The Maine Workplace of Securities enforces Maine’s securities legal guidelines, licenses broker-dealers, broker-dealer brokers, funding advisers, and funding adviser representatives, and opinions registration statements and exemption filings for securities issuers providing to promote securities in Maine. Underneath the Maine Uniform Securities Act, the Workplace enjoys broad civil and legal enforcement authority.
The Workplace’s latest enforcement actions present that its priorities are according to these of the North American Securities Directors Affiliation (NASAA) Working Group, because the Workplace has focused its enforcement efforts on digital belongings/cryptocurrency-related actions of broker-dealers, funding advisers, and monetary companies companies.
The Workplace additionally stays targeted on promissory be aware fraud, unlicensed broker-dealers and funding advisers, the sale of unregistered securities, and the sale of securities to weak adults. As a member of the NASAA Working Group, we anticipate the Workplace’s enforcement traits to observe these of the NASAA. Under is a abstract of the Workplace’s latest enforcement exercise.
State of Maine v. Nelson Cowand
After being named in a legal grievance filed in November 2021, Nelson P. Cowand was indicted by a Cumberland County grand jury in April 2022 for alleged securities fraud and theft by deception. The indictment, for which the Workplace served because the investigating company, alleges that Mr. Cowand offered purported convertible promissory notes to a number of people by falsely representing that the funds could be used for a drug testing laboratory enterprise that had been licensed by the related accrediting company.
In line with the indictment, this was false, as was Mr. Cowand’s declare that he had invested $400,000 of his personal funds into the enterprise. Mr. Cowand pled not responsible. The legal case, after repeated continuances, is ongoing; Mr. Cowand has filed a movement to suppress proof and a movement to dismiss on statute of limitations grounds. (These motions and associated briefing are sealed).
Multistate efforts to deal with cryptocurrency-based merchandise
Appearing Maine Securities Administrator Judith Shaw is a member the NASAA Working Group, and their priorities are mirrored within the Workplace’s personal enforcement actions. In reference to multistate investigations performed by NASAA members, Maine entered into two latest consent orders coping with lending merchandise associated to cryptocurrencies.
In June 2022, the Workplace signed a consent order with BlockFi Lending LLC in reference to BlockFi’s supply and sale of interest-bearing digital asset accounts referred to as BlockFi Curiosity Accounts, or BIAs. By BIAs, traders lent digital belongings to BlockFi in alternate for a variable month-to-month curiosity cost, paid in cryptocurrency.
Although BlockFi advised traders that its institutional loans had been “usually” overcollateralized, solely a small minority had been, based on the consent order. On the finish of 2021, BlockFi held almost $12 million in BIA investor belongings from Maine residents. In line with the consent order, BIAs had been securities below the Maine Uniform Securities Act, which BlockFi didn’t register, and which it offered with out being licensed as a broker-dealer or agent. In 2022, BlockFi entered into parallel consent orders with every state and with the SEC, paying a complete of $100 million.
BlockFi neither admitted nor denied the findings of reality and conclusions of regulation in Maine’s consent order. It agreed to pay a civil high quality of $943,396 to Maine in 4 funds by means of 2024. Nonetheless, in November 2022, BlockFi filed for Chapter 11 chapter, a sufferer of turmoil within the crypto markets and of its publicity to cryptocurrency alternate FTX. The present standing of BlockFi’s unpaid obligations to Maine is unclear.
In February 2023, Nexo Capital, Inc. reached a settlement associated to its supply and sale of interest-bearing digital asset accounts referred to as “Earned Curiosity Product,” or EIP. Nexo offers crypto-based monetary companies to retail and institutional clients, together with buying and selling, borrowing, and lending companies.
By its EIP, Nexo provided traders curiosity on crypto belongings that had been loaned to Nexo. The rate of interest provided trusted the size of the mortgage and the kind of crypto loaned, amongst different elements. The NASAA Working Group discovered that Nexo did not disclose materials info associated to EIP curiosity era, Nexo’s regulatory compliance, and Nexo’s monetary stability.
As of July 2022, there have been 273 Maine EIP accounts with a complete worth of round $3.7 million. In line with the Maine consent order, Nexo’s supply and sale of the EIP had been topic to the Maine Uniform Securities Act, and Nexo provided and offered securities that weren’t registered. (Nexo neither admitted nor denied the findings of reality and conclusions of regulation within the consent order.)
Within the consent order with Maine, Nexo agreed to cease providing or promoting EIP to new traders in Maine, cease accepting additional investments or funds within the EIP by present Maine traders, and pay a complete of $424,538 within the type of a civil high quality and funds for investor training. The Nexo consent order was entered in parallel with consent orders with every of the states, by means of which Nexo paid $22.5 million in whole.
