Marc S. Wilson
Kansas Securities Commissioner
Common sense tells us that convicted felons and persons banned from financial services industries should not be permitted to offer securities to the public.
Fortunately, the Wall Street Reform and Consumer Protection Act will reinstate the “bad boy” laws that will once again prevent convicted felons from using federal exemptions to raise capital in the public marketplace.
Yes, current law has a loophole that felons and other undesirables can use to make stock offerings to the public.  Unfortunately, this is perhaps not surprising after what the country has been through with
But reform is in the air in more ways than one.  After Bernie Madoff, Congress is asking state securities regulators to shoulder more of the securities industry oversight burden.  When the federal reforms become law, the Kansas Securities Commissioner (KSC) will become the primary regulator of Kansas investment advisers with up to $100 million in assets and licensed in fewer than 15 states, leaving the SEC to focus on the largest Wall Street players.
Since 1911, Kansas has been protecting against fraudulent investments that have “no more basis than so many feet of blue sky.”  Thanks to Kansas — the first state to adopt such regulation — these state consumer protections are known the world over as “blue sky laws.”
By increasing state responsibility, Congress is acknowledging that Kansas has been correct in its approach all along.  In fact, KSC is already working on implementing the required changes in a manner that ensures advisers understand the new rules but remain focused on investors and the growth of investor assets in the
Perhaps these changes are proof that even Washington can make sense sometimes.
But don’t hold your breath, because the reform bill probably did not do everything it should.
For example, unbeknownst to many, investment advisers and broker-dealers have differing duties to their clients.  Investment advisers have a “fiduciary” standard in making investment recommendations to their clients, while broker-dealers operate under a “suitability” standard.  Critics claim this difference means broker-dealers are incentivized to recommend investments with higher commissions, not what is best for their client.
One version of the federal reforms placed the same “fiduciary” standard on both advisers and broker-dealers; however, this version was not adopted.
Instead, Congress required that the SEC study the issue for six months and adopt rules if the SEC decides they are needed.
The federal reforms require nearly 70 studies like this, and further mandates the SEC to adopt close to 350 rules and regulations on various topics, some of which will be critically important to protecting investors.  Other rules have the potential to reduce the amount of capital available for certain types of investments.
Federal issues like derivatives regulation and systemic risk are beyond the control of KSC.  But we will remain vigilant in doing the job mandated by the Kansas Legislature and Congress, and in monitoring the SEC’s rulemaking process to ensure the interests of Kansas investors are heard.
Marc S. Wilson is the Kansas Securities Commissioner.