U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Final Report:
2001 Conference on Federal-State Securities Regulation

North American Securities Administrators Association, Inc.
10 G Street, N.E.
Suite 710
Washington, D.C. 20002

U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

September 2001

Table of Contents

  1. Reports of the Working Groups
    1. Corporation Finance
    2. Investment Management
    3. Market Regulation
    4. Enforcement
    5. Investor Education and Assistance
  2. Exhibits
    1. Conference Participants
    2. Commenters

I. Summary

The United States Securities and Exchange Commission ("SEC" or "Commission") and the North American Securities Administrators Association, Inc. ("NASAA") held their annual meeting in Washington, D.C. on April 30, 2001. The 2001 meeting was the 18th meeting held under Section 19(c) of the Securities Act of 1933. That section requires an annual meeting to promote the following goals:

  • maximize uniformity in federal and state securities regulation;
  • maximize effectiveness of regulation;
  • reduce costs and paperwork for issuers; and
  • minimize interference with capital formation.

Approximately 200 representatives from the states and from the SEC attended the 2001 meeting.1 Participants divided into five working groups in the following subject areas: corporation finance; investment management; market regulation; enforcement; and investor education and assistance.

SEC and NASAA representatives discussed matters of common interest and concern in these working groups. Part II of this report describes the discussions of each group. During the group meetings, participants outlined current state and federal regulatory efforts and initiatives. They identified areas where joint cooperation would be beneficial and discussed ideas and plans for more effective cooperation, coordination and communication.

The SEC and NASAA issued a joint release2 before the meeting announcing the proposed agenda and seeking comments from interested members of the public concerning the agenda topics as well as other relevant matters.3

II. Reports of the Working Groups

A. Corporation Finance

The 2001 meeting was the fifth meeting following passage of the National Securities Markets Improvement Act of 1996 ("NSMIA" or the "1996 Act").4

With the enactment of NSMIA, Congress realigned the federal and state regulatory partnership governing securities registration. In part, NSMIA preempts the state registration and review of transactions involving "covered" securities. "Covered" securities include securities listed on the New York Stock Exchange, Inc. ("NYSE"), American Stock Exchange LLC ("AMEX") and the Nasdaq National Market System. The states retain authority to register, review, or exempt from registration, non-covered securities. Non-covered securities generally include the securities of smaller companies, like those quoted on the Nasdaq SmallCap market, the NASD's over-the-counter Bulletin Board, or in the "pink sheets." Securities issued in unregistered offerings and qualifying under some federal exemptions are also non-covered securities.5

The states' ongoing authority over many securities offerings continues the need for uniformity between the federal and state registration systems. The working group made up of the staff from the Commission's Division of Corporation Finance and state representatives discussed the following topics:

1. Transactions Involving "Qualified Purchasers"

In NSMIA, Congress included as a "covered" security any security offered or sold to a qualified purchaser. Congress left it to the responsibility and discretion of the Commission to define the term "qualified purchaser." However, Congress instructed the Commission to consider that such persons should include sophisticated investors, who are capable of protecting themselves, and thus would not be disadvantaged by the elimination of state registration.6

Division staff noted that it was likely to propose a definition for qualified purchaser by year-end. Participants discussed methods of determining an individual's financial sophistication, including currently utilized concepts, such as the accredited investor. Division staff stated that investment level might be one way to determine financial sophistication. Some state representatives noted that it might be difficult to discern the amount of investment level; however, an income test might be easier, but an adjustment should be made for inflation. State representatives also questioned the need for the definition given that they had not received complaints that small businesses' capital raising abilities had been hampered. State representatives noted that receiving notice filings was an important feature of their enforcement programs.

2. Federal Exemptions

A. Regulation A

Regulation A provides an exemption for an offering up to $5 million within a 12-month period. Securities issued in a Regulation A offering are freely tradeable. In addition, issuers may also "test the waters" to determine whether its offering will receive any interest from the investing public, before incurring the full cost of undertaking an offering. Despite these benefits, participants noted that the Regulation A exemption appears to be under utilized. Division staff discussed possible revisions to Regulation A for purposes of making the exemption more attractive to small businesses while maintaining the properties of investor protection. For example, possibly eliminating the "bad boy" provisions of Rule 262.7 Another possibility included the elimination of disclosure Models A and B, and the exclusive use of Form SB-2 as a disclosure document.

