Let state regulators continue to help protect Main Street investors

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Every year, tens of millions of Main Street American investors pour their hard-earned money in a wide variety of investments to help secure their financial future.

They operate on the assumption that participating in America’s well-regulated capital markets does not expose them to undue risk when they try to make the best decisions for themselves, their families or their small businesses.

For more than a century, state securities regulators have worked to reinforce that belief and protect these investors in an effort to ensure that their investment choices are free from losses caused as the result of fraud and abuse. 

{mosads}All that could change, however, if Congress moves forward on the Securities Fraud Act of 2018 (H.R. 5037). This bill was introduced in the name of reducing supposed burdens faced by companies that chose to list on national securities exchanges that are worried they may become the target of a state securities enforcement action for securities fraud.


The bill’s proponents have sought to frame the debate as being about the functioning of our nation’s capital markets, but in reality, its most direct impact will be to seriously weaken investor protections and confidence without any clear benefit to the public. That is why I testified before the House Financial Services committee this week.

H.R. 5037 would undercut the long-standing authority of state securities regulators by pre-empting our civil anti-fraud authority for certain violations of state securities law, while also hampering and preventing state prosecutions of criminal securities fraud.

Enacting laws that would make it more difficult, and in some cases impossible, for state regulators to hold wrongdoers accountable, including the most powerful companies on Wall Street, serves no valid public interest.

Far from being a burden, state anti-fraud provisions are a powerful complement to the federal regulatory oversight of the Securities and Exchange Commission (SEC). These laws serve as a potent deterrent to improper conduct, and they incentivize market participants to provide investors with complete and accurate information necessary to make informed investment decisions.   

What’s more, H.R. 5037 is premised on the assertion that state securities enforcement is detrimental to the public interest and somehow disincentivizes the raising of capital — this premise is not supported by either logic or fact.

As the U.S. Treasury Department recently reported, America’s capital markets are, “the largest, deepest and most vibrant in the world,” and U.S. businesses, “successfully derive a larger portion of business financing from [America’s] capital markets, rather than the banking system than most other advanced economies.”

The Financial Services Committee has long recognized this as well, passing numerous capital formation bills over the years — all of which have left untouched state anti-fraud authority in recognition of the important role this authority plays in maintaining confidence in U.S. markets. 

H.R. 5037 is a direct attack on the authority of states to protect investors from fraud and misconduct. And while we work very closely with our federal counterparts, the simple fact of the matter is that the SEC does not have the resources to take on additional enforcement cases.

Ultimately, H.R. 5037 is a misguided and dangerous bill that places the interests of big companies above those of the hardworking Americans who look to our capital markets to help build a secure retirement.

When I testified before the House Financial Services committee this week on this bill, I made this same argument, and I can only hope that our leaders in Congress recognize how critically important it is that we reject this legislation and continue to make the protection of American investors our first priority.

Joe Borg is the director of the Alabama Securities Commission and currently serves as the president of the North American Securities Administrators Association (NASAA), which represents state and provincial securities regulators in the United States, Canada and Mexico.

Tags Corporate crime economy Finance Financial regulation Money Securities commission Securities fraud Securities regulation in the United States U.S. Securities and Exchange Commission United States securities law

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