President’s Remarks
Joseph P. Borg
Director, Alabama Securities Commission
President, North American Securities Administrators Association
September 19, 2006
NASAA 89th Annual Conference
San Diego, California
Thank you Patty for your kind introduction and for everything you’ve done this past year as NASAA President. Through your leadership, you have strengthened NASAA’s voice as a leader in investor protection and I am honored by the privilege of leading our organization in the year ahead.
I’d like to preface my remarks by thanking our Conference Co-Chairs, Colorado Securities Commissioner Fred Joseph and California Deputy Commissioner of Enforcement & Education Wayne Strumpfer, along with everyone in the NASAA Corporate Office for the effort you have made to make this year’s conference a success.
The great American author F. Scott Fitzgerald wrote: “There are no second acts in American lives.” I’m not one to challenge the classics, but, as some of you may know, this is my second time around as NASAA’s President. I hope I get it right this time!
As you heard yesterday during Mary Schapiro’s speech, the only other person twice honored to serve as NASAA president is with us today – former Virginia Securities Commissioner and now UBS Financial Services executive Lewis Brothers.
I certainly hope I can do as well with my two terms as Lew did with his.
Although this is my second term, today’s speech is my first official inaugural address. Five years ago, and 500 miles up the coast in San Francisco, many of us were gathered on September 11, 2001 at NASAA’s 84th Annual Conference.
The events of that day need not be retold today to remain sharp in our memories. In a minor footnote of that day, many business meetings, including ours, were cancelled in order for participants to make their way home and be with their families.
To make a long story short: none of you heard what I had planned to say my first time out as NASAA president. So bear with me a few minutes while I make up for lost time.
I’d like to take a few minutes to explain how a guy from Queens, New York, with parents from the island of Malta, found his way to Montgomery, Alabama, as a corporate lawyer and has been blessed with the satisfaction of serving the public not only in my state, but throughout North America.
Looking back, I can easily say these last twelve years have been the most rewarding of my thirty years of law practice. In 1994, I left a position as managing partner of an Alabama law firm, where I’d been for more than ten years to become Director of the Alabama Securities Commission.
Life has many strange and unpredictable twists and turns, and my career in securities regulation was almost a story of the road not taken. The first time I was approached about becoming a state securities regulator, I turned down the job.
Shortly after saying “no” to the Alabama Securities Commission job, I sued, on behalf of an investor in Montgomery, a small brokerage house based in Boca Raton– Biltmore Securities (many of you may remember the name, I’m sure).
My firm settled that case in short order and the investor got some of his money back. No damages, no punitive awards, no criminal penalties or jail time for the brokers, which, at the time, I thought was fair.
After all, it wasn’t like someone had been mugged or injured because of negligence in a car or train wreck, personal injury cases like I was used to handling.
But the more I looked into this case and thought about it, the more I realized that having your money stolen by a scamster at the other end of a telephone was not very different from having your money or property stolen at knifepoint by a thug on the street and in many cases it’s much, much worse.
Those clients became close friends and for quite some time I could see the emotional damage and the mental anguish they suffered because someone had stolen part of their life savings.
I learned that the true damages really can’t be put into dollars and cents. I came to see that financial damage is just the tip of the iceberg. The Biltmore case revealed to me the dark back alleys of Wall Street.
Not long afterwards, the Alabama Securities position was offered to me again. This time I took it. Besides the epiphany I had with the Biltmore Securities case, I realized I wanted to do something more meaningful with my career; I wanted a chance to give back to my community and my state.
Just two weeks after joining the Alabama Securities Commission, I arrived in Boston for my first NASAA Annual Conference.
What impressed me most—and still does today—was the commitment of NASAA members to protect investors, to safeguard their hopes, their dreams and their financial futures. And I knew at that point that I could be part of something unique, something fulfilling, and something special.
But enough personal history. I’d like to talk briefly about what we can accomplish together not just over the next 12 months but in continuing the great work that is NASAA’s heritage.
Although much has changed in the five years since I last served as NASAA’s president, two things remain the same. The first is my strong commitment to fulfill NASAA’s mission of investor protection. The second is the gratitude I feel standing before you today.
Preparing for my remarks today, I was reminded of a quote by Sir Isaac Newton, one of history’s greatest scientists and mathematicians. He said: “If I have seen farther, it is by standing on the shoulders of giants.”
I feel as if I am standing on the shoulders of giants – giants such as past NASAA Presidents Christine Bruenn, Ralph Lambiase, Frank Widmann, and Patty Struck.