The group discussed the need for a unified approach at both the state and federal levels. In particular Regulation A allows an issuer to include unaudited financial statements in its offering circular; however, many states generally require three years of audited financial statements. In addition, Division staff introduced the possibility of increasing the offering level to $10 million from $5 million in an effort to make the Regulation A exemption more desirable.

B. Form D
Under Regulation D, issuers may qualify for limited offering exemptions at the federal and state levels. Issuers are required to file a Form D with the Commission within 15 days after the first sale.8 Issuers must also file the Form D in states that have adopted the Uniform Limited Offering Exemption ("ULOE") and the Form D.9 Currently, paper copies of the Form D are filed with the Commission and some of the states. Given the technological advances, participants indicated an interest in eliminating paper filings and replacing it with electronic submissions through the Edgar system. Participants acknowledged that a working group composed of Commission staff and NASAA members might collaborate to determine methods of simplifying the form. NASAA members pointed out that a consent to service of process provision similar to the one in Forms ADV and BD would need to be included in the revised form. Participants also expressed concern that the prohibitions on general solicitation not be compromised due to the availability of filings through Edgar.

3. Blank Check Companies

Under Rule 419, a blank check issuer is defined as a development stage company with no specific business plan or purpose, or an issuer that indicates it plans to merge or acquire an unidentified company or companies. The Commission has adopted several rules to deter fraud in connection with offerings by blank check companies.10 For example, blank check companies must deposit all proceeds into an escrow account until certain requirements are met, including filing a post-effective amendment once the acquisition or business assets have been located.11

Commission staff discussed a recent trend in registration filings by issuers whose business plan is predicated on the outcome of a feasibility study. The feasibility studies are used to investigate the need or marketability of a particular service or product. Generally, these issuers have no assets or experience in the particular business being considered. Division staff indicated that the application of Rule 419 was being raised and addressed in the commenting process.

Participants discussed possible rule revisions aimed at improving the timeliness of certain disclosures made by blank check companies. Currently, blank check companies who have made a significant acquisition may take up to 75 days to file financial information on Form 8-K. Commission staff discussed the possibility of requiring blank check companies to file the Form 8-K within 15 days after making a significant acquisition.

Form S-8 is a registration statement used to offer securities to employees under an employee benefit plan. The registration statement becomes effective immediately upon its filing. Blank check companies may use Form S-8. Participants discussed the possible abuses associated with these offerings, given that blank check companies generally have no operations and few if any employees. Commission staff indicated an interest in making the Form S-8 unavailable to blank check companies.

4. Communications Restrictions Before, During and After a Registered Public Offering

The Division staff discussed plans to review possible modifications to restrictions on communications during the offering period. In this regard, the Division staff noted that the scope of the review would involve all of Section 5 under the Securities Act with a view toward accommodating new technologies without compromising investor protection.

5. Plain English

As of October 1, 1998, issuers filing Securities Act registration statements must comply with the plain English requirements when drafting the front part of prospectuses, i.e., the cover page, summary, and risk factors sections.12 During the review of a registration statement, division staff may issue comments to obtain improved plain English disclosure. Because some states also review and comment upon prospectus disclosure, have arisen on the staff's application of the plain English rules. Division staff discussed the most troublesome areas of plain English compliance: 1) jargon and technical terms; 2) business descriptions; 3) risk factors; and 4) graphics. The group discussed ways to facilitate federal and state coordination in the comment process.

6. Uniform Securities Act

A committee of the National Conference of Commissioners on Uniform State Laws is in the process of drafting a new version of the Uniform Securities Act — a uniform state securities law statute. The new version would modernize and update the law for many changes including, for example, NSMIA, technology advances, internationalization of securities offerings, and trading. The group discussed the status of this redrafting effort.

B. Investment Management

The investment management working group included representatives from the states, and the Commission's Division of Investment Management and Office of Compliance Inspections and Examinations ("OCIE").

1. Electronic Filing and the Investment Advisor Registration Depository ("IARD")

Division representatives reported that the transition of SEC registered advisers to electronic filing through the IARD went very well. Most SEC-registered advisers required to transition to electronic registration had done so; several hundred new advisers have registered electronically since January 2001. SEC staff responded to several thousand phone messages left on an IARD help line during the four-month transition process.

A Division representative reported that the SEC sent a warning letter in March to all SEC advisers who failed to set up IARD accounts because these advisers could have their SEC registration cancelled. The Division will send NASAA a copy of the final cancellation list for distribution to the states.

