Oregon Division of Finance and Corporate Securities by fxa11587


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									Division of Finance
Corporate Securities

2007 Stakeholder Report

                     Division of Finance   Corporate Securities
Message from the administrator                             or $5, whichever is greater, but not to exceed $100.
                                                           The percentage rate is based upon several factors,
                             As administrator for the      including the nature or issuer of the check and the
                             Division of Finance and       consumer’s form of ID.
                             Corporate Securities, I am
                             pleased to present our        The division has used the new check-cashing program
                             2007 Stakeholder Report.      to pilot new features designed to simplify the
                             This report covers our        licensing process and save costs for applicants. We
                             division’s activities from    are developing an online application process that will
                             Jan. 1 to Dec. 31, 2007. In   allow an applicant to complete the application, pay
                             it you will find summaries    application fees, and receive the license electronically.
                             of licensing activity and     We have also adopted a two-tiered application fee that
                             highlights of various         is reduced for applicants that are currently licensed in
                             initiatives in 2007.          other division programs. That reduction reflects the
                                                           fact that staff should not have to spend as much time
      David Tatman              2007 was a very busy       on background reviews.
                                and challenging year
for financial services in the United States and Oregon     The other new program for the division is identity
as well as for the division. The economy and certain       theft, resulting from the Oregon Consumer Identity
sectors of the financial services industry have been on    Theft Protection Act (ID Theft Act) passed by the
a roller-coaster ride driven mostly by the drop in the     2007 Legislature. In 2007, the division spearheaded
residential housing market. We have seen downturns in      an extensive education campaign for consumers and
the number of mortgage brokers and loan originators,       businesses to roll out the new program. We created
consumer finance lenders, and applicants for new bank      and distributed numerous brochures and sample
charters. In addition, we have seen a steady decline in    forms and letters, which are on our Web site at
loan asset quality for real estate loans made or held by   dfcs.oregon.gov. Our charge under the ID Theft
depository institutions in Oregon.                         Act is to ensure that businesses comply with the
                                                           new requirements for safeguarding Social Security
While many of these changes are directly related to        numbers and personal identifying information as well
the current housing market, some of the changes            as properly notifying consumers when breaches occur.
are a result of legal and regulatory changes in 2007.      The law did not provide an examination component,
Specifically, the Oregon Legislature adopted interest      but we do follow-up on complaints from the public
rate limits on loans made by traditional consumer          and on notices received from media and private
finance lenders and payday lenders. The number of          sources.
payday lenders licensed in Oregon had shrunk by
about two-thirds as we entered 2008.                       Among the many programs in the division, the
                                                           mortgage lending section received a great deal
In addition, the Legislature created two new programs      of interest this past year. We added new staff and
in 2007 that are assigned to the division. The check-      worked hard to increase the number of investigations
cashing program was established to ensure that fees        and enforcement actions in response to consumer
charged to consumers for having checks cashed at           complaints. We also substantially increased the number
retail locations do not exceed certain limits. The new     of examinations we did for licensees, both in and out
law requires that retailers that advertise or offer to     of the state.
cash checks for a fee get licensed with the division
and charge a fee between 2 percent and 10 percent                                                  Continued on Page 3

                                                                                                               Page 2
In 2007, the Legislature introduced several bills and     In addition to the new programs and the mortgage
amendments to address residential mortgage lending        lending activity, the division continues to carry out its
in Oregon. Although no bills passed, it made for          duties of consumer protection and ensuring strong
lively discussions among mortgage lenders, consumer       financial services industries by promoting safe and
groups, regulators, and legislators. As a result of the   sound business practices. In the following pages, you
session and the rising concerns over the housing          can read about our licensing and registration activity
market and foreclosures, the Governor asked DCBS          in 2007 and the results from the hundreds of office
to convene a work group, with representatives from        exams we conducted throughout the year.
each of these groups, in the fall of 2007. This work
                                                          We are continuing to develop new laws and rules
group was formed to address enhanced enforcement
                                                          in 2008, in areas such as identity theft, mortgage
laws, better foreclosure notification, pre-foreclosure
                                                          lending, and consumer finance. We rely on your input
counseling, and certain lending practices.
                                                          to carry out our responsibilities so we work hard to
Recommendations from the work group resulted in           keep our stakeholders informed. Please refer to our
two bills passed in the February 2008 session that will   Web site for more information about our programs and
result in stronger enforcement laws, better notice to     the latest updates. Also, feel free to contact me or any
homeowners facing foreclosure, and limitations on         of our program managers to ask questions or share
people acting as foreclosure consultants and mortgage     ideas.
equity purchasers. The work group will continue
                                                          David Tatman
to meet in 2008 to address new issues and lending
practices, such as prepayment penalties and negative
amortization loans.

                                                                                                              Page 3
 DFCS                                       DiviSion ovERviEW

The Division of Finance and Corporate Securities (DFCS) is part of the Department of Consumer and Business
Services (DCBS), Oregon’s largest business regulatory and consumer-protection agency. The division’s mission is
to encourage a wide range of financial services, products, and information for Oregonians, delivered in a safe,
sound, equitable, and fraud-free manner.