Since my first NASAA presidency, these exceptional leaders have advanced the concept of cooperative and coordinated enforcement and regulation, increased public awareness of the value of state securities regulation and have left as their combined legacy a solid foundation of investor protection from which I can only hope to build upon.
Chris Bruenn successfully guided NASAA through the conclusion of the landmark global settlement between investment banks, the SEC, state securities regulators, NASD, and NYSE following investigations of allegations that investment banking interests had undue influence on securities research at brokerage firms.
Connecticut’s Ralph Lambiase built upon that success during his tenure as NASAA’s president to serve as a passionate spokesman and unflinching advocate for the preservation of the regulatory authority of state and provincial securities regulators before Congress, other regulators, industry and the media.
New Jersey’s Frank Widmann, in turn, capitalized on Ralph’s momentum to call upon regulators and the securities industry to continue working together to restore market integrity. Frank also spearheaded NASAA’s response to ensure that both investor and industry needs were met despite the destruction and displacement left in the wake of last summer’s destructive hurricanes.
And following Patty Struck will not be easy. Patty, you have distinguished yourself among NASAA presidents with your dedication and tireless advocacy on behalf of all investors, especially those most vulnerable to investor fraud – seniors throughout North America.
Through NASAA, you not only focused regulatory attention on the issue of senior investor fraud, but also on issues raised by variable and equity-index annuity sales practices. We are indeed thankful for your leadership.
NASAA and its member jurisdictions are on the right path. That’s why I’m not here today to propose any grand plan, any radical new vision.
Instead, we can build on the progress we’ve made, the successes we’ve had, and help NASAA make the right investments, the right adjustments to continue to move forward. I see no reason to reinvent the wheel.
For example, under the leadership of Illinois Securities Director Tanya Solov, NASAA’s Broker-Dealer Section has focused a national spotlight on the fairness of the arbitration system currently in place to settle securities-related disputes.
I’ve asked Arizona’s Matt Neubert to continue this effort as the section’s new chair to help bring change to an apparently flawed system. As long as the current composition of arbitration panels consist of a mandatory industry representative and public arbitrators who maintain significant ties to industry, the process is fundamentally unfair to investors. I look forward to Matt’s trusted advice and learned counsel and I want to thank Tanya for her service.
I’ve asked her to expand her role at NASAA. Although Tanya is term limited as chair under NASAA rules, she will not only continue as vice chair of the Broker-Dealer Section, but will also Chair the section’s Finders Project Group and become further involved in several areas where we will depend on her energy and trusted and sage counsel.
As we move forward, we will be building upon the strong foundation left by outgoing Corporation Finance Section Chair, Texas Securities Commissioner Denny Crawford. Under Denny’s leadership, the section has been a leader in calling attention to areas that others may have overlooked, such as special purpose acquisition companies, finders, and tenant-in-common issues.
I am very glad that Denny is joining me on NASAA’s Board of Directors and I am equally pleased that the Corporation Finance Section will not miss a beat under the guidance of Washington’s Mike Stevenson.
A top priority of mine in Alabama and now as NASAA President is the efficient and effective regulation of the growing investment adviser population and the tough but fair enforcement of securities laws designed to protect investors from financial predators.
While the vast majority of investment advisers are honest professionals, the potential for fraud should concern us all.
I don’t need to remind you of the real and potential problems we face with the explosion of investment advisers in our jurisdictions. We’re the only regulators when it comes to the smaller advisers and their representatives.
I commend the work of NASAA’s Investment Adviser Section, chaired by District of Columbia Securities Director Theodore Miles, to help NASAA members protect investors by making the regulation of small investment advisers more manageable, through careful licensing and on-site examinations.
Tony couldn’t be with us today, but he has served us with distinction and we look forward to benefiting from his expertise on NASAA’s Legal Services Committee where his professorial talents will be well used.
I’ve also asked Tony to lend his knowledge of corporate law and experience to our Corporate Governance Committee.
I’m very pleased that New Jersey’s Frank Widmann has agreed to serve as Investment Adviser Section chair in the coming year. Frank’s history not only as past president but also as a former chair of the Broker-Dealer Section will bring great depth to this important area.
Those of you who know me, know that law enforcement has always held a special calling for me. I am proud of the strong record of investor protection compiled by the Alabama Securities Commission and its dedicated staff.
In the last three years alone, my staff brought around $50 million in rescissions and restitution back to victims of securities fraud.
In that time period, we issued almost 300 suspensions and cease and desist orders and obtained 57 felony convictions. Along the way, we issued dozens of public warnings and issued annually over 100,000 licenses or registrations.
Alabama is by no means alone in the fight against investment fraud. NASAA members have compiled a significant history of bringing enforcement actions, including criminal prosecutions.