The conferees discussed the plans of states to make electronic filing through IARD mandatory. A state representative reported that they expect many states to mandate participation by year end. Division representatives made some observations about the recent electronic filing experience of SEC-registered advisers. The conferees discussed briefly how the Division's experience might benefit states that are working on the transition of state registered advisers to electronic filing.

The conferees discussed the anticipated implementation of the public disclosure component of IARD, which is expected to be "rolled out" by the third quarter of this year. This feature will enhance investor protection by allowing the public to search for an adviser — by name, by Central Registration Depository ("CRD") number, or by 801 number — and see an adviser's latest Form ADV. A few items will be blocked from public view for privacy reasons. A state representative reported that IARD should be ready to accept information on registered representatives of advisers by January 2002.

The conferees also discussed current plans to adopt amendments to Part 2 of Form ADV, which were proposed last year.13 A Division representative distributed the summary of comments received by the SEC. The conferees discussed the comments and reviewed possible approaches for resolving issues raised by them.

2. Current Issues and Rulemaking

A representative from OCIE reported that review of Internet use is part of every adviser exam since most advisers are using the Internet for advertising and marketing. Direct provision of advice over the Internet presents a number of legal interpretive issues that OCIE and Division staff are studying.

A representative from the Division reported that several new federal laws may require rulemaking under the Advisers Act.14 These include the Graham-Leach-Bliley Act of 1999 ("GLBA")15 and the Commodities Futures Modernization Act of 2000 ("CFMA").16 The Division's representative reported that the Division's Office of Investment Adviser Regulation was also currently working on rulemaking that would revise the SEC's books and records rule (Rule 204-2) and the custody rule (Rule 206(4)-2), and expects to recommend that the Commission adopt a rule addressing the status under the Advisers Act of brokers charging asset-based fees for brokerage.17 The states may consider some type of exemptive relief from registration for credit unions that give investment advice.

A Division representative reported on proposed SEC rule amendments18 that will permit broader use of electronic document storage in conformance with the Electronic Signatures in Global and National Commerce Act. A state representative said that the states plan to adopt rules compatible with the SEC rule amendments dealing with electronic document storage. Other issues related to NASAA's Model State Rules were discussed briefly by the conferees.

3. Examination Issues

An OCIE representative described the SEC's examination program for advisers in Wyoming, the only state that has no adviser regulation. The OCIE representative also noted that states can receive the SEC's examination information, including deficiency letters, once they have a confidentially agreement with the SEC; most states have such agreements with the SEC. The conferees briefly discussed the availability to states of certain financial documentation under SEC books and records rules. The OCIE representative confirmed that states are notified whenever OCIE identifies an adviser ineligible for SEC registration. In response to a state request, a representative of the Division summarized two recent enforcement cases involving unregistered advisers who touted stocks over the Internet and engaged in day trading.

C. Market Regulation

State representatives and staff of the Commission's Division of Market Regulation and OCIE discussed the following matters:

1. Books and Records

The participants discussed the form and status of proposed amendments to the SEC's books and records rules. These proposed amendments were initiated in 1996 in response to concerns raised by NASAA members and now incorporate certain suggestions from industry participants.19 The proposed amendments are meant to comport with NSMIA, which prohibits states from imposing broker-dealer books and records requirements that differ from, or add to, the Commission's requirements, and directs the Commission to consult periodically with state securities authorities about them. The proposed amendments also are meant to reduce the regulatory burden on broker-dealers without detracting from the ability of the Commission, self-regulatory organizations ("SROs"), and state securities regulators to conduct effective examinations and enforcement. Due to a moratorium on new rules, any potential approval of these amendments by the Commissioners has been delayed.

2. Capacity Issues

The participants reviewed the issue of broker-dealer systems capacity in light of the increasing number of online brokerage accounts opened by investors. The group discussed the effects of systems outages on individual investors, the responsibilities of online brokers and dealers during such occasions, and the current practices of such brokers and dealers.

3. SEC Proposals

In addition to the items on the agenda, the SEC's recent adoption of two new rules to improve public disclosure of order execution and routing practices was reviewed.20 Under new Rule 11Ac1-5,21 market centers that trade national market system securities will be required to make available to the public monthly electronic reports that include uniform statistical measures of execution quality. Under new Rule 11Ac1-6,22 broker-dealers that route customer orders in equity and option securities will be required to make publicly available quarterly reports that, among other things, identify the venues to which customer orders are routed for execution. In addition, broker-dealers will be required to disclose to customers, on request, the venues to which their individual orders were routed. These disclosure requirements are intended to spur market participants to provide the best possible prices for investor orders. These new rules, and the availability of such information to the public, were discussed.

