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    Business Scholarship Podcast

    Joseph Borg on State Securities Regulation (Part I)

    Tue Jun 13 2023
    securities regulationinvestor protectionAlabama Securities CommissionfraudPonzi schemescrypto enforcementCOVID-19 scams

    Description

    This episode features Joseph Borg, former director of the Alabama Securities Commission, who shares insights on securities regulation and investor protection. Borg's multi-decade career as a state securities regulator is discussed, along with his background and the challenges faced by the Alabama Securities Commission. The episode covers topics such as building a strong securities commission, collaborating with regulators, uncovering fraud, exposing Ponzi schemes, and combating fraud in the crypto space. It also highlights the importance of protecting investors and the role of state and federal regulators in improving economic stability.

    Insights

    Building Strong Relationships

    The success of the Alabama Securities Commission was attributed to building relationships over time with various stakeholders, including the media, legislators, federal counterparts, law enforcement agencies, and educational institutions.

    Collaboration Among States

    Alabama has worked closely with other states on regional fraud cases, recognizing the importance of collaboration in handling complex cases that require more resources than individual states can provide.

    Protecting Main Street Investors

    The director of the Alabama Securities Commission stayed nonpartisan and focused on protecting main street investors. The position had merit protection to prevent political interference.

    Uncovering Fraudulent Schemes

    Alabama securities regulators led cases against Stratton Oakmont and Greater Ministries International Church, uncovering pump and dump schemes, market manipulation, creation of worthless companies, and Ponzi schemes that targeted Christians.

    Combating Fraud in the Crypto Space

    The Alabama Securities Commission coordinated an ICO sweep to combat fraud in the crypto enforcement space. Internet sweeps were conducted to identify fraudulent ICOs and digital currency schemes, serving as an early warning system for investors.

    Addressing COVID-19 Scams

    The Alabama Securities Commission expanded their efforts to address fraudulent vaccine offers and cures related to COVID-19. Sweeps were conducted to identify and take down fraudulent websites, preventing financial losses for investors.

    Chapters

    1. Joseph Borg's Career and Background
    2. Building a Strong Securities Commission
    3. Protecting Investors and Collaborating with Regulators
    4. Building Relationships and Partnerships
    5. Collaboration and Regional Fraud Cases
    6. Uncovering Fraud and Protecting Investors
    7. Exposing Ponzi Schemes and Regulatory Challenges
    8. Combating Fraud in the Crypto Space
    9. Fraudulent Vaccine Offers and COVID-19 Scams
    Summary
    Transcript

    Joseph Borg's Career and Background

    00:06 - 07:18

    • Joseph Borg, former director of the Alabama Securities Commission, shares insights on securities regulation and investor protection.
    • Borg retired from the Alabama Securities Commission after 30 years of service.
    • He grew up in New York and eventually moved to Alabama in the late 1970s.
    • Borg practiced law before joining the Alabama Securities Commission.
    • His science background helped with critical thinking skills during law school.
    • Borg started as a prosecutor while in law school, working with the District Attorney's Office and later with the Attorney General's office.

    Building a Strong Securities Commission

    06:51 - 13:44

    • The speaker had a diverse background in law and worked for various organizations and firms.
    • They moved to Alabama because of favorable living conditions and job opportunities.
    • The speaker worked for First Alabama (now Regions Financial Corp) as in-house counsel.
    • In 1994, they were approached to apply for the director's position at the Alabama Securities Commission.
    • With time and effort, the speaker built a strong team and transformed the commission into a premier securities regulator on the state level.
    • Alabama Securities Commission became a prosecutorial agency with law enforcement authority and the ability to convene grand juries.
    • They focused on fighting senior fraud and abuse, changing laws, and requiring mandatory reporting by financial professionals.

    Protecting Investors and Collaborating with Regulators

    13:19 - 20:19

    • Alabama changed laws to fight senior fraud and abuse on a financial scale.
    • Alabama was one of the first states to require reporting of suspected fraud in the senior space, which is now a national law.
    • 98% of registered securities professionals are trying to do the right thing.
    • State and federal regulators are working together to improve economic ability and protect investors.
    • The Alabama Securities Commission focuses on educating and structuring good products for the community.
    • The office faced challenges initially but gained support from the financial community by demonstrating the benefits of protecting investors.
    • An open-door policy was established with banks, stockbrokers, and media outlets to foster collaboration and transparency.

    Building Relationships and Partnerships

    19:52 - 27:09

    • They built a relationship with the media by providing access to records and information.
    • The Securities Commission worked closely with legislators, explaining proposed laws and their pros and cons.
    • The legislature recognized the Commission's work and issued a commendation for their achievements.
    • The Commission collaborated with federal counterparts, plaintiff-side organizations, and educational institutions.
    • They maintained good relationships with local law enforcement agencies and gave them credit in press releases.
    • Sharing information, knowledge, expertise, and credit led to building many partnerships.
    • The success of the agency was attributed to building relationships over time.
    • The director stayed nonpartisan and focused on protecting main street investors.
    • The position of director had merit protection to prevent political interference.
    • There were administrative procedures in place that were strictly adhered to by the Commission.
    • The Commission board consisted of individuals recommended by the Bar Association and appointed by the governor.

