Political leaders in the US have been urged to “preserve the critical role that state securities regulators play in our capital markets as fighters of fraud, market manipulation, and similar abuses.”

The plea comes from the North American Securities Administrators Association (NASAA) – through its president, Leslie Van Buskirk – which has sent a letter to the top-ranked leaders of the US Senate Committee on Banking, Housing, and Urban Affairs. The organization wants Congress to consider the role of states when it considers market structure legislation.

As the state securities administrators membership group explains, since 2017, NASAA members have taken over 330 enforcement actions that involve crypto assets and fraud. “Failing to preserve state authority to fight fraud would have net-negative, significant consequences for Americans throughout the United States,” NASAA notes.

The letter was directed to the Banking Committee but more specifically addressed its chairman, Tim Scott (R-SC) and ranking member Elizabeth Warren (D-MA)

Focus on crypto

NASAA points specifically to the bad actors in the US capital markets that use new technologies to defraud or otherwise take advantage of the investing public, especially those that exploit distributed ledger technologies (DLTs). Such fraud prompted state securities regulators in 2017 to initiate a coordinated effort to investigate and bring enforcement actions against frauds associated with uses of DLTs.

Since 2017, state securities regulators have taken over 330 enforcement actions involving fraudsters engaged in securities offerings, using trading platforms, offering investment advisory services, launching Ponzi schemes, and performing crypto mining – all of them involving cryptocurrency. Some of them even went after those already defrauded by cryptocurrency-based frauds, claiming they could help.

“I have no reason to believe our federal partners would come close to making up the difference if my state colleagues and I were denied the opportunity to pursue and address fraud.”

Leslie Van Buskirk, President, NASAA

As an appendix to the letter, NASAA attached an up-to-date overview of selected crypto fraud enforcement actions by state securities regulators. The appendix details some of the enforcement actions taken by state regulators to combat frauds involving cryptocurrencies and other crypto assets.

They include samples from several categories of crypto-related frauds, such as those noted above, with NASAA pointing out that for innovation to thrive, fraud connected to DLT must be stopped, and can best be done by local authorities, oftentimes in conjunction with federal authorities.

Some of these scams related to both artificial intelligence (AI) and DLT, NASAA points out. There is a lot of data indicating that AI can be used, and is actively used, to facilitate scams, with a 2024 report from the Stop Scams Alliance warning that AI can “turbocharge” fraud by facilitating phishing attacks and deepfakes, NASAA said in the letter.

And in 2024, the FBI’s Internet Crime Complaint Center issued a public service announcement that criminals are using AI-generated text, images, audio, and video to perpetrate financial fraud, contributing to the $50.5 billion lost to online scams over the past five years.

And NASAA’s own 2024 Enforcement Report and recent Top Investor Threats Survey show that DLT-facilitated frauds have become one of the leading threats to retail investors, the group adds.

Securities law violations

NASAA also highlights in its letter the critical role state securities regulators play in prosecuting securities law violations though their “inherent prosecutorial authority or appointments from district attorneys and attorneys general.”

“We also work in parallel with local, state, and federal law enforcement agencies to investigate complex schemes, refer cases for criminal prosecution, and testify in criminal proceedings as fact and expert witnesses. Based on the reported data, in 2023, securities regulators helped convict white-collar criminals collectively sentenced or ordered to serve approximately 5,500 months (approximately 460 years) in prison and approximately 2,700 months (approximately 230 years) of probation and deferred adjudication. These actions show that we are committed to the pursuit of justice for victims of financial fraud,” NASAA said.

The majority of NASAA’s enforcement work originates from complaints submitted by the public or referrals made by other agencies, including the SEC, FINRA, and the CFTC, with 8,000 tips coming in during 2023. This was a significant increase from the numbers reported in 2022 and 2021, NASAA stated.

Concluding the letter on a personal note, Van Buskirk says: “I have no reason to believe our federal partners would come close to making up the difference if my state colleagues and I were denied the opportunity to pursue and address fraud.”