As of April 9, 2001, all exchange-listed and Nasdaq stocks and their options were converted to decimal pricing. The conferees discussed issues associated with the implementation of decimal pricing and its effects on market quality and trading behavior, including such practices as "penny jumping" or "stepping ahead."

4. Small Office Supervision and SRO Issues

Division staff and state regulators discussed the problems they have observed with respect to securities fraud in small, remote offices that are not subject to onsite supervision. Fraudulent conduct in these offices is often difficult to detect. The conferees discussed inadequacies in current supervisory procedures with respect to small remote offices. They also discussed what, if any, additional regulatory measures might help. The conferees exchanged insights on approaches they have taken to promote better supervisory procedures and reduce the types of violations occurring at small remote offices. Among other measures, some state regulators prefer to conduct surprise examinations, while others have required remote offices to have onsite supervision.

The Commission recently approved rule changes by the NYSE and the NASD to amend margin requirements for day trading customers of member firms. Further, in July 2000, the Commission approved a proposal by the NASD that requires firms promoting a day trading strategy to disclose its associated financial risks, and to assess its propriety as a strategy for individuals. The participants reviewed these rules and discussed their application and effects.

5. Financial Modernization Legislation

The participants reviewed several aspects of the GLBA, which permits securities, insurance, and banking firms to enter each other's lines of business. The conferees discussed the registration requirements of this legislation and the status of Commission rulemaking in this area.

6. Financial Modernization Legislation — Implementation of Privacy Rules

The Commission's newly adopted privacy rules, designated Regulation S-P, implement Section 504 of the GLBA, which requires federal agencies to adopt rules implementing notice requirements and restrictions on a financial institution's ability to disclose nonpublic personal information about consumers. The conferees discussed these developments, the SEC's plans for compliance examinations, enforcement of the new regulation, and the application of the new rules to industry professionals and investors.

7. Commodity Futures Modernization Act of 2000

The participants reviewed the CFMA. The bill: (1) lifts the statutory ban on single stock and narrow-based stock index futures; (2) clarifies the regulatory treatment of certain over-the-counter derivative instruments under the commodities and securities laws; and (3) adjusts regulatory oversight of futures exchanges by the Commodity Futures Trading Commission ("CFTC"). The CFMA provides for joint SEC/CFTC regulation of single stock and narrow-based stock index futures. Although state regulation of securities futures is preempted, as with futures on other products, Commission staff and state regulators discussed the ramifications of the legislation for investors and the status of various regulatory initiatives required to implement it.

8. Examination Issues

State and federal regulators also discussed various examination-related issues of mutual interest, including: summits and examination coordination; branch office examinations; micro-cap issues; day trading; variable annuity bonus products and brokered certificates of deposit.

D. Enforcement

The enforcement working group addressed a range of topics during its session. The meeting was attended by 57 enforcement officials, including representatives from 24 states and the District of Columbia, the Canadian provinces, the SEC's Division of Enforcement and each of the eleven SEC Regional/District Offices. Also attending were senior enforcement staff from the NASD-Regulation ("NASDR"), Nasdaq, the NYSE, the U.S. Department of Justice ("DOJ" or "Department"), the Federal Trade Commission ("FTC"), and the CFTC.

1. SEC Trends and Priorities

The Director of the Division of Enforcement opened with a discussion of several of the SEC's current areas of enforcement concern, beginning with the continuing increase in financial and accounting fraud being uncovered in the context of a number of financial reporting failures and large restatements of earnings. He also noted the establishment of a Financial Fraud Task Force within the Division of Enforcement. This Task Force will handle investigations of large, global companies which have failed to play by the accounting rules and which have harmed public investors through their activities. The goal of the Task Force is to investigate these companies and their potentially fraudulent accounting practices swiftly and thoroughly, then to quickly and efficiently reach an appropriate resolution to the investigations. Several major enforcement actions filed by the SEC that involved these issues were described.

A number of SEC initiatives designed to address the growth of Internet securities fraud were described. Among the developments highlighted in this area was the creation of new investigative branches within the Enforcement Division and in a number of the Commission's field offices. These branches consist of attorneys and, in some cases, non-attorney Internet specialists, who are devoted to conducting Internet-related investigations. The SEC's new customized automated search engine, which became operational in late 2000, was also discussed.

In light of the significant number of complaints presently being received from the SEC's Enforcement Complaint Center on the Commission's Website, the SEC's Enforcement Director indicated that the Division would be looking to make more referrals to the state securities commissions and to the SROs. The representatives of the various regulators in attendance discussed how these referrals could be most effectively distributed and which ones they were interested in receiving.

