Sunset review, court challenge greet new state securities chief –

Travis Iles has worked at the Texas State Securities Board for 16 years, and even he wasn’t there the last time the agency underwent a sunset review.

Now, his first order of business as the state’s new securities commissioner will be delivering the agency’s initial sunset report – due Thursday, his first day as state securities commissioner.

“There are very few people around in our agency now that know what the process is like, and one of them that has is hitting the bricks” on Wednesday, Iles said with a laugh.

That one would be Commissioner John Morgan, whom Iles will replace.

“I’ve been trying to pick Commissioner Morgan’s head as best I can on it,” Iles said.

He’s trying to glean advice on a lot of other topics, as well. Perhaps none are as pressing as the recruitment and retention of his professional staff.

Like Morgan before him, Iles will have to juggle recently passed budget cuts with the fact that his staff members are prime targets for private-sector investment firms seeking professionals with regulatory experience.

The agency has budget allocations for the equivalent of 97 full-time positions, but it currently employs about 83. That’s just two or three more than its head count in 1998, the last time the agency entered the sunset process.

The Texas economy and the volume and sophistication of investment options, brokers and advisers grew a bit faster in the two decades since. The agency’s roles in licensing, compliance and enforcement have become more difficult.

Of course, conservative budgets challenge the head of every state agency in Texas, but the securities board generates millions of dollars for the general revenue fund each year through fees, fines and other charges.

The agency’s budget for the current fiscal year, which ends Thursday, was just over $7 million. It’s on pace to return about $135 million to the state this year.

Budget relief would help, Iles acknowledged in an interview last week, but said he plans to focus on ways to make the agency run as efficiently and effectively as possible.

“There’s still the potential for us to work through whatever climate we’re in and continue to do our job at the high level that we do it,” he said, “and hopefully do it in a way that improves the Texas investing arena for our fellow Texans.”

One immediate threat to that, Iles said, is a court challenge to the way the securities board staff has assisted prosecutors on the white-collar investment cases it investigates. Among other things, defendants’ lawyers hope to bar the appointment of the agency’s attorneys as special assistant prosecutors.

When he started at the agency, Iles said, victims of securities fraud could pick a suspected adviser or broker out of a lineup. They typically went to church together, had a common golfing buddy or sat down together at the office or coffee shop.

Now, the advent of blockchains, anonymous websites and other technologies can obscure fraudulent actors and their transactions. Securities offerings have become increasingly complex and technical. So local prosecutors often rely on the agency’s expertise in the courtroom.

If the challenge to those appointments would prevail, Iles said, “it would fundamentally change what services we’re able to provide to Texans in terms of protecting investors that had otherwise been defrauded.”

Another issue involves much less controversy, but provides a key new investor protection. Come Thursday, a bill informally dubbed the “elder financial protection bill” will go into effect. It’s designed to protect vulnerable adults from financial exploitation.

“It was, safe to say, one of the most uncontroversial pieces of legislation that went through this session,” Iles said.

The board will develop a process for registered investment advisers and brokers to safely report suspicious activity they might observe in their clients’ portfolios. They hope to craft a mechanism that gathers enough evidence without putting too heavy a burden on advisers who’d file a report.

Iles has plenty of longer-term and ongoing initiatives to attend, as well.

On the enforcement and compliance side, he said, the agency will continue its aggressive, but balanced, approach. The agency already is integrating new technologies and information sources to optimize its review of applications for licenses and registrations.

And the board already has started considering tweaks to the rules on in-state equity and debt crowdfunding, hoping to better coordinate the Texas regulations with the federal, interstate crowdfunding rules that went into effect last year.

Those federal regulations have slowed offerings on the intrastate crowdfunding portals to a trickle — the latest data shows just four offerings that have raised less than $200,000 in 2017. But the Texas rules will remain, Iles said, so they can provide an alternative financing route for Texas companies.

“In my view,” Iles said, “having more options available to raise capital, as they see fit, is a positive for businesses.”

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