Illinois investors will soon find themselves a little further out on the limb of self-reliance in the fight against investment fraud. Under the Dodd-Frank Wall Street Reform Act, enacted by Congress last year, state securities regulators are required to assume responsibility to oversee investment advisers who manage between $25 million and $100 million in assets, which previously was in the purview of the Securities and Exchange Commission ("SEC").
Unfortunately, this increase in responsibility is not being supported with an increase in funds to the Illinois Department of Securities ("IDS"), the regulator responsible for protecting investors against fraud in Illinois. To the contrary, according to reports, the current financial challenges facing state governments is causing the the director of the IDS, Tanya Solov, to submit a funding request for the next fiscal year less than the $12.4 million in funding for the present year. The greater responsibilities placed on the department's shoulders requires additional staff, and Ms. Solov plans to add three examiners and one attorney to her team. These staff additions, however, will cause the department to forego new computer equipment and choose other cost-saving measures that may be a drag on the Department's ability to effectively meet the challenges of its expanded responsibilities.
The IDS mandate focuses on regulating financial advisers and bringing enforcement actions to stop those who violate Illinois securities law. In that capacity, the agency is recognized throughout the state as a proactive and effective advocate for Illinois investors. But the pressure facing the regulatory agency of an increasing workload under the serious budget constraints means that investors need to be more diligent than ever in protecting their financial future. This means that investors must research their advisers' background by contacting the Investment Advisor Registration Depository("IARD"), the Financial Industry Regulatory Agency ("FINRA") and the IDS to find out what licenses their adviser holds, if any claims have been made or are pending against the adviser, and whether the adviser has been subject of any regulatory discipline. While important, this type of due diligence is no guarantee against investment fraud, and Investors who suffer losses because of misconduct by their adviser need to consider retaining a securities attorney to review their litigation options.
The IDS remains an important tool in the fight against fraud, but investors would be well-advised to actively join that fight in their own best interests.