The impact of the recent market downturn and market volatility on the mix of frauds confronting the SEC was mentioned. Of particular note are the changes now being seen in the sales tactics of the people committing securities fraud. Instead of pushing the prospects of the latest dot.com/high tech company, these fraudsters are currently playing on investors' concerns with the unsettled markets and with the rapidly dropping interest rates on the more legitimate fixed income instruments.

The focus of the sales pitch is now on the stable, safe, high quality nature of the investments being sold. Unfortunately, the actual investments are anything but safe and frequently involve very risky and speculative ventures. The elderly are often the targets of these frauds.

The SEC enforcement staff emphasized the continuing importance of developing better relationships with local and federal criminal prosecutors. In a growing number of instances, the available civil remedies do not stop some of the people behind today's frauds. Criminal prosecution and resulting jail time does. As evidence of the SEC's efforts in this regard, its Enforcement Director cited the fact that the SEC has worked, over the past few years, with 46 U.S. Attorneys' Offices nationwide on criminal cases.

In closing, the SEC senior enforcement staff, including the field office heads, emphasized the importance of the enforcement agencies represented at the 19(c) meeting coordinating and leveraging their respective resources and remedial powers.

2. State Trends and Priorities

The Chair of NASAA's Enforcement Section (Securities Commissioner of Minnesota) and the Assistant Commissioner of the Enforcement Division of California's Department of Corporations described the major trends and priorities of state securities law enforcement. They emphasized the importance of the states acting on a coordinated multi-state basis, where appropriate, to enhance their message that state regulation of the securities laws was a critical and necessary complement to federal regulation.

The states continue to uncover sales practice abuses in a number of broker-dealer firms that promote and sell low priced securities. They reported similar problems with networks of "independent contractors." Frauds involving foreign currencies, promissory notes, CD brokers, prime bank notes, variable annuities and viaticals were highlighted as continuing concerns of state securities commissions.

They also noted the growing use of unlicensed/unregistered individuals, particularly independent insurance agents, to lure people into buying these investments. According to the state regulators, a growing number of these agents, drawn by the high commissions, are relying solely on marketing claims provided to them by the promoters of these scams that are either misleading or false. Among other areas, these agents have been involved in sales of promissory notes, prime bank notes and coin-operated sale leaseback investments.

As was the case with the SEC, the state securities commissioners are finding that our senior citizens are popular targets of today's fraudsters and that the sales pitches are now emphasizing the safety and high returns of the products being sold — again playing on investors' concerns with the current volatility of the equity markets.

The state representatives also listed affinity group fraud, where a scammer uses a common religion or ethnicity to gain the victims' trust, as a major problem.

And finally, the Assistant Commissioner of Enforcement from California summarized a number of NASAA special projects that are currently underway or are in the planning stages.

3. NASDR, Nasdaq and NYSE Trends and Priorities

Enforcement officials from these SROs described several areas of concern and discussed various initiatives aimed at those concerns — many of which overlapped with those raised by the SEC and the state securities commissioners. The SROs' concerns included sales practice and trading abuses, online and day trading, microcap fraud, market manipulation and other issues generated by advances in technology. They all touched on the impact of the market downturn and market volatility on their respective enforcement programs.

The NASDR staff also discussed a number of recent notices to members, the new guidelines regarding suitability in the context of online trading accounts, as well as the status of the NASDR's criminal assistance branch. The Nasdaq representative described enforcement initiatives regarding National Market System listings. The work of the unit in charge of enforcing the listing requirements of the Nasdaq market, and of monitoring various potential indicators of fraudulent activity in that market, was highlighted.

NYSE officials described several market surveillance and enforcement initiatives, including a number of specific cases brought by the Exchange over the past year. They also stressed their continuing focus in both the Exchange's enforcement and inspection programs on the existence of adequate internal controls and supervisory procedures within member firms.

4. DOJ and U.S. Attorney's Offices Securities Fraud Programs

The DOJ representative touched on what the Department and various U.S. Attorneys' Offices around the country look for in potential criminal cases referred to them by civil agencies and by the SROs. He also indicated his belief that the Department would continue to place a high priority on securities fraud cases and other forms of white collar crime. He described the Department's Office of International Affairs and its role in dealing with global enforcement problems and cooperative assistance initiatives. And finally, he encouraged local and federal regulators to contact criminal prosecutors early in their investigations where there may be a need for criminal action as well as a civil or administrative proceeding.

