OFFICE OF INDIANA SECRETARY OF STATE CONNIE LAWSON

OFFICE OF INDIANA SECRETARY OF STATE CONNIE LAWSON INDIANA SECURITIES DIVISION UPDATE MAY 18, 2017

THE INDIANA SECURITIES DIVISION ALEX GLASS INDIANA SECURITIES COMMISSIONER

THE INDIANA SECURITIES DIVISION DISCLAIMER: This presentation is intended for educational purposes only. Statements of fact and opinions expressed are those of the presenter individually and not the opinion or position of the Secretary of State’s office. The actual state laws should be thoroughly reviewed an attorney specializing in securities law should be consulted before taking action in this area.

THE INDIANA SECURITIES DIVISION Mission Investor protection and maintaining the integrity of the securities industry in Indiana

THE INDIANA SECURITIES DIVISION Mission is Comprised of Three Components • Investor Education • Registration/Compliance • Enforcement

THE INDIANA SECURITIES DIVISION Investor Education • Dual message of financial literacy and fraud prevention • Achieved through Secretary Lawson’s Moneywise Program

THE INDIANA SECURITIES DIVISION Registration/Compliance • All securities products and individuals selling the securities products must be registered in Indiana unless an exemption is met • The Division’s examination programs fall under this component

THE INDIANA SECURITIES DIVISION Enforcement • Administrative cases are handled at the Division • Criminal cases are handled by a prosecutor at the county level or in partnership with the US Attorney • Civil cases (asset freezes and receiverships) are handled in conjunction with the Attorney General’s office

THE INDIANA SECURITIES DIVISION Regulate • Investment Advisers / Investment Adviser Representatives • Broker-Dealers / Broker-Dealer Agents • Security Products

THE INDIANA SECURITIES DIVISION Additional Areas of Responsibility • Collection Agencies • Franchisors • Continuing Care Retirement Communities • Mortgage Loan Brokers

2017 LEGISLATIVE UPDATE HB 1526 • Author: Representative Robert Heaton • Sponsor: Senator Travis Holdman • Signed by Governor Holcomb on April 24, 2017 • Effective July 1, 2017

2017 LEGISLATIVE UPDATE HB 1526 • Makes five changes to the Indiana Code: • 1. Mortgage Lending and Fraud Prevention Task Force • 2. Federal Crowdfunding and Regulation A, Tier 2 Notice Filings

2017 LEGISLATIVE UPDATE HB 1526 • Makes five changes to the Indiana Code: • 3. Securities Registration Fees • 4. Criminal Statute of Limitations • 5. Senior Savings Protection Act

2017 LEGISLATIVE UPDATE HB 1526 • Securities Registrations Fees • Changes from complicated fee calculation involving sales reports to flat fee • Eliminates unnecessary and costly reporting • Simplifies registration for both the Division and Industry

2017 LEGISLATIVE UPDATE HB 1526 • Criminal Statute of Limitations • Changes from 5 years after the offer or sale of a security to 5 years after discovery by the state or the state could have discovered the violation with the exercise of due diligence. • Makes Indiana one of the strongest securities states

2017 LEGISLATIVE UPDATE HB 1526 • Senior Savings Protection • Add investment advisers to the already existing statutory framework for brokerdealers • Changes the key definition in the statute from “Financially Endangered Adult” to “Financially Vulnerable Adult”

SENIOR SAVINGS PROTECTION Financial Exploitation of Seniors • Seniors lose an estimated $2. 6 billion annually to financial exploitation • 1 in 5 seniors have been victims of financial fraud – many times by close family and friends • Only 1 in 44 cases of financial exploitation are ever reported

SENIOR SAVINGS PROTECTION Senior Savings Protection Basics • Ind. Code § 23 -19 -4. 1 • Effective July 1, 2016 / Amended July 1, 2017 • Indiana was only the fourth state to pass a law in this area • Additional Information: http: //www. in. gov/sos/securities/files/Senior_Sa vings_info. pdf