    David Tatman                                   Nancy Boysen
    Administrator                                  Deputy Administrator
    503-947-7475                                   503-947-7497
    david.c.tatman@state.or.us                     nancy.j.boysen@state.or.us

Regulatory mandate                                                          Goals and strategies:
Administer and enforce state laws and rules covering                        • Provide professional, fair, and objective program
14 unique programs, the statutory authority for which                         supervision while valuing excellent customer service.
is found in 21 chapters of the Oregon Revised Statutes.                     • Contribute to DCBS goals:
                                                                               - Protect consumers and workers in Oregon.
Staff: 66 full-time employees
                                                                               - Provide excellent customer service.
Budget: $12,270,166 for the 2007-2009 biennium.                                - Regulate in a manner that supports a positive
Funding:                                                                         business climate.
DFCS is funded exclusively from Other Fund revenue                          • Contribute to progress for four of the 16 DCBS
sources, primarily assessments and fees. The Securities                        performance measures.
Licensing and Registration Program generates surplus                        • Serve as a resource for consumers and stakeholders,
funds that are transferred to the General Fund.                                including legislators and licensees.

Budget-expenditure limitation                                                  2005-2007                  Staff1            2007-20091
Division of Finance and Corporate Securities                                    $10,715,946                  66              $12,270,166
Finance                                                                       $7,084,415                     42             S8,560,982
Banks and trusts                                                                  $3,155,469                 17                $3,198,497
Credit unions                                                                     $1,281,391                  8                $1,506,224
Mortgage lending/MH structure dealer licensing                                                               10                $2,575,167
Nondepository programs                                                                                        7                $1,281,094
Securities and enforcement                                                    $3,631,531                     24             S3,709,184
 Staff count and budget-expenditure limitation are from the 2007-2009 legislatively adopted budget. Staff includes eight administrative positions.

                                                                                                                               Continued on Page 5

                                                                                                                                             Page 4
 DFCS                              DiviSion ovERviEW, continued

Regulatory impact                                           license. This has resulted in a significant decrease in
DFCS plays a regulatory role in the following industries:   the payday/title licenses, due to the decrease on the
banks and trusts; credit unions; securities; mortgage       amount of interest that can be charged.
lending; prearranged funeral trusts/endowment care;         Mortgage lending — The tremendous growth in
credit service organizations; collection agencies; debt     mortgage lending and an increasing number of
consolidation agencies; money transmitters; check           complaints from consumers prompted the division to
cashers; consumer finance, including payday lenders;        make several changes to strengthen its regulation of
franchise transactions; pawnbrokers; manufactured           the mortgage lending industry. The division adopted
structure dealers; and sellers of travel. DFCS also         new rules that create stricter education requirements
delivers consumer and investor financial information        for loan originators and further define expectations
through a separate Investor Information Program and         related to supervision of loan originators. Additionally,
a consumer information specialist in the Mortgage           the division adopted federal guidelines for loan
Lending Program.                                            originators who provide nontraditional loan products,
Finally, DFCS provides information, investigates            such as “interest only” adjustable-rate mortgages.
complaints, and reinforces the Oregon Consumer              Securities — The division issued new rules clarifying
Identity Theft Protection Act.                              securities licensing and registration requirements
                                                            relating to the 2007 passage of SB 257. That legislation
Significant activities in 2007                              included variable annuities in the definition of securities.
Banks and trusts — CenterPointe Community Bank,             Other new rules established specific disclosure require-
Hood River, Ore., was chartered and opened for              ments for broker-dealers and investment advisers with
business Sept. 4, 2007. The organizational application      offices within financial institution branches.
of Compass Community Bank, Seaside, Ore., was               Enforcement — During 2007, the Enforcement Unit
approved Aug. 7, 2007. Charter approval is subject to       emphasized continual development of staffing skills
achieving required capital.                                 and expansion of its efforts with law enforcement to
Frontier Bank, Everett, Wash., acquired The Bank of         combat local and national frauds affecting consumers
Salem in a merger concluded Nov. 30, 2007, and was          in Oregon. The division opened more than 850
issued a Certificate of Authority to operate a banking      complaints, resulting in more than 100 investigations.
business in Oregon, effective Nov. 30, 2007. Columbia       The division issued 66 administrative actions, including
State Bank, Tacoma, Wash., acquired Town Center             cease-and-desist orders, resulting in the assessment
Bank, Portland, in a merger concluded July 23, 2007;        of monetary penalties of more than $2.5 million. This
Umpqua Bank, Roseburg, Ore., acquired Vintage Bank,         amount does not include restitution to the victims,
Napa, Calif., in a merger concluded April 27, 2007.         which was often negotiated in lieu of civil penalties.
Credit unions — The division participated in the second     DFCS also worked with state and federal prosecutors
and final phase of a study of how consumers benefit         to obtain indictments and criminal convictions in
from credit unions’ tax-exempt status. The study was        several large cases affecting Oregon consumers and
conducted by the National Association of State Credit       participated in more than 50 criminal prosecutions in
Union Supervisors (NASCUS) at the request of the U.S.       2007.
House of Representatives Ways and Means Committee.          The division continued to update and improve its Web
All of the information was consolidated nationally for      site, dfcs.oregon.gov. The site includes enforcement
the report.                                                 orders, information about the complaint process —
nondepository programs — More pawnbrokers are               including ways for consumers to file a complaint online
becoming licensed after the division undertook an           — and links, allowing users to verify the registration
initiative in 2006 to identify and educate purportedly      of firms and individuals in many of our program areas.
unlicensed pawnbrokers operating throughout Oregon.         There are also links to the Oregon statutes and rules.
In addition, licenses and registrations for collection      We continued to post notices regarding suspicious
agencies (726) and debt consolidation agencies (51),        activity and possible securities, mortgage, and other
reached record levels in 2007.                              financial fraud for the benefit of consumers in Oregon
Consumers are now better protected as a result              and nationwide. We try to act quickly to post the
of the new payday lending restrictions and new              information that comes to us to better enable investors
rules governing the conventional consumer finance           and consumers to protect themselves. ■
                                                                                                                 Page 5
DFCS                                        PRogRaM STaTiSTiCS