All participants agreed that more regular meetings at both the national and local level between criminal and civil enforcement staff would be helpful. Such meetings could facilitate the exchange of information, the development of joint or coordinated projects and the clarification of referral procedures.

5. FTC Enforcement Initiatives

The FTC representative focused his presentation on various consumer protection initiatives — including certain projects designed to better monitor the Internet for a range of violative activities. He encouraged the other regulators to consider participating in FTC Internet "surf days" and enforcement sweeps. The Consumer Sentinel database and the information accessible from it were described and the agencies present were urged to become users of this system.

6. CFTC Enforcement Program

For the first time in several years, a senior enforcement representative from the CFTC was invited to participate in the enforcement breakout session. A presentation was made on the organization of the Enforcement Division of the CFTC, on the principal priorities of that unit and on the impact of the agency's recent reauthorization legislation. Of particular interest were the initiatives of the enforcement staff directed at various foreign currency or FOREX scams. Examples of where the CFTC and other regulators had already, and could in the future, cooperate, share information, conduct parallel investigations and ultimately file complimentary enforcement actions were cited.

E. Investor Education and Assistance

More than 26 individuals attended the Investor Education working group session, including representatives from 13 U.S. states, 5 Canadian provinces, NASAA's Corporate Office, and the SEC's Office of Investor Education and Assistance. The working group discussed the following items:

1. Financial Literacy 2001

In the spring of 1998, NASAA, the NASD, and the Investor Protection Trust ("IPT") joined forces to launch "Financial Literacy 2001," an unprecedented $1 million campaign targeting 25,000 high school teachers across America. The goal of FL 2001 is to encourage-and make it easier for-teachers in every state to teach the basics on saving and investing.

On behalf of the FL 2001 Committee Chair, the Chair of NASAA's Investor Education Coordination Committee briefed the working group on the status of FL 2001. She reported that NASAA and the IPT have revised the teachers' guide to include a new chapter aimed at high school economics teachers. The new guide is scheduled to be available later this year. NASAA has developed a mechanism for teacher feedback on the FL 2001 curriculum. The Chair also reported that IPT has been researching state requirements concerning economics and financial literacy. Future marketing efforts will take into account state requirements.

Participants in the working group discussed their efforts to promote FL 2001 in their respective jurisdictions and the challenges involved. They also shared ideas on how best to approach teachers, school boards, and state education officials and identified alternative or complimentary financial literacy programs targeted toward students in grades K-12. NASAA's Director of Investor & Member Education & Technology noted that the FL 2001 curriculum is now available in Spanish.

In the coming months, NASAA and the IPT plan to continue conducting teacher-training workshops nationwide to expose more teachers to the curriculum.

2. Online Investor Protection

The Chair of NASAA's Online Investor Education Committee discussed recent developments in online investor protection following the December 1999 launch of the Investing Online Resource Center ("IORC"). Although the Securities Division of the Washington State Division of Financial Institutions originally created the IORC, NASAA recently adopted the IORC as one of its official projects.

NASAA is currently in the process of redesigning and updating the site to better serve the investors who use it. The new site-which should be completed by June 2001-will feature an interactive simulation that guides the user through the process of setting up an account and trading online, educational materials, investor alerts, and online trading in the news. The site will continue to offer a self-assessment tool to help investors determine whether to consider trading online. It will also continue to provide links to helpful resources, including state regulators, the NASD, and the SEC.

The SEC briefed NASAA on the materials it has developed to fight Internet fraud and to educate investors on how to use the Internet to invest wisely. These include both print and online publications and alerts on Internet fraud, pump and dump schemes, prime bank scams, online trading, margin, and trade execution.

3. Facts on Saving and Investing Campaign

In the spring of 1998, NASAA and the SEC, in conjunction with the Council of Securities Regulators of the Americas, launched the Facts on Saving and Investing Campaign. The campaign is an ongoing, grassroots effort to educate individuals about saving, investing, and avoiding financial fraud.

During 2001, the campaign was held during the month of April and focused on 4 distinct themes: youth financial literacy, avoiding fraud, saving for retirement, and international investor education. Campaign initiatives included a Presidential Announcement on April 12, 2001, a tour for students of the floor of the NYSE, a nationally broadcast roundtable on frauds aimed at senior citizens, and a panel on how best to reach out to Hispanic and other minority communities. A joint publication that the Securities Industry Association, NASAA, the SEC, and the NASD released during the month, Promissory Notes: Promises, Problems, which was a result of the industry and securities regulators working together on the promissory note problem, was also discussed.