    Collaboration and Regional Fraud Cases

    26:41 - 33:59

    • The Alabama State Securities Commission has a unique board structure for licensing individuals.
    • The board consists of two long-term members recommended by the Bar Association, one chosen by the governor, and one confirmed by the Senate.
    • CPAs go through a similar process with the CPA group in Alabama.
    • The Attorney General serves as the Chief Legal Officer for the state.
    • The other two board members are picked by the governor and represent the banking and insurance sectors.
    • Alabama's close working relationship between banking, insurance, and securities is seen as a model for other states.
    • The interviewee got involved with the North American Securities Administrators Association (NASA) early in their career and found it to be a valuable resource for building their agency.
    • NASA allows regulators to share resources, experiences, and knowledge to better protect investors across states.
    • Alabama has worked closely with other states like Texas, Massachusetts, New York, Florida, Georgia, North Carolina, South Carolina, Tennessee, Kentucky, Arkansas, Mississippi on regional fraud cases.
    • Collaboration among states is crucial in handling complex cases that require more resources than individual states can provide.

    Uncovering Fraud and Protecting Investors

    33:30 - 40:30

    • Alabama securities regulators led a case against Stratton Oakmont after an individual in Alabama was scammed by a broker.
    • The investigation uncovered pump and dump schemes, market manipulation, and creation of worthless companies.
    • A team of investigators from multiple states worked together to uncover the details of the scheme.
    • The regulators presented evidence to the Senate Subcommittee on Investigations, showing how the company manipulated the market.
    • The regulators shared their findings with federal regulators and FINRA, leading to the shutdown of manipulative companies.
    • Greater Ministries International Church operated a Ponzi scheme promising to double investments for God's glory.
    • The church had thousands of victims across multiple states.
    • Alabama regulators were alerted to the scheme by a minister who noticed suspicious behavior.
    • After investigating for a year, regulators obtained a court order allowing them to gather evidence without alerting the church.
    • With assistance from law enforcement, they seized records and computer data from the church building.

    Exposing Ponzi Schemes and Regulatory Challenges

    40:12 - 46:53

    • Church was not in session on Friday evening.
    • The U.S. Marshals held authority over the church.
    • Weapons and phony bond certificates were found in the building.
    • Gold coins were sold at inflated value.
    • The church eventually filed bankruptcy.
    • $650 million was taken in, with $700 million lost overseas.
    • A meeting was convened for victims, but some were threatened with excommunication from the church if they spoke to regulators.
    • Religion was used as a means to steal money from Christians.
    • The Allen Stanford Ponzi scheme went under the radar due to the Madoff scandal.
    • Stanford issued high-interest rate CDs and operated out of an alleged bank in Antigua.
    • The difference between exemption and exclusion from securities law was explained.
    • A case involving a bank in the Marianas settled out of court.
    • The Stanford CDs had to be registered because the Antigua bank wasn't regulated by American banking authorities.
    • Alabama didn't have any complaints about Stanford CDs being sold there.
    • Information provided by regulators may have been helpful to prosecutors in the Stanford case.

    Combating Fraud in the Crypto Space

    46:39 - 53:34

    • ICO sweep coordinated by NASA and state regulators to combat fraud in the crypto enforcement space.
    • Initial coin offerings (ICOs) became a target for fraudsters due to the popularity of digital currency.
    • Internet sweeps were conducted to identify fraudulent ICOs and digital currency schemes.
    • Language indicating fraudulent activities was identified on websites promoting ICOs.
    • Cease and desist orders were issued and posted on the internet to warn investors about fraudulent companies.
    • Collaboration with internet providers led to the takedown of fraudulent websites.
    • The approach served as an early warning system for investors, preventing financial losses.
    • The ICO sweep expanded into a COVID-19 sweep to address fraudulent vaccine offers and cures.

    Fraudulent Vaccine Offers and COVID-19 Scams

    53:14 - 56:45

    • Investment in the podcast is also an investment in getting rid of COVID-19.
    • There were fraudulent vaccine offers and claims for cures related to COVID-19.
    • An ICO fraud claimed that Harvard scientists had developed an antivirus for COVID-19.
    • The fraudsters asked people to download the antivirus, which actually installed bots on their computers.
    • The bots stole personal information and drained bank accounts.
    • Internet providers were contacted to take down the fraudulent ad.
    • Sweeps like these have been successful in stopping mass frauds.
    • The next episode will focus on securities regulation and investor protection.
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