Business Scholarship Podcast
Joseph Borg on State Securities Regulation (Part II)
Tue Jun 20 2023Description
The episode covers Joseph Borg's multi-decade career as a state securities regulator, the importance of investor protection, the value of organizations like PIABA, funding mechanisms for state securities regulators, the role of state securities regulators and cooperation with federal agencies, cooperation between state and federal regulators, and supporting new entrepreneurs and sharing information. The topics discussed highlight the significance of investor education, the need for comprehensive systems like CRD and Broker Check, the impact of funding on regulatory effectiveness, and the importance of cooperation between state and federal agencies in ensuring market integrity.
Insights
Investor Education is Crucial
Joseph Borg emphasizes the importance of investor education and believes it should be taught from grade school up. Many people are afraid of outliving their money and are willing to trust others with their investments. It is recommended to research and check if financial advisors are licensed and registered before investing.
PIABA and State Regulators Exchange Valuable Information
PIABA, an organization of lawyers focused on protecting investors, provides valuable information to state regulators about new products or brokers causing harm to clients. This exchange of information benefits both parties in identifying patterns of fraud or systemic problems in the industry.
Funding Mechanisms Impact Regulatory Effectiveness
The Alabama Securities Commission's autonomy and independence led to its own source of funding, allowing it to enhance financial stability and bring in revenue through cases like Morgan-Keegan. Other states should consider implementing similar reforms for their securities regulators to ensure adequate funding.
Cooperation Between State and Federal Regulators is Essential
State securities regulators play a crucial role as the local police on the beat, while federal agencies like the SEC and FINRA handle bigger national issues. Cooperation between state and federal regulators can be improved politically and operationally to address financial risks and build investor confidence in the system.
Sharing Information and Supporting New Entrepreneurs
CPAs and lawyers donate their time to help new entrepreneurs get started. Even the smallest piece of information can be helpful, so it is encouraged to think creatively about how you can contribute to those in need. Sharing ideas and information can lead to positive outcomes for all.
Chapters
- Joseph Borg's Career as a State Securities Regulator
- The Importance of Investor Protection
- The Value of PIABA and Government Service
- Funding Mechanisms for State Securities Regulators
- The Role of State Securities Regulators and Cooperation with Federal Agencies
- Cooperation Between State and Federal Regulators
- Supporting New Entrepreneurs and Sharing Information
Joseph Borg's Career as a State Securities Regulator
00:06 - 07:18
- Joseph Borg, former director of the Alabama Securities Commission, discusses his multi-decade career as a state securities regulator.
- During his tenure, the commission helped convict 378 fraudsters and returned over a quarter billion dollars to the state general fund.
- Borg emphasizes the importance of investor education and believes it should be taught from grade school up.
- Many people are afraid of outliving their money and are willing to trust others with their investments.
- Borg advises individuals to research and check if financial advisors are licensed and registered before investing.
- He recommends using resources like CRD (Central Registration Department) for stockbrokers and investment advisors' records.
- Broker check is another system that provides information on brokers but may not be as complete as CRD.
The Importance of Investor Protection
06:50 - 13:31
- Broker Check is a useful system for preliminary reviews, but it's not as comprehensive as the CRD system from the state.
- If you see multiple complaints on Broker Check, it may be a red flag to avoid doing business with that individual or firm.
- For more detailed information, it's recommended to use both Broker Check and request a CRD report from the state.
- The Alabama Securities Commission has a strong staff and resources, and Amanda Senn is the new director who will take it to new heights.
- The ASC will continue its work with a younger perspective and utilize greater technology.
- PIABA (Public Investor Advocate Bar Association) is an organization of lawyers focused on protecting investors and bringing cases against bad products or brokers.
- PIABA provides valuable information to state regulators about new products or brokers causing harm to clients.
- There is an exchange of information between PIABA and state regulators, benefiting both parties in identifying patterns of fraud or systemic problems in the industry.
The Value of PIABA and Government Service
13:02 - 19:30
- PIABA provides value through information exchange and actions to fix industry issues
- Government service may not be lucrative, but personal satisfaction is more valuable
- Story of helping a victim recover $50,000 from a con artist
- Satisfaction of preventing fraud and helping others is priceless
- Alabama Securities Commission has decent level of resourcing due to funding mechanism
- Agency's autonomy and independence led to its own source of funding
- Other states can consider implementing similar reforms for their securities regulators
Funding Mechanisms for State Securities Regulators
19:06 - 25:53
- The agency needed its own source of funding in the early '90s
- Funding came from licenses, broker dealer money, and exempt transactions
- More Alabamians getting into the markets drove more funding for the agency
- Broker dealers, investment advisors, and mutual funds were sources of funds
- The agency worked with mutual funds to increase fees
- The split of funds is close to 55-45 with 65% going to the general fund
- The agency can keep savings from previous years
- Alabama's resources allow them to compete with bigger states
- The agency enhanced financial stability and brought in revenue through cases like Morgan-Keegan
- Other states should have better funding sources
- Alabama sometimes allocates excess cash to other projects like law enforcement or forensic sciences
The Role of State Securities Regulators and Cooperation with Federal Agencies
25:32 - 32:16
- Alabama's funding sources have allowed them to become a leader in cybersecurity and education programs.
- State securities regulators play a crucial role as the local police on the beat, while the SEC and FINRA handle bigger national issues.
- The tri-system of state and federal regulators, including CFTC, SEC, and state securities regulators, work together to ensure market integrity.
- Cooperation between state and federal regulators can be improved politically and operationally.
- The goal is to build investor confidence in the system and make improvements for everyone.
Cooperation Between State and Federal Regulators
31:51 - 37:58
- State and federal cooperation can be improved in certain areas.
- The SEC has expertise in security analysis and market manipulation.
- The SEC and state laws work well together but have some differences.
- States were the first to identify issues in the cryptocurrency market, but now the SEC is involved on a national level.
- Cooperation between states and federal agencies is necessary to address financial risks.
- Regular communication and conference calls occur between state regulators, FINRA, and the SEC.
- Criminal matters are handled by state attorney generals, DAs, and sometimes the FBI.
- Relationships between regulators are not only technological but also personal, which can be affected by turnover rates.
- Keeping up with technology is a challenge for regulators at both state and federal levels.
- Mandated meetings between the SEC and states occur at least once a year, with additional regional meetings throughout the year.
- Cooperation among regulators can always be improved.
Supporting New Entrepreneurs and Sharing Information
37:42 - 40:09
- CPAs and lawyers donate their time to help new entrepreneurs get started
- Think creatively about how you can contribute to those in need
- Even the smallest piece of information can be helpful
- If you have ideas or information, share them with us
- Former director of the Alabama Securities Commission, Joseph Bork, was a guest on the podcast