The Chair of NASAA's Investor Education Coordination Committee discussed educational information provided to NASAA members within a turn-key package for use in their own jurisdictions during the Campaign in April.

4. New Investor Education Programs

Participants in the working group session discussed recent investor education initiatives in their respective jurisdictions, including programs designed to reach underserved populations such as rural communities, minority groups, elementary and high school students, and the elderly.

The Chair of NASAA's CRD Background Check Campaign discussed NASAA's latest investor brochure-available in both English and Spanish-on how to check out brokers, How to Check Out Your Stockbroker or Brokerage Firm. He also discussed NASAA's ongoing initiative to work with the securities industry on developing new tools to help investors understand account statements, prospectuses, and other financial documents.

Representatives from the SEC's Office of Investor Education and Assistance discussed the SEC's newly redesigned website, highlighting user-friendly features that make it easier for investors and others to find information. They also described the recent launch of a new interactive "Margin Calculator" that helps investors to assess the likelihood of receiving a margin call based on their actual holdings and to better understand the risk of margin. In addition, the SEC plans to translate several of its key brochures into Spanish and create a Spanish language page in the Investor Information section of the SEC's website.

5. Investor Education Resources

Participants in the working group session discussed existing resources for investor education — including brochures, videotapes, posters, online resources, and materials that have been translated into Spanish and French — and identified gaps. Information was also provided on educational sessions for high school students that are being organized by state securities administrators and being held in shopping malls. The Chair of NASAA's Investor Education Coordination Committee encouraged participants to adapt and distribute the turn-key resources developed in connection with the Facts on Saving and Investing Campaign, such as book marks and investor tool kits. Similarly, representatives from the SEC's Office of Investor Education also encouraged participants to link to, import, or download and print educational materials on the SEC's website.

III. Exhibits

A. Conference Participants

NASAA Corporate Office
Marc Beauchamp
John H. Lynch
Ashley Baker
Cheryl Besl
Deborah Fischione
Royce O. Griffin, Jr.
Donna M. Holt
John Veator

SEC Executive Office
Laura S. Unger
Mary S. Head
Christine Richardson
Meredith Mitchell
Diane Sanger
Richard Levine
Janice Mitnick
Twanna Young
Netta Williams

Corporation Finance Working Group

Yohannes Assefa
William Beatty
David Brant
Dale Cantone
Marilyn Chastain
Larry Coates
Timothy Cox
Carmen Crépin
Felipe Cruz
Rhonda Davis
David Grosso
Thomas Hampton
Peter Hildreth
Colleen Keefe
Harold Kocher
Robert MacLellan
David Massey
Theodore Miles
Lawrence Mirel
Lynn Naefach
Christopher Prior
G. Philip Rutledge
Leah Schuman
Randall Schumann
Dana Sheppard
Nina Smeltzer
S. Anthony Taggart
Steven Wassom
Vartan Zenian

Robert Bayless
Anthony Barone
James Daly
Paula Dubberly
Paul Dudek
Marty Dunn
David Fredrickson
Mark Green
Corey Jennings
David Martin
Michael McAlevey
Christopher McCormick
Elizabeth Murphy
Mauri Osheroff
Shelley Parratt
John Reynolds
Marva Simpson
Bill Tolbert
Richard Wulff

Investment Management Working Group

Ashraf Bhagat
Kelvin Blake
Merilyn Bowman
Ellen Cherry
Debbie Dye Joyce
Franklin Elder
Craig Goettsch
Maurice Goff
James Harlan
Jack Herstein
Kenneth Hojnacki
K. Blythe McLaughlin
Robert Merchant
Donald Murray
Paul Schwartz
Melanie Senter Lubin
William Reah Shelton
Henry Tanji
Katharine Weiskittel

Sara Ackerson
Marilyn Barker
Marticha Cary
Barbara Chretien-Dar
Don Evans
Dan Kahl
Mary E. Keefe
Vivian Liu
Jennifer McHugh
Robert Plaze
Paul Roye
Jennifer Sawin
Robert Tuleya

Market Regulation Working Group

Deborah Bortner
Terryl Brown
Christine Bruenn
Brenda Elias
Yvonne Henderson
Ralph Lambiase
John Maher
Victor Rodarte
Don Saxon
Tanya Solov
Ryan Ushijima
Franklin Widmann