Examinations conducted and percent of industry rated satisfactory or better1
                                                          2005                        2006                     2007
                                                     Exams    Satisfactory    Exams     Satisfactory    Exams    Satisfactory
Banks and trusts                                       23         96%            29          97%           21         95%
Credit unions                                          19         95%            14          95%           13      100%
Consumer finance                                      467         85%           465          89%          311         86%
Mortgage broker/banker                                 72         64%           128          76%          219         69%
Securities (no established rating system)              52         NA             72          NA            48         NA
 Based on established uniform-rating systems

applications processed
Banks                                                           2003          2004        2005          2006       2007
New charters                                                        3            4             2           1            1
Mergers                                                             2            3             2           3            3
Branch offices                                                    29            24            23         84*           36
*59 as the result of acquisitions
Credit unions
New charters                                                        0            2             0           0            0
Mergers                                                             3            2             5           0            1
Branch offices approved                                             4           12            10          10           10
Bylaw amendments                                                   33           20            23          13           15
Total number of licenses
Nondeposit programs                                             2003          2004        2005          2006       2007
Collection agencies                                                552          595           648         690          726
Debt consolidation agencies                                          37          42            44          50           51
Consumer finance lenders (including payday)                        485          574           631         620          364
Mortgage brokers/bankers                                         1,331         1,479         1,116       1,824        1,706
Manufactured structure dealers                                                                                         312
Manufactured structure dealers supplemental                                                                            140
All other*                                                         383          393           398         447          458
*See table on Page 10 for all other license counts    Total      2,788        3,083          2,837       3,631        3,757
Securities licensing
Broker-dealers                                                   1,967         1,955         1,946       2,057        2,051
Investment advisers                                              1,072         1,203         1,319       1,395        1,499
Salespeople *Includes Oregon-only issuer salespeople          105,388        109,977     117,108       126,448   135,570

                                                                                                                       Page 6
DFCS                                         PRogRaM STaTiSTiCS, continued

Securities registration                                                       2003          2004      2005        2006      2007
Reg D 506 private placements                                                      417         599          718     859           883
Mutual funds/Unit Investment Trust (UIT)*                                      4,212        5,830*        5,914   6,496         6,515
Employee benefit/compensation plans                                               126         106          112     107           103
Small Corporate Offering Registration (SCOR)                                            0       1            0       0             0
Registration by qualification                                                     166         180          148     159           130
*Includes paper and electronic filing. Prior years did not include electronic filing.

Complaints processed
Banks                                                                           291          224          46*      24           155
Credit unions                                                                     60          50           46      78            41
Nondeposit programs                                                               99         110          121      117          207
Mortgage brokers/bankers, manufactured structures
                                                                                 143         184          249      319          395
dealer licensing
Securities                                                                        98         105          179      114           57
Total                                                                           691          673          641     652           855
*Reflects a different reporting method than in prior reporting periods

Investigations                                                         2005                        2006                  2007
                                                               Open           Closed        Open      Closed      Open      Closed
Mortgage brokers/bankers                                          51              41          31           29      31            24
Securities enforcement                                            54              88          50           32      53            34
Nondepository programs                                            24                9          7            6      25            11