SENIOR SAVINGS PROTECTION Why Senior Protection Law is Necessary • APS is not classified law enforcement in Indiana so often have trouble getting records required to do a proper investigation • Firms worried about future liability for taking a proactive step of reporting • Senior exploitation is a huge issue and will only continue to increase as the population ages

SENIOR SAVINGS PROTECTION History [SB 221] (2016) • Mandatory reporting of potential financial exploitation • Ability of broker-dealer to temporarily refuse distribution from an account • Ability of broker-dealer to release records to APS • Immunity clauses for broker-dealers

SENIOR SAVINGS PROTECTION History [HB 1526] (2017) • Maintains statutory framework of SB 221 • Adds investment advisers to broker-dealers as mandatory reporters • Changes key definition in statute from “financially endangered adult” to “financially vulnerable adult”

SENIOR SAVINGS PROTECTION Financial Exploitation • Ind. Code § 23 -19 -1 • The wrongful or unauthorized taking, withholding, appropriation, or use of money, real property, or personal property of a financially vulnerable adult

SENIOR SAVINGS PROTECTION Financially Vulnerable Adult • Ind. Code § 23 -19 -4. 1 -2. 1 • Individual at least sixty-five (65) years of age • Individual at least eighteen (18) years of age with a mental incapacity

SENIOR SAVINGS PROTECTION Who Reports? • A qualified individual at a firm • Qualified Individual as defined at Ind. Code § 2319 -4. 1 -5, is an individual associated with a brokerdealer or investment adviser who serves in a supervisory, compliance, or legal capacity as part of the individual’s job

SENIOR SAVINGS PROTECTION Who Must be Contacted? • Ind. Code § 23 -19 -4. 1 -6 • Indiana Securities Division • Indiana Adult Protective Services • For information on how to contact: http: //www. in. gov/sos/securities/files/Senior_Sa vings_info. pdf

SENIOR SAVINGS PROTECTION Refusing a Distribution • Ind. Code § 23 -19 -4. 1 -7 • Qualified Individual may refuse a request for a distribution if there is reason to believe that the requested distribution may result in the financial exploitation of the financially vulnerable adult

SENIOR SAVINGS PROTECTION Refusing a Distribution • If a distribution is refused, the qualified individual shall notify all parties on the account within 2 business days* • Notify Division and APS within 3 business days • * Not required to notify an individual if reason to believe the party has engaged in suspected exploitation of the financially vulnerable adult

SENIOR SAVINGS PROTECTION Refusing a Distribution • Firm has 15 business days after the date of initial refusal to investigate. (Time can be extended as outlined in the statute) • Firm must follow-up with Division, by email or mail, with final action after refusing a distribution

SENIOR SAVINGS PROTECTION Releasing Records to APS • Ind. Code § 23 -19 -4. 1 -9 • Firm may provide records to APS that are relevant to the suspected financial exploitation of a financially vulnerable adult

SENIOR SAVINGS PROTECTION Immunity Provisions • Ind. Code § 23 -19 -4. 1 -8 • Firms who in good faith report or hold a distribution are immune from administrative or civil liability • Firms who in good faith release or do not release documents to APS are immune from civil liability

SENIOR SAVINGS PROTECTION Statistics • Since going live with broker-dealers on July 1, 2016 • 20 Reports • 4 Distributions Held • There are currently 20 states who have enacted or proposed senior savings legislation

SECURITIES DIVISION PROGRAMS Securities Restitution Fund • Ind. Code § 23 -20 • Effective July 1, 2010 • 1 of only 2 states with a securities specific restitution fund (Montana) • Additional Information: https: //myweb. in. gov/SOS/Restitution. Fund/App lication/Default. aspx

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Initial Criteria • Violation occurred after July 1, 2010 • Violation adjudicated in state/federal court or a regulatory agency administrative proceeding • Final order must have ordered restitution to victim • Party ordered to pay restitution has not paid full amount

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Initial Criteria • ** Important Note: FINRA arbitration awards are not eligible for payment from the Securities Restitution Fund

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Eligibility • If victim is Indiana resident: • Violation was committed in Indiana; OR • Jurisdiction in which violation occurred does not offer to Indiana residents who are victims of securities violations in that jurisdiction assistance that is substantially similar to the assistance offered by the Indiana fund.

