May 15, 1989
TO: INVESTMENT ADVISERS COMMITTEE NO. 21-89
NORTH CAROLINA MEMBERS
NORTH CAROLINA ASSOCIATE MEMBERS
RE: NORTH CAROLINA PROPOSED LEGISLATION ESTABLISHING
INVESTOR SECURITY FUND
__________________________________________________________
The purpose of this memorandum is to inform you that the
North Carolina legislature is considering a bill that would
establish an Investor Security Fund, financed by an assessment of
broker-dealer and investment adviser registrants. A copy of
House Bill 719 (companion bill is Senate Bill 520) is attached
for your review.
House Bill 719 would provide for several amendments to the
North Carolina Securities Act. These include:
(1) a prohibition on the use of unlawful boiler room
operations;
(2) a prohibition on the manipulation of any security;
(3) the administrator, in his discretion, may appoint
securities law enforcement agents and other
enforcement personnel to carry out the investigatory
and enforcement actions of the administrator;
(4) the establishment of an Investor Security Fund, funded
by assessments of securities dealers and salesmen and
investment advisers and investment adviser
representatives ($50 for entities and $10 for
individuals) and from which the administrator, in his
discretion, can pay "reimbursable losses" to a
claimant;
(5) civil liabilities for broker-dealers and investment
advisers with a statute of limitations of five years
and damage awards of an amount up to three times the
consideration paid for a security, etc.; and
(6) civil and criminal monetary penalties and fines paid,
as a result of violations, would go into an Anti-Fraud
Trust Fund; funds deposited in such fund would be used for
investigation and prosecution of civil and criminal actions
arising under the Securities Act.
In short, this bill would create two funds; an Investor
Protection Fund, funded by broker-dealers and investment
advisers, and an Anti-Fraud Trust Fund, funded by penalties and
fines paid by broker-dealer and investment adviser wrong-doers.
The Institute is extremely concerned about this
legislation, including the possible precedential effects
establishment of an Investor Protection Fund might have on other
states. Therefore, we would like to have a meeting of interested
members to discuss alternative approaches the Institute might
take on this legislation. First, we would like to discuss
arguments that could be made in opposition to enactment of the
legislation. Second, we would like to discuss possible ways to
restructure the Investor Protection Fund to make it more
palatable.
There will be a meeting on Thursday, May 25, 1989 at 10:00
a.m. at the Institute's offices to discuss approaches to this
legislation. Please contact my secretary, Laura Thayer, by
Monday, May 22, 1989 to let her know whether or not you will able
to attend the meeting.
Robert L. Bunnen, Jr.
Assistant General Counsel
Attachment