                                                                                                                                 Page 7
 DFCS                              FinanCE SECTion — Banks and Trusts

Banks and Trusts                                           Significant activities
Richard Renken, program manager                            In 2007, while consolidation within the industry
503-947-7427                                               continued, the number of Oregon state-chartered
richard.l.renken@state.or.us                               banks remained relatively stable at 35. In some
                                                           instances that consolidation has enhanced the value
Program description                                        of Oregon’s financial community. This is evident in the
The Banks and Trusts Program works with federal bank       recent acquisitions by two Oregon banks; Umpqua
regulators on supervision and examination initiatives      and Premier West Banks. The overall condition of our
to achieve a seamless regulatory environment. Risk-        state chartered banks remained satisfactory at year-end
focused supervision is augmented by off-site analysis      2007. Significant challenges will be present in 2008.
and monitoring to minimize regulatory burden and           On a consolidated basis, our banks hold high levels
use staff resources effectively.                           of loans secured by real estate. Revaluation of the
                                                           borrower’s ability to service these obligations and the
This program charters and regulates state banks, trust     need to revalue the collateral securing them may result
companies, and branches of foreign banks under             in substantial increases to valuation losses and may
the Oregon Bank Act, ORS Chapters 706-716. The             lead to operating losses.
program is funded by annual assessments based on
bank and trust company fiduciary assets.                   The chartering of CenterPointe Community Bank,
                                                           Hood River, Ore., Sept. 4, 2007, was the result of a
As of Dec. 31, 2007, there were 35 state-chartered         successful $10.0 million capital raising campaign. This
banks (three with Trust Departments) with                  continues the four-year period in which banks have
approximately $22.2 billion in total assets. Assets        had no difficulty raising initial capital and beginning
under the management of the five state-chartered           operations on a sound footing.
trust companies and the trust departments of three
state-chartered banks were approximately $7.2 billion.     The program co-sponsors the Oregon Bank Directors
Additionally, there are three (one active) foreign         College with the Oregon, Idaho, and Washington
banking associations doing business in Oregon under        Bankers Association. This annual event runs from
a certificate of authority with approximately $20.6        January to June. The college was the first such effort in
billion in assets. The Bank of Nova Scotia (BNS)           the nation, and the 2007 session was its 15th year.
has indicated that it will, at least temporarily, cease    Each May, the program co-sponsors a bank CEO
operations in Oregon. BNS is the largest and the only      outreach with the Federal Deposit Insurance
active foreign banking association in the state.           Corporation, covering emerging issues, industry
The division maintains asset pledges for faithful          trends, and regulatory matters.
performance for trust activities conducted in the state    In 2007, the program’s financial examiners assisted in
(this includes 16 out-of-state trust companies and         the inspection of bank holding and financial services
the trust activities of national banks and thrifts) and    companies in conjunction with the Federal Reserve
the banking operations of the foreign associations.        Bank of San Francisco.
We also monitor the activities of seven out-of-state
state-chartered banks authorized to do a banking           The program has been accredited since 1992 by the
business in Oregon, in conjunction with their home         Conference of State Bank Supervisors (CSBS). Such
state regulators. The division has also authorized six     accreditation attests to the effectiveness and resources
out-of-state financial institutions to do business other   of the division in conducting its regulatory oversight
than banking (not accepting deposits) in Oregon.           activities.
The division recognizes the existence of 142 loan
production offices in the state.                           Primary trade association
                                                           Oregon Bankers Association
                                                           Linda Wilhelms Navarro, president ■
                                                                                                              Page 8
 DFCS                             FinanCE SECTion — Credit Unions

Janet Powell, program manager                            Significant activities
503-947-7493                                             • Approved the merger of Schools Plus Community
janet.m.powell@state.or.us                                 Credit Union, Hermiston, into First Community
                                                           Credit Union, abn Oregon First Community Credit
Program description                                        Union, Coquille, effective Nov. 1, 2007.
This program charters and regulates credit unions        • Approved a community charter for Weyerhaeuser
under the Credit Union Act, ORS Chapter 723.               Employees Credit Union, Albany, effective Jan. 5,
Assessments and fees from the regulated institutions       2007, and acknowledged its name change to Red
fund the credit union program. As of Dec. 31, 2007,        Canoe Credit Union, effective Jan. 2, 2007.
the program supervised 20 credit unions with total
assets of $9.7 billion and 146 offices. Twelve credit    • Participated in a study conducted by the National
unions have been chartered by Oregon for more than         Association of State Credit Union Supervisors
50 years; of these, Advantis Credit Union, NW Priority     (NASCUS) at the request of the U.S. House of
Credit Union, and OnPoint Community Credit Union           Representatives Ways and Means Committee.
have been in business for more than 75 years.            • Held an outreach meeting for the credit union chief
                                                           executive officers.
The program works with the federal deposit insurer,
the National Credit Union Administration, to promote     • Participated in local and national trade association
a seamless regulatory environment. Risk-focused            meetings.
supervision is augmented by off-site analysis and
monitoring to minimize regulatory burden and use         Primary trade association
staff resources effectively.                             Credit Union Association of Oregon
Two Oregon credit unions operate branch offices          Troy Stang, president/CEO
in Washington: First Technology Credit Union is in
Bellevue, Kirkland, and Redmond; and NW Priority         Pamela Leavitt, senior vice president government
Credit Union is in Vancouver.                            affairs/PR ■

One credit union chartered by another state operates
a branch office in Oregon: Red Canoe Credit Union,
chartered in Washington, is in Albany.
Credit union membership may be based on
occupation, association, or community. The
community field of membership authority was
approved in the 1999 legislative session, and the
first community charter was approved in 2001. As of
year-end 2007, there were 10 Oregon-chartered credit
unions with community charters.

