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State Securities Regulators Adapt in Response to COVID-19

As financial professionals struggle to adapt during these trying times, securities regulators are also revising their processes and procedures to address the current realities of investor protection in the time of COVID-19 while being fair to the regulated entities. In testimony to the Financial Stability Oversight Council (FSOC) on March 26, 2020, Melanie Senter Lubin, Maryland Securities Commissioner, detailed the efforts of more than 30 state securities regulators to provide some temporary relief from various regulatory requirements. According to Commissioner Lubin, these states “have taken steps to extend certain deadlines and provide temporary relief from a variety of requirements.” In addition, she stated that, in light of widespread practice of working remotely, “regulators are reaching out to our registrants to establish lines of communications and to figure out ways to address delays that might be caused by dislocations.”  The North America Securities Administrators Association (NASAA) has also drafted a model emergency order for states to use as a template in granting temporary relief from certain registration, filing and form delivery requirements. Florida issued such an emergency order on March 26, which, among other things, granted any holder of a securities registration an additional 45 days to update or file a financial statement if that deadline occurs in March or April, 2020.  Similarly, Delaware issued its own emergency order tolling registration deadlines and providing relief from the requirement to obtain a physical signature on FINRA Forms U4.

However, while state regulators are working to financial professionals to navigate this changing landscape, Commissioner Lubin cautioned that state regulators “remain focused on our mission to protect investors from opportunistic frauds[,]” and that “[b]oth individual states and NASAA have issued advisories to investors to be on alert for persons soliciting investments in companies offering such things as (COVID-19)  testing breakthroughs and miracle cures.” In a similar vein, NASAA president and chief of the New Jersey Bureau of Securities, Christopher Gerold, warned any unscrupulous financial professional looking to capitalize on the uncertainty that “[a]ll state regulators are continuing to operate,” and that “[m]ost of them are working remotely with a skeleton crew in the office.”

It is clear that, although state regulators are willing to relax some requirements on financial professionals in order to reflect the realities of the current situation, they are not asleep at the wheel, and will be continuing investigations, and filing enforcement actions as needed, while most of the financial world works remotely.

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Authors

Pete S. Michaels

Member / Co-Chair, Financial Services Practice

Pete S. Michaels is a Mintz attorney who focuses his practice on securities litigation, regulatory proceedings involving financial service companies and products, and compliance matters. He represents financial services firms and insurance companies and their employees, directors, and officers.
Michael E. Pastore is a Mintz attorney who represents banks, financial services, and other companies in litigation and government proceedings involving consumer protection and other laws. He also handles arbitrations and guides clients through government and internal investigations.