Each year in Pennsylvania investors conservatively lose $3 billion as the result of securities fraud, Ponzi schemes and the sale of unregistered securities.
Among the 50 states that are part of the North American Securities Administration Association, Pennsylvania is and always has been lowest on the list in terms of enforcement actions. Notwithstanding three lawyers, three compliance examiners and three investigators in the Philadelphia office of the Pennsylvania Securities Commissioner, one always had the impression that these folks, despite the best of intent, lacked resources, and were always overworked and underpaid, and if Pennsylvania ever did anything enforcement related for investors it was usually in connection with other states or federal regulators.
The sale of unregistered securities in violation of Section 201 of the Pennsylvania Securities Act is a criminal act. However, unlike defrauded investors in almost all other states, it has always been especially hard for defrauded investors in Pennsylvana. Specifically, Section 1-501 of the Act, 70 Pa. Con. Stat. 1-501, with respect to Civil Liabilities, does not provide a private cause of action against a defendant who did not “sell” or “purchase” securities under Sections 1-501(a). As the Third Circuit explained in Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605, 610 (3rd Cir. 1980):
Section [1-501] gives a cause of action to defrauded sellers and buyers, it only gives the seller or buyer the right to sue the person purchasing or selling the security. Biggans is suing his broker, not the individuals who purchased the securities that his broker sold for him or those who sold the securities that his broker bought for him. Furthermore, the relief provided by the statute for injured parties, which is limited essentially to rescission, would be unavailing in a suit against a broker for churning
638 F.2d at 610; See also, Jairett v. First Montauk Sec. Corp., 153 F. Supp. 2d 562, 577 (E.D. Pa. 2001)(holding that plaintiffs may not bring a claim under Section 1-501 against broker-dealer who was not a seller of securities); Zawid v. Elkins & Co., 1982 Pa. Dist. & Cnty. Dec. LEXIS 43 (October 26, 1982)(“the Pennsylvania Securities Act of 1972 does not afford a private cause of action against a broker”).
Well now, committing securities fraud in Pennsylvania has just come a lot easier. Last October, Governor Tom Corbett merged the Pennsylvania Securities Commission into the Pennsylvania Department of Banking and closed the Philadelphia office of the Pennsylvania Securities Commission, known as the Pennsylvania Department of Banking and Securities, giving early retirement to the two remaining investigators. In fact, Ponzi scheme cases which have lingered in the Philadelphia office are now being “closed-out,” because without a prosecutorial staff, the people in Harrisburgh just do not know what to do with them.
Anyway, at least according to Governor Tom Corbett “Reducing the size and cost of state government for taxpayers is a top priority for my administration. The merger of these two state government entities will lead to an initial savings of $1 million, with more possible as we move forward with the consolidation” .
The merger was signed into law by Corbett on July 2, 2012, “During this transition period, the institutions and professionals that are chartered and licensed by the Department of Banking will see no changes,” and “We will also continue to provide seamless service of the highest professional caliber to the securities industry and professionals.”
No mention is made of the impact or cost to defrauded investors, but is expected to “provide meaningful regulatory relief for the securities industry” to “streamline our government functions to improve efficiency and effectiveness.”
The makeup of the Securities Commission was also expanded from its current three members to five including three commissioners nominated by Corbett, Glen E. Moyer, president and CEO of The Elverson National Bank and National Penn Bank and its holding company, National Penn Bancshares, Inc., Vincent J. Gastgeb, the Director of Corporate, Community and Government Affairs for the Allegheny County Airport Authority, Todd A. Shamash, a lobbyist for Capital BlueCross who formerly served as Deputy Chief of Staff for Governor Tom Corbett, and James
Biery the former chair if the State Association Division of the American Bankers Association.
Now, if you want a copy of a stockbroker’s record of complaints or regulatory actions, rather than simply completing an on-line request form, you need to file a Pennsylvania Freedom of Information Request.
Investment fraud just got a whole lot easier in Pennsylvania.
Guiliano Law Firm
Our Practice is limited to the representation of investors in claims against stockbrokers and investment professionals for fraud, the sale of unsuitable investments, breach of fiduciary duty, failure to supervise. National Practice. Contingent Fee. Contact us for a free confidential evaluation at (877) SEC-ATTY.