                                                                                                            Page 9
  DFCS                                      FinanCE SECTion — nondepository Programs

Michael McCord, program manager                                  Money transmitters
michael.mccord@state.or.us                                       This program originated from the 1999 legislative
                                                                 revision of the Sale of Checks Act. Oregon licenses
Program description                                              money transmitters to protect Oregon consumers who
                                                                 use money transmitters to transmit funds. Licensed
                                           Licenses*     ORS     money transmitters must post a surety bond, maintain
             Program                                             certain financial net worth, and maintain certain cash
                                          2006 2007    Chapter
                                                                 levels to protect Oregon consumers from loss. Under
  Irreducible fund cemeteries              33     31       65    ORS Chapter 717, DFCS has authority to examine
  Endowment care cemeteries                85     85       97    licensees and their authorized delegates.

  Prearranged funeral trusts              207    206       97    Pawnbrokers
  Credit service organizations             12     12     646A    This program licenses pawnbrokers. Pawnbrokers are
  Sellers of travel                         1      1     646A    defined as persons who lend money at more than 10
                                                                 percent per annum and take possession of pledged
  Collection agencies                     690    726      697    personal property other than vehicles, securities, or
  Debt consolidation agencies              50     51      697    printed evidence of indebtedness.
  Money transmitters                       65     63      717    Prearranged funeral trusts and
  Consumer finance:                       620    364      725    endowment care and irreducible
      Conventional lenders                274    241      725    fund cemeteries
      Short-term lenders                  346    123      725    The 2001 Legislature transferred these programs from
                                                                 the Secretary of State to DCBS. Prearranged funeral
  Pawnbrokers                              44     60      726    plan providers sell funeral services and merchandise to
*License counts as of Dec. 31 each year                          consumers for future need. Perpetual and endowment
                                                                 care plans are arrangements consumers can make with
Consumer finance                                                 cemeteries to care for grave sites in perpetuity. The
This program licenses and supervises conventional and            cemetery operator is then required to place a portion
short-term consumer finance companies. The division              of the proceeds from the sale of graves in a trust to
also conducts routine examinations of licensees at               provide maintenance care of the cemetery in future
least every two years. Oregon requires a license if a            years. Certified providers appoint master trustees to
lender makes loans of $50,000 or less at interest rates          manage both prearranged funeral and endowment
of 12 percent per annum or higher. Conventional                  care trust money.
lenders make loans that are repayable in two or more             “Irreducible care fund cemeteries” are nonprofit
payments. Short-term lenders make loans that are                 corporations that exist solely for the purposes of
repayable in one payment with maturities of not less             owning and operating a cemetery, providing cremation
than 31 days. The short-term loans are also known as             services, or providing care for human remains. The
“payday,” “deferred deposit,” or “title” loans. The 2007         cemetery’s bylaws must provide that the cemetery
Legislature passed legislation that limits the finance           place a portion of the monies received from the sale
charge on consumer loans, when stated as an APR,                 of plots and burial merchandise in an irreducible fund.
to the greater of 36 percent or 30 percentage points             The division’s role with irreducible fund cemeteries is
in excess of the discount rate on 90-day commercial              limited to collecting the annual report on the financial
paper in effect at the Federal Reserve Bank of San               condition and operation of the fund.
Francisco.                                                                                             Continued on Page 11

                                                                                                                  Page 10
 DFCS                              FinanCE SECTion — nondepository Programs, continued

Collection agencies                                         associations of sellers of travel
This program registers and regulates debt-collection        This program provides oversight of associations
agencies. An Oregon registration is required if the         of sellers of travel. Participation in this program is
collection agency contracts with an Oregon-based            voluntary. The 1993 Legislature imposed the licensing
creditor to collect debt or if the agency makes contact     requirement. In 1997, the Legislature moved away from
with Oregon residents to collect debt that originated in    licensing to industry self-regulation. Under current law,
this state. The division examines collection agencies as    DFCS certifies associations of sellers of travel that have
necessary to protect businesses that rely on collection     certain consumer-protection provisions in their bylaws.
agencies to collect bad debts from consumers.               As of Dec. 31, 2007, only one association was certified.

Credit service organizations                                Significant activities
This program requires registration for people who           • The new restrictions on payday lending — passed by
sell, provide, or perform (or offer to sell, provide, or      the 2006 special session of the Legislature — took
perform) credit service to Oregon consumers for a             effect July 1, 2007. The new law limits rollovers to
fee. Credit services include assisting a consumer with        two and established a minimum loan period of 31
repairing faulty credit, arranging extensions of credit,      days. In addition, the new law prohibits statutory
and providing instructions and forms to the consumer          damages under the dishonored check law and limits
for a fee.                                                    non-sufficient fund (NSF) fees on payday loans to $20.
                                                            • Jan. 1, 2008, saw the implementation of check-
Debt consolidating agencies                                   cashing business licensing, a new mandate passed
This program licenses and regulates operators of debt         by the 2007 legislative session.
consolidating agencies, which, for a fee, mediate plans     • DFCS conducted 311 routine and special
for debt repayment between creditors and debtors.             examinations of consumer finance licensees.
This program operated as part of the Consolidated
Boards and Commissions until 1987, when it was              Primary trade associations
transferred to DFCS.
                                                            Community Financial Services Association – Oregon
Check-cashing businesses
                                                            Consumer Credit Counselors
The 2007 Legislature passed the Oregon Check-
Cashing Act (Chapter 358), requiring licensing and          Oregon Financial Services Association (OFSA)
regulation of businesses engaged in check cashing.          Oregon Pawnbrokers Association
Check-cashing businesses must be licensed by                Oregon Cemetery Association
DCBS starting January 2008. This regulation affects         Oregon Funeral Directors Association
businesses that cash a check, warrant, or draft for a fee
                                                            Oregon Collectors Association ■ ■
or service charge. The law also limits the fees licensees
may charge.