Multistate settlement with Robinhood
In Might 2023, the Workplace entered right into a consent order with Robinhood Monetary LLC, a well known broker-dealer that provides securities buying and selling to retail clients by means of its cell app. The settlement was half of a bigger, multistate settlement negotiated by NASAA earlier this yr by which Robinhood paid $10.2 million to varied state securities directors for numerous operational and technical failures.
In line with the Maine consent order, Robinhood, a licensed broker-dealer in Maine since 2014, violated the Maine Uniform Securities Act in a number of methods over the previous a number of years, largely on account of failing to scale up its methods and controls to match the explosive progress in consumer numbers. The consent order described inadequacies in Robinhood’s buyer identification system, vital platform outages that left clients unable to execute trades, and insufficient buyer response methods and buyer assist, amongst different points. Robinhood, which had over 40,000 Maine clients in 2020, neither admitted nor denied the findings within the consent order and agreed to make a cost of $200,000.
Order to stop and desist and denying exemptions in opposition to Instructional Empowerment Company
In June 2023, the Workplace issued a abstract order requiring a Texas-based firm doing enterprise as “Instructional Empowerment Company” and its chief government to cease providing unregistered securities representing investments in an internet faith-based algebra class for homeschoolers.
In line with the order, the merchandise, referred to as “charms,” had been provided by means of the corporate’s web site and promised returns between 2,093% and three,242%. The corporate first claimed it was exempt from securities registration in Maine as a nonprofit, although it failed to supply proof of that declare. The corporate subsequent claimed that it was providing solely to “accredited traders,” although the Workplace discovered that the corporate was unable to depend on this exception to the securities registration requirement. The Workplace scheduled a listening to for September 14, 2023 on whether or not the June abstract order must be made last, modified, or vacated.
This enforcement motion seems to haven’t any connection to Maine, aside from the respondent firm’s use of a web site accessible to customers in Maine (and elsewhere). With this motion, Maine seems to be the second state, after Vermont, to provoke enforcement motion in opposition to Instructional Empowerment Company and its government.
Actions in opposition to unlicensed broker-dealers and funding advisers
In 2023, the Workplace has already entered into two consent agreements with broker-dealers and particular person broker-dealer brokers, and two extra consent agreements with funding advisers and funding adviser representatives that weren’t licensed in Maine.
Within the two consent agreements involving funding advisers, the funding adviser representatives relocated to Maine from out of state and continued to supply funding advisory companies earlier than they had been licensed in Maine. Although one case concerned an unlicensed interval of solely eight days, and the opposite case concerned an unlicensed interval of solely 16 days, each funding advisors agreed to disgorge all funding advisory charges acquired throughout these durations ($15,799 in a single case and $5,982 within the different). As well as, each the funding adviser consultant and the funding advisor paid small civil fines.
Equally, within the two consent agreements involving broker-dealers, the broker-dealer and its agent effected securities transactions for a small variety of Maine retail purchasers. Within the first case, solely two transactions for a single Maine shopper had been concerned. Within the second, 4 purchasers and a complete of 34 securities transactions had been concerned over the course of greater than 4 years.
In every case, the broker-dealer neither admitted nor denied that their conduct violated Maine’s securities legal guidelines, however disgorged the compensation it earned from effecting the transactions for Maine clients and paid a small civil high quality.
A majority of these small enforcement actions for serving purchasers in Maine with out correct licenses—which seemingly end result from inattention on the a part of the monetary establishment—have lengthy been a staple of the Workplace. The truth that 4 such actions had been concluded within the first half of 2023 serves as an vital reminder for broker-dealers and funding advisers to make sure that they’re correctly licensed in Maine.
In August 2023, the Workplace additionally entered into a number of small consent agreements with broker-dealers for his or her failure to conduct on-site (slightly than digital) inspections of their Maine department workplaces. The Workplace takes the place that its guidelines require broker-dealers to conduct on-site department workplace inspections of Maine department workplaces. Every broker-dealer, with out admitting or denying the allegations, paid a small civil high quality.
The Workplace’s enforcement priorities for the rest of 2023 are more likely to embrace conventional considerations reminiscent of suitability of funding adviser suggestions, safety of weak adults, and fraudulent promissory be aware schemes, in addition to trending areas reminiscent of cryptocurrencies and different digital belongings. We anticipate the Workplace to proceed to barter consent orders together with NASAA enforcement actions.[View source.]