Beth Badawy
Brian Baysinger
Victoria Berberi-Doumar
Larry Bergmann
Belinda Blaine
James Brigagliano
Gregory Dumark
Kathy England
Bonnie Gauch
Lourdes Gonzales
Richard Hannibal
Florence Harmon
Elizabeth King
Michael Macchiaroli
Tom McGowan
Brice Price
Nancy Sanow
Andrew Shipe
Jo Anne Swindler

Enforcement Working Group

Scott Bochert
Joseph Borg
David Briden
William Chapman
Ronald Corning
Eric Dinallo
Mac Dodson
E.J. Face
A. Richard Gerber
Ronald Jones
Guy Lemoine
Bill McDonald
Senayet Meaza
Charles Moore
Patricia Moy
Matthew Nestor
Douglas Ommen
Stephen Perry
Kerry Ricketts
James Ropp
W. Mark Sendrow
Edison Shea
Bradley Skolnik
David Tatman
Robert Terry
Ronald Thomas
Chester Thompson
Roger Waldman
Michael Watson

William R. Baker
Paul R. Berger
James A. Clarkson
Stephen J. Crimmins
David Kornblau
Thomas C. Newkirk
Charles D. Niemeier
Laurie Stegman
Linda C. Thompsen
Richard H. Walker

SEC Regional/District Offices
Valerie Caproni
Wayne M. Carlin
Harold F. Degenhardt
Randall J. Fons
Kenneth D. Israel
Mary E. Keefe
Ronald C. Long
Juan Marcel Marcelino
Helane L. Morrison
David P. Nelson
Richard P. Wessel

Self-Regulatory Organizations
David P. Doherty, NYSE
Barry R. Goldsmith, NASD — Regulation
Gary N. Sundick, Nasdaq

John Arterberry, U.S. Department of Justice
Stephen Gurwitz, Federal Trade Commission
Eileen Harrington, Federal Trade Commission
Dan Nathan, CFTC

Investor Education and Assistance Working Group

C. Suzanne Ball
Denise Crawford
Joan Daggett
Glen Gainer
Jack Herstein
Fred Joseph
Daniel Lord
Anthony Patey
Adrienne Salvail-Lopez
Daphne Smith
Eric Spink
William Verant
Cheryl Young

Susan Ferris Wyderko
Gerri Walsh

B. Commenters

Cooley Godward LLP
Kipnis Tescher Lippman & Valinsky
Martha Sjogreen


1 Conference Participants are listed at the end of this report.

2 See Release No. 33-7964 (March 23, 2001).

3 The commenters are listed at the end of this report. Comment letters are available for public viewing in File No. S7-08-01 in the Commission's Public Reference Room.

4 Pub. L. No. 106-229, 114 Stat. 464 (2000).

5 These include: Section 4(2) of the Securities Act where the offering does not meet the safe harbor requirements of Rule 506 of Regulation D (17 CFR 230.506); Regulation A (17 CFR 230.251 — 230.263); and Rules 504 and 505 of Regulation D (17 CFR 230.504 and 230.505).

6 H.R. Rep. No. 622, 104th Cong. 2d Sess. at 31 (1996). See also S.Rep. No. 293, 104th Cong. 2d Sess. at 15 (1996). These committee reports relate to bills that were eventually enacted as NSMIA.

7 17 CFR 230.262

8 17 CFR 230.503

9 The ULOE provides a uniform exemption from state registration for offerings complying with Regulation D.

10 17 CFR 230.419 and 17 CFR 240.15g-8.

11 17 CFR 239.419(b)(2)(i).

12 Securities Act Release No. 7497 (January 28, 1998).

13 Investment Advisers Act Release No. 1862 (April 5, 2000).

14 15 U.S.C. 80b-1 et seq.

15 Pub. L. No. 106-102, 113 Stat. 1338 (1999).

16 Pub. L. No. 106-554, 114 Stat. 2763 (2000).

17 Investment Advisers Act Release No. 1845 (Nov. 4, 1999).

18 Amendments were subsequently adopted for Rule 204-2 of the Adviser's Act and Rule 31a-2 of the Investment Company Act of 1940. Investment Company Act Release No. 24991; Investment Advisers Act Release No. 1945 (May 24, 2001).

19 See Exchange Act Release No. 40518 (October 22, 1996); Exchange Act Release No. 37850 (October 9, 1988).

20 Exchange Act Release No. 43590 (December 1, 2000).

21 17 CFR 240.11Ac1-5.

22 17 CFR 240.11Ac1-6.



Modified: 04/02/2002