                                                                                                              Page 11
 DFCS                              MoRTgagE LEnDing PRogRaM

Kirsten Anderson, program manager                          The Mortgage Lending
503-947-7478                                               Consumer Information
kirsten.l.anderson@state.or.us                             Program was created
                                                           in 2002 to provide
Program description                                        information to the
                                                           public, homeowners,
The 1993 Legislature established this program.
                                                           and home buyers—
Mortgage bankers lend money to fund loans secured
                                                           particularly first-time
by interests in real estate and sell or service those
                                                           and low- to moderate-
loans. Mortgage brokers make or negotiate mortgage
                                                           income home
loans. Mortgage brokers also sell real-estate paper
                                                           buyers who may be
for themselves or for others or accept funds from
                                                           recipients of sub-prime
others to invest in real-estate paper. A mortgage
                                                           mortgage loans. In
lender license allows a company to act as a mortgage
                                                           addition, this program
banker, a mortgage broker, or both. Loan originators
                                                           provides a variety of
are individuals who work under and are supervised
                                                           fraud prevention and
by mortgage lenders to negotiate the terms and
                                                           consumer protection
conditions of real-estate loans on behalf of Oregon
Oregon is one of the first states to legislate education   Significant activities
requirements for loan originators, and it increased        In 2007, the Mortgage Lending Program focused
those requirements to require entry-level education        much of its consumer outreach on helping Oregonians
and a state-proctored examination before a loan            facing foreclosure. The program developed a brochure
originator may begin working with consumers.               and Web site for consumers and helped connect
Originators also must complete 20 hours of continuing      homeowners with foreclosure counselors. The consumer
education every two years.                                 information specialist participated in six home-buying
                                                           fairs throughout the state, 14 training classes about
Mortgage lending licenses:
                                                           consumer protection issues with an estimated 2,350
 Year      Licenses    Offices     Loan Originators        attendees, 20 realtor classes for an estimated 289
  2002       1,354       2,225            9,064            realtors, and six television and radio shows.

  2003       1,331       2,498            8,599            The Governor organized the Mortgage Lending Work
                                                           Group in 2007 to address concerns about the housing
  2004       1,479       2,796            8,362            market and foreclosures. Recommendations from the
  2005       1,116       2,623            11,332           work group resulted in two bills passed in the February
                                                           2008 session that provide stronger enforcement laws,
  2006       1,824       3,538            12,930           better notice to homeowners facing foreclosure, and
  2007       1,706       2,945            8,802            limitations on people acting as foreclosure consultants
                                                           and mortgage equity purchasers. The work group will
                                                           continue to meet in 2008 to address additional issues.
As of Dec. 1, 2006, the Mortgage Lending Program           Information about the work group is available on our
also handles licensing for manufactured structures         Web site.

Manufactured structures dealer licenses:                   Primary trade associations
                                                           Oregon Association of Mortgage Professionals
   Year      Licenses      Supplemental Licenses
                                                           Oregon Mortgage Lenders Association
   2007          312                140                    Oregon Manufactured Housing Association ■
                                                                                                           Page 12
 DFCS                                SECURiTiES

Kevin Anselm, chief of enforcement and

Program description
The Securities Licensing and Registration Unit regulates
those who offer or sell securities as well as anyone who
provides investment advice in Oregon. Additionally,
unit staff answer many questions from residents,
businesses, and lawyers about the licensing status
of companies and salespeople, provide information
about disciplinary and regulatory actions, and direct
potential securities issuers to the laws and rules relating
to registering securities offerings in Oregon. The unit
also regulates public offerings of securities, accepts
notice filings of federally covered securities in Oregon,
and conducts office examinations of licensees doing
business in Oregon. The unit coordinates examinations
with other state and federal regulators and national            Most of the new and renewal mutual fund filings
organizations. Funds generated beyond those needed              are received through the electronic filing process
for budgeted activities are transferred to the General          — reducing paperwork, improving accuracy and
Fund.                                                           timeliness, and streamlining these filings.
                                                              •	The unit conducts routine and “for-cause”
Significant activities                                          examinations of broker-dealer and investment
•	 At the end of 2007, Oregon had a total of 2,051              advisers in Oregon. In 2007, examination activities
  licensed broker-dealer firms (2,023 in the U.S. and 28        for broker-dealer firms were focused on branch
  in Canada) with about 130,000 licensed salespeople.           offices co-located in credit unions.
  At the same time, Oregon had 1,499 investment
  adviser firms, most of which are federally covered
                                                              •	 To protect Oregon’s broad public record laws,
                                                                the division intervened in a federal court case to
  and notice filed with the division, with nearly 4,800
                                                                ensure that historic disciplinary records were not
  associated salespeople licensed in Oregon.
                                                                inappropriately expunged from a salesperson’s
•	 The division processed 7,631 new or renewal                  record.
  applications to register securities and notice filings
  for federally covered securities in 2007. The unit          Primary trade associations
  continued the streamlined registration process              North American Securities Administrators Association
  started in 2004 for mutual fund and unit investment         (NASAA)
  trust filings through free access to Blue Express,
                                                              Investment Company Institute (ICI)
  an Internet-based electronic filing system. DFCS
  processes about 6,500 mutual fund and unit                  Financial Industry Regulatory Authority (FINRA)
  investment trust notice filings and renewals a year.        Securities Industry and Financial Market Association
                                                              (SIFMA) ■