In our Senate testimony in 2004, NASAA reported that state regulators bring the vast majority of cases.
State regulators reported bringing over 3,000 cases in one year with rescission and restitution of over $300 million and 390 felony convictions with over 1,600 years of ordered prison time.
Make no mistake. Enforcement against fraud is the essence of what we do. NASAA’s Enforcement Section, led by North Carolina Deputy Securities Administrator David Massey, is actively reaching out to regulators at all levels of government to facilitate cooperative efforts to address investment fraud. I look forward to more of the same from Dave and his team in the year ahead.
We have a pressing need to continue increasing coordination and cooperation with other regulators, specifically state and federal banking regulators and state insurance regulators.
Gramm-Leach-Bliley brought a pattern of consolidation in the financial services industry, which, in turn, has led to a blurring of regulatory lines.
From an investor’s standpoint, the convenience of being able to purchase an annuity from your banker or a jumbo CD from your insurance agent is undeniable, but not at the cost of a loss of protection from fraud and not at the cost of increased investor confusion.
In that vein, I have long believed that one of the most effective weapons in the fight against investment fraud is education. NASAA’s Investor Education Section has set the stage for effective and efficient financial education initiatives since its inception nearly 10 years ago.
Under the steady hand of Tennessee Assistant Commissioner for Securities Daphne Smith, the Section and its Project Groups have developed and are continuing an innovative series of programs and tools, many of which you heard about yesterday. In addition, we heard yesterday that the NASD is conducting studies on the way investors are influenced by fraudsters.
We look forward to working with the NASD and utilizing their findings to improve our extensive grassroots investor education initiatives. These tools will improve the ability of our citizens to arm themselves with the facts they need to cut through the baloney that con artists serve on a platter.
In another area of great importance to NASAA, we intend to continue to build upon the work of NASAA’s CRD/IARD Steering Committee, chaired by Maryland Securities Commissioner Melanie Lubin, to ensure that information about broker-dealers and investment advisers is readily accessible to the investing public, industry, and regulators.
As NASD Chairman Schapiro said yesterday, we too look forward to increased cooperation and dialogue between NASAA and the NASD. And let me publicly thank Mary for her comments yesterday in support of state regulation. We appreciate that the NASD will not sign on to any suggestion that would limit or remove state jurisdiction in the variable annuity area.
We have done great things together and we have great respect for NASD’s opinion and for the differences in our opinions. But any differences will not change the goal we share to protect investors.
So although NASAA and the NASD do not agree on the current BrokerCheck proposal, we still urge the SEC to carefully scrutinize it. We believe the current proposal favors the interests of the securities industry over those of investors and provides less disclosure, than the previous proposals, not more.
I appreciate that balancing competing interests is difficult. But with NASAA, the SEC, and the NASD raising to new levels the alarm over abusive tactics by those in the financial services industry aimed at the senior community, serious thought should be given to implementing the previously proposed BrokerCheck rule rather than the proposal currently under consideration by the SEC.
Over the past few minutes, I have discussed the backbone of NASAA’s structure – the work of our sections and their project groups. None of our success, however, would be realized without the support and hard work of the NASAA Corporate Office.
To help us all do a better job as NASAA volunteers, I’m committed to a multi-year plan of investing in the Corporate Office. We are determined to enable NASAA to continue to attract and retain the best people we can find and to provide them with state-of-the-art technology so that they can continue to support our efforts and, wherever possible, reduce the burdens on our volunteers.
In particularly, I am eager to see the Corporate Office take greater advantage of available technologies to enhance online training of our members and increase our public outreach to provide even more educational tools and resources.
While educating the public is important, educating both state and federal government officials about the role of state securities regulators is absolutely critical to preserve the regulatory authority that enables each of us to further our core mission of investor protection.
In this regard, not only are we enhancing our communications with key government officials across the spectrum, we are also stepping up our ongoing efforts to reach out and involve related state-membership organizations, such as the National Governors’ Association, the National Association of Secretaries of State, the National Association of Attorneys General, the Conference of State Bank Supervisors, and the National Conference of State Legislatures.
And we will continue to work with consumer protection advocates such as the AARP and the Consumer Federation of America.
We will also increase our efforts to work closely with international organizations, such as the Canadian Securities Administrators, the International Organization of Securities Commissions (ISOCO), and the Council of Securities Regulators of the Americas (COSRA).
NASAA also must continue to build on the solid relationships we have with the news media. We appreciate the deep interest and active role of the news media to warn the public of investment schemes and scams and we look forward to bringing newsworthy alerts to your attention in the months ahead.
