forth OCIE’s expectations for firms’ compliance with Reg BI and Form CRS and provide broker-dealers with information about the scope and content of OCIE’s initial examinations following the compliance date of June 30, 2020.
FINRA will take the same approach as set forth in the SEC Risk Alerts when FINRA examines broker-dealers and their associated persons for compliance with Reg BI and Form CRS. This initial approach will focus primarily on assessing whether firms have made a good faith effort to establish and implement policies and procedures reasonably designed to comply with Reg BI and Form CRS. However, as always, FINRA will take action in the event FINRA observes indications of customer harm or conduct that would have violated current standards (e.g., suitability).
FINRA stands
ready to work with firms and the SEC on issues that may arise in the course of examinations for compliance with Reg BI and Form CRS and understand that the coronavirus disease (COVID-19) has created challenges for firms. As with the SEC, we appreciate that implementation will be an iterative process, and our focus will be on firms continuing good faith and reasonable efforts, including taking into account firm-specific effects from disruptions caused by COVID-19.
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- On April 16, 2020, the North Carolina Department of the Secretary of State, Securities Division entered into a Final Consent Order ("Order") with Ferry Capital Management, LLC ("FCM") and Paul Edward Ferry. The Order found that Respondents transacted business in North Carolina as an investment adviser and an investment adviser representative without being registered, in violation of the North Carolina Investment Advisers Act ("Act"). Pursuant to the Order, FCM and Ferry agreed to immediately cease and desist from violating any provisions of the Act and any related administrative rules; keep FCM's Form ADV updated; hire a third-party compliance auditor; attend the Securities Division's Investment Adviser Best Practices Workshop; and pay both a civil penalty and the cost of investigation. For more information, click here.
- On February 18, 2020, the North Carolina Department of the Secretary of State, Securities Division entered into a Final Consent Order (“Order”) with Joseph M. Murtagh, Jr. and Joseph M. Murtagh, Jr. d/b/a The Source. The Order states that The Source and Murtagh violated North Carolina law during at least some of the years they transacted business in North Carolina as an investment adviser and an investment adviser representative without registering pursuant to the North Carolina Investment Advisers Act. Pursuant to the Order, The Source and Murtagh agreed to immediately cease and desist from violating any provisions of the North Carolina Investment Advisers Act or Securities Act and any related administrative rules, to pay a registration fee, to pay a civil penalty, and to pay a sum to the Investor Protection and Education Trust Fund. For more information, click here.
- On December 10, 2019, the U.S. Attorney’s Office for the District of New Jersey announced the arrest of three men in connection with a cryptocurrency mining scheme that defrauded investors of $722 million. The North Carolina Secretary of State's Securities Division conducted an investigation into a fraudulent cryptocurrency mining scheme known as the BitClub Network. Due to the multi-jurisdictional complexity of this scheme, the Division's investigation was coordinated with the United States Attorney's Office in New Jersey as well as the Internal Revenue Service Criminal Investigation Division (IRS-CI). According to the indictment, from April 2014 through December 2019, the defendants operated BitClub Network, a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors. For more information, please see the U.S. Attorney’s press release. On May 30, 2018, the Securities Division issued an investor alert regarding BitClub Network and its activities. Click here to read the alert.
- On November 21, 2019, United States Attorney Robert J. Higdon, Jr. announced that a federal grand jury had returned an Indictment charging ANTHONY WAYNE MARCH, 48, of Wake Forest, North Carolina, with one count of Securities Fraud; three counts of Wire Fraud; one count of Bankruptcy Fraud; one count of Obstruction of Bankruptcy Case; three counts of False Oaths; and four counts of Money Laundering. The indictment follows an investigation by the NC Secretary of State’s Securities Division and the IRS Criminal Investigation Division. For more information, click here.
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NC Department of the Secretary of State
Securities Division
Investor Protection & Education Services
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