                                                                                                                 Page 13
 DFCS                               EnFoRCEMEnT

Kevin Anselm, chief of enforcement and                     Security numbers (with some exceptions), and requires
securities                                                 businesses to protect personal information that they
503-947-7498                                               collect and maintain by developing, implementing,
kevin.c.anselm@state.or.us                                 and maintaining reasonable safeguards. The act
                                                           took partial effect in October 2007, with the balance
Bill Hansen, chief investigator
                                                           effective Jan. 1, 2008. The division is responsible for
                                                           the enforcement of the new act. The unit has been
                                                           actively educating the public about the new act,
The Enforcement Unit acts on complaints filed by           including making more than 15 presentations to
the public, referrals from law enforcement and             business groups, directly reaching more than 600
regulatory agencies, and information obtained              business people between October and December
monitoring Oregon’s investment and financial services      2007.
sectors. The unit conducts investigations, subpoenas       The Investor Information Program (IIP) added
documents, and takes testimony as needed to support        consumer identity theft information and continued its
administrative, civil, or criminal action against those    outreach in 2007, through presentations, publications,
who violate Oregon laws governing the division’s           and participation in financial literacy programs and
programs. The unit also has authority to condition,        groups, including speaking engagements around
suspend, or revoke licenses issued by the division. The    the state. Staff members also provided thousands of
unit works with other state and national regulatory        pamphlets and mailers to the public.
organizations and law enforcement on many cases.
                                                           Additionally, IIP developed a program and partnership
In 2007, the enforcement unit had responsibility for
                                                           grant to be administered jointly with AARP, focusing on
several more programs, including manufactured
                                                           people 50 years of age and older to encourage investor
structures dealers, check cashers, and SB 583 —
                                                           due diligence before and after investing. Several
Oregon’s identity theft act.
                                                           forums are planned throughout the state in 2008.
SB 583, known as the Identity Theft Protection Act,
was passed by the Legislature in the 2007 session.         Significant activities
The act gives all Oregon residents the ability to place    • Assisted the U.S. Attorney’s office in Portland in the
a security freeze on their credit file. Further, the act     investigation and resolution of the case against Brian
requires businesses to notify consumers in the event         Hicks. He was indicted and arrested on 24 felony
of a breach of electronic data, prohibits businesses         charges, including securities fraud, mail fraud, wire
from printing or publicly displaying or posting Social       fraud, and money laundering involving investments
                                                             in a computer-company scam. Hicks defrauded
                                                             approximately 600 investors of more than $1.5
                                                           • Investigated Gary J. Sparks who was ultimately
                                                             charged, convicted, and sentenced to five years in
                                                             state prison for bilking three men out of $386,000
                                                             over a one-year period. Sparks earlier pleaded guilty
                                                             to 16 counts of aggravated theft and securities fraud.

