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SECURITIES PROPOSAL PROVIDES SWEEPING NEW PROTECTIONS FOR CONSUMERS By SECRETARY OF STATE GEORGE H. RYAN

A new Investors Protection Act that I proposed recently is aimed at providing the greatest possible protections for the small investors of this state — particularly the most unsophisticated and vulnerable.

Reforms are needed now because explosive growth in the financial services industry has blurred distinctions between different financial products, leading many small investors to take on risks they may not understand. Key components of my proposal include:

• An Investors Bill of Rights, requiring investment counselors to spell out risks clearly for consumers and providing investors with a "plain English" prospectus.

Securities dealers and salespeople also would be required — for the first time — to provide potential customers with a full disclosure of past disciplinary actions as well as felony convictions.

• Authority for my Securities Department to seize assets of con artists and return as much as possible to the people they cheated. Unfortunately, by the time we catch up with most crooks, they have frittered away someone else's hard-earned money. If there is nothing left but the house, the Mercedes and the stereo system, then that is what we should go after and return to the victims.

The North American Securities Administrators Association believes that some 650,000 victims in the United States lose more than $5 billion each year on investment fraud. Investor protection is increasingly important at a time when more and more consumers are looking toward investments to help them prepare for retirement. My proposal also would provide:

• Stiffer criminal penalties for convicted con artists.

• Tougher rules for telemarketers who are peddling securities. At a minimum, my office would require them to provide prospective clients with information in writing. I also want to impose penalties on any telemarketer who continues to call a consumer who says not to call again.

• Fair, meaningful disclosure for consumers. That standard will be imposed on anyone or any organization selling investment products to Illinoisans, including a brokerage, a law firm, a bank, an insurance company, a group of accountants, a credit union or some other entity.

• Closure of regulatory loopholes. These changes will create a regulatory structure allowing Illinois to oversee the sale of securities into the 21st Century and to protect the consumers who buy them.

My proposed legislation would be the most ambitious overhaul of Illinois securities law since 1953. If passed by the General Assembly, the legislation will give Illinois the most comprehensive investor protection law in the nation.

To illustrate the industry's growth, my Securities Department last year registered nearly 84,000 securities dealers, salespeople and investment advisors, up from about 39,000 10 years earlier. During Fiscal Year 1993. the department registered 2,627 securities offerings worth more than $58.5 billion, 73 percent more than in Fiscal Year 1991.

My proposal goes far beyond the reforms my office sought from the General Assembly in 1991, shortly after I took office. By fine-tuning existing law, I tripled the office's enforcement capability — at no cost to taxpayers — and achieved major enforcement gains through that initiative, titled "Operation Investment Watch."

Since January 1991, the Securities Department has maintained a 100 percent conviction rate, achieving 24 convictions compared with 21 in the prior 10 years. The department also shut down unlawful securities operations at a rate about 80 percent higher than in the previous 10 years and initiated about 40 percent more investigations than in the year I took office.

In my view, the investing public must be confident that the securities industry is regulated properly — to ensure they are not cheated. With that assurance, the public will continue to provide the investment capital necessary for economic growth.

March 1994 / Illinois Municipal Review / Page 7