From an investor protection standpoint, one positive article in a local or national newspaper or on radio, television or the Internet is worth untold numbers of cease-and-desist orders.
NASAA also must be even more proactive and outspoken on issues that affect all investors, both at the federal and state level. Issues such as financial literacy in schools, the retirement security of “Baby Boomers,” the “retailization” of hedge funds, and others, are opportunities for NASAA to make a difference in the national discussion.
Since my first term, I believe NASAA, and our colleagues at the SEC, as well as the New York Stock Exchange and NASD, have made great strides toward our mutual goal of cooperative and complimentary securities regulation.
But as the financial services industry continues to evolve and as new financial products come to market, we need to try to cooperate even more.
I want to build on the momentum we’ve gained in this area during the past year under Patty Struck’s leadership. That’s why I am proposing to the NASAA Board that Patty chair a new Board-level committee.
The group’s goal is to provide continuity within the NASAA leadership in our relationships with outside organizations and associations and fellow regulators to ensure that these relationships remain strong, effective and positive.
And to the NASAA membership, let me leave one clear message – you will be hearing from us soon.
Your expertise and knowledge at the grassroots level is critical to maintaining our strong foundation.
I said it before and I’ll say it again: Investors are the largest constituent group in North America today and, as regulators, we have a duty to serve and protect. No matter in which level of government you serve, our jobs have never been more essential or demanding.
I think Thomas Paine got it right when he said: “Tis not in numbers but in unity that our great strength lies.”
Given our limited resources, we simply have to do a better job coordinating, of sharing and of supporting one another.
That’s the message we shared with SEC Chairman Christopher Cox during meetings earlier this year.
And let me thank Chairman Cox and all the SEC commissioners for their accessibility and their time. I do not believe we have had greater communication and access in the history of the relationship between NASAA and the SEC. You have my commitment to the continuation of this new level of respect, coordination and partnership.
Let me be clear. We fully understand the difference between complementary and duplicative regulation. No one is served by needless and repetitive rules and regulations but they must be utilized and enforced to be effective.
I want you to know that at NASAA we really take to heart our role as the “local cop on the beat.” To me, this has always meant that we are accessible and ready to answer the call. In this regard, I want each of you to feel comfortable to contact me, or NASAA’s ombudsman, Florida Office of Financial Regulation Commissioner Don Saxon, with your questions or concerns.
In the coming year, the Ombudsman’s Office will be more active in listening and working with our industry colleagues. A balanced approach to regulation requires that we understand the issues that the industry faces. Only through communication can we truly realize our mutual goal of doing what’s best for investors.
When it comes down to it, we may have our differences, but they should not diminish our common goal of doing what’s right for investors to maintain their trust and confidence. Because that is the bedrock of our American financial society.
Before I close, I want to thank in advance the new NASAA Board of Directors:
• President-elect Karen Tyler, North Dakota’s Securities Commissioner,
• Past President Patty Struck, Wisconsin’s Securities Administrator,
• Treasurer and Colorado Securities Commissioner Fred Joseph,
• Secretary Jim Nelson, Mississippi’s Assistant Secretary of State,
• Delaware Securities Commissioner Jim Ropp,
• Alberta Securities Commission Vice Chair Glenda Campbell,
• Arkansas Securities Commissioner Michael Johnson, and
• Texas Securities Commissioner Denny Crawford.
I also want to thank the NASAA Corporate Office and all the NASAA members and their staffs on the front line. I look forward to working with you and accomplishing great things together to protect investors and to help them build wealth in a healthy investment market.
And I owe a special thanks to my staff in Alabama. I could not devote the time and energy necessary to complete my duties as NASAA’s president without my staff’s loyalty, dedication and hard work.
As I mentioned at the beginning of my remarks, my parents are from Malta. Many of you have probably heard of Malta and most of you have seen Humphrey Bogart in “The Maltese Falcon.” For those who don’t know, the Maltese islands make up the southern-most European country, about halfway between the coasts of Sicily and North Africa in the Mediterranean Sea.
We have an old saying in Malta: “Time gives good advice.” Well, I’ve had a lot of time over the past five years to listen and learn. And, now I’m eager to get to work to earn once again the trust and confidence you have shown in me.
Let me leave you with a final thought. In 1984, President Ronald Reagan delivered the commencement address at the United States Air Force Academy in Colorado Springs, Colorado.
He told the graduating cadets:
“As we look toward the future, we must always remember the treasures of our past. Every generation stands on the shoulders of generations that came before. We will jealousy guard the values and principles of our heritage. They did not come easy.”
Those words still ring true today. Thank you very much.
September 19, 2006