                                                                                                  Continued on Page 15

                                                                                                             Page 14
 DFCS                               EnFoRCEMEnT, continued

• Secured conviction in the Multnomah County                • Issued an order against Ultimate Ventures, Inc.
  criminal case (as special prosecutors) against 44-year-     (“UVI”), a Kelowna, B.C., company, to cease and
  old Corey Pritchett, a self-described pastor. He            desist from offering and selling unregistered
  was sentenced to 96 months in state prison after            securities in Oregon. The order also requires the
  being convicted in November 2007 on 32 felony               company and its president, Cameron Kuipers, to pay
  counts including theft, securities, and real estate         civil penalties totaling $90,000 U.S.
  fraud in Multnomah County. Pritchett used various
  real estate-based scams to bilk victims, mostly low-
                                                            • Issued final cease and desist orders and levied
                                                              $20,000 in fines against Umraan Syed Hasan
  income people, out of at least $43,000.
                                                              (aka Suveraan Hasan or Ron Hasan) of Strategic
• Revoked the securities license of Jack Kleck, a             Funds Group LP for selling unregistered securities
  broker-dealer salesperson in La Grande, Ore., and           characterized as a hedge fund in Oregon without a
  fined him $100,000 for selling people over 70 years         license.
  of age unsuitable investments, including general
  partnerships in oil and gas ventures and junk bonds.
                                                            • Ordered Southwest Exchange, Inc., a Henderson,
                                                              Nev., company, to cease and desist from offering
  Additional actions are pending.
                                                              and selling unregistered securities in Oregon. The
• Issued final cease-and-desist orders and $25,000            company served as a “qualified intermediary” in
  in fines against DreamLife Lenders for altering its         Internal Revenue Code Section 1031 real estate
  mortgage lending license. The order also prohibits          transactions in Oregon, Idaho, Nevada, and
  the company from applying for a license for four            California. The company pooled client funds,
  years and prohibits the company’s owner from                depositing them with a broker dealer and paying
  owning or operating a mortgage broker or banker             interest on the client funds. At least one Oregon
  for five years. DFCS was alerted to the company’s           investor lost $21,000 and other Oregon real estate
  actions after a lender checking DreamLife’s license on      was involved.
  the DFCS Web site noticed an inconsistency.
                                                            • Sanctioned a number of mortgage brokers for
• Ordered a former Portland-area stockbroker, Larry           violations including employing a loan originator
  Pember, who promoted an illegal investment                  with a felony record, failing to notify the division
  program to pay up to $270,000 if he fails to meet his       about new hires, failing to maintain required file
  commitment to repay $80,000 in victim restitution           documentation, creating false documents, and failure
  for scores of fraudulent securities transactions. The       to obtain a license and ‘using’ another mortgage
  order permanently bars Pember and his business from         broker’s license to secure business in Oregon.
  having any securities license or registration in Oregon
  and from obtaining other licenses or registrations
                                                            • Assisted the U.S. Attorney and local district attorneys
                                                              in prosecuting various cases involving mortgage
  required to provide financial services in Oregon.
                                                              loan fraud. Several federal and county grand-jury
                                                              indictments have been returned, and more are
                                                              expected. Cases are pending.

                                                                                                   Continued on Page 16

                                                                                                                Page 15
 DFCS                              EnFoRCEMEnT, continued

Follow-up on 2006 cases                                    • Assisted the U.S. Attorney’s Office with the
• Joined the U.S. Securities and Exchange Commission         investigation of Pacific Achievement International
  to issue simultaneous administrative actions against       (PAI), a $12 million investment pyramid scam
  a Clackamas County investment adviser for alleged          based in Corvallis and Florida. Total funds taken
  misappropriation of about $16 million in investor          exceeded $13 million ($2 million recovered) from
  funds to purchase collector cars, art, and a lavish        approximately 1,600 “investors” throughout the U.S.
  lifestyle — instead of the promised securities. The        Both suspects pleaded guilty in 2006. The primary
  adviser’s assets were seized and are currently under       promoter was sentenced in 2007 to serve 72 months
  the control of a federal court-appointed receiver.         in federal prison and pay $8,785,374 to the victims
  Charles Wesley Rhodes’ investment adviser license          of his scheme.
  was revoked in June 2007; the company and Rhodes         • Continued to assist the U.S. Attorney’s Office in
  received a cease-and-desist order and $105,000 in          Eugene in the investigation and prosecution of Pac
  suspended fines so funds could go back to investors.       Equities and Michael and Phyllis Rich, who were
  The SEC revoked the company’s investment adviser           indicted for securities fraud. In this case, the Bend
  registration. The Oregon U.S. Attorney’s office has        couple solicited nearly $20 million in investments
  charged Rhodes with multiple felonies.                     from 252 investors for trust deeds secured by
• The DFCS action against a pawnbroker for failing to        properties in Oregon, Washington, Arizona, and
  return a pawn was upheld by the Oregon Court of            Hawaii. Phyllis Rich pleaded guilty to one count of
  Appeals.                                                   securities fraud and one tax charge in 2006 and
                                                             was sentenced to 51 months in federal prison.
• In 2008, will begin payment of $550,000 to                 Michael Rich was convicted of securities fraud, bank
  investors of funds received in the Pac Rim/Phillipine      fraud, money laundering, obstruction of justice,
  bearer bond case.                                          and tax fraud and sentenced to nearly 20 years
• Issued final cease-and-desist orders assessing $23,000     in federal prison. The couple was ordered to pay
  in fines each against Kenneth G. Titus, Sr., dba           more than $23 million in restitution. It is anticipated
  Redwood Trust, and Rex A. Haragan, dba Bountiful           that investors may receive from the receiver
  LLC, for unlicensed/unregistered sales of securities,      approximately one-half of their investment. ■
  securities fraud, and violations of the Oregon law
  governing credit services organizations in June 2007.
  Nationally, the Redwood Trust case involved at least
  $3.8 million. Titus received a federal sentence of 41
  months for money laundering and mail fraud and
  was ordered to pay restitution of $3.8 million.

                                                                                                             Page 16
                      Division of Finance       Corporate Securities
                            P.O. Box 14480, Salem, OR 97309-0405
                          350 Winter St. NE, Room 410, Salem, Oregon
                               503-378-4140 • Fax: 503-947-7862
                        Fraud and complaint investigation: 866-814-9710

440-3522 (6/08/COM)

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