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Eligibility • If victim is not an Indiana resident: • Violation was committed in Indiana; AND • Jurisdiction in which the victim resides offers to Indiana residents who are victims of securities violations in that jurisdiction assistance that is substantially similar to the assistance offered by the Indiana fund

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Eligibility • Who can claim a Restitution Fund Award: • The victim • Surviving spouse • Dependent child • Any other person legally dependent for principal support

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Eligibility • Limitations on Restitution Fund awards: • Victim sustained the monetary injury as a result of participating or assisting in or attempting to commit or committing a securities violation; OR • Victim profited or would have profited from the securities violation

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Awards • An award may not exceed the lesser of: • Fifteen thousand dollars ($15, 000); or • Twenty-five percent (25%) or the amount of the victim’s net loss* • Net loss is determined by subtracting amount received from the party ordered to pay from the total restitution ordered to be paid

SECURITIES DIVISION PROGRAMS Securities Restitution Fund – Statistics • Since going live July 1, 2010: • 63 Hoosier securities victims have received nearly $630, 000 in Restitution Fund awards • Key point to remember is that the Securities Restitution Fund is not funded by taxpayer dollars – the funds come from payments of violators of the Indiana Uniform Securities Act

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards • Ind. Code § 23 -19 -7 • Effective July 1, 2012 • 1 of only 2 state that have a provision (Utah) • Additional information: http: //www. in. gov/sos/securities/4020. htm

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards - Eligibility • Who can make a claim: • Anyone who provides original information concerning a violation of the Indiana Uniform Securities Act

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards - Eligibility • Not eligible: • Journalist or other member of news media acquires original information covering a story • Employee of the Securities Division • Individual convicted of a crime in connection with the violation of the information uncovered

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards - Eligibility • Not eligible: • Individual who uncovered information during the course of required examination or audit • Individual who provides false information or knowingly relies on false documents • Individual who has a legal duty to disclose the information

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards - Information • What is original information: • Ind. Code § 23 -19 -7 -6 • Derived from the independent knowledge or analysis of the informant; AND • Would not otherwise be known to the Division if the informant had not provided the information to the Division

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards - Claims • How a claim is made to the Division: • Information and/or analysis provided voluntarily in writing • Must include a signed statement from informant that they believe the act is a violation of the IUSA • ** Must lead to successful action

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards – Max Amount • Commissioner may provide an award to one or more informants in any single action. However, the aggregate amount of the awards cannot exceed 10% of the monetary sanctions* imposed or ordered in the action • * Monetary sanctions do not include amounts ordered or identified as Restitution

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards - Funding • Awards are paid out of the Securities Restitution Fund • Like Restitution Fund awards – Whistleblower awards are paid from funds collected from violators of the IUSA and not taxpayer dollars

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards – Factors • Factors used by Commissioner to determine amount: • Significance of information • Whistleblower cooperation • Programmatic interests in deterring the type of violation the information uncovers

SECURITIES DIVISION PROGRAMS Securities Whistleblower Awards – Statistics • Since going live July 1, 2012: • There has been an award to 1 individual of $95, 000 • JPMorgan case from August 2016. Whistleblower awarded the maximum of $95, 000 from the $950, 000 settlement

CONTACTS INDIANA SECURITIES DIVISION 302 WEST WASHINGTON STREET ROOM E-111 INDIANAPOLIS, IN 46204 Phone: (317) 232 -6681 Fax: (317) 233 -3675 Website: www. sos. in. gov Securities Commissioner Alex Glass Phone: (317) 232 -6681 Email: aglass@sos. in. gov Chief Deputy Securities Commissioner Noelle Sykes Phone: (317) 234 -2741 Email: nsykes@sos. in. gov Senior Enforcement Counsel Aleks Cirulis Phone: (317) 232 -1018 Email: acirulis@sos. in. gov

QUESTIONS?