All Five SEC Commissioners Testify Before House Committee on "Oversight of the SEC"

Wall Street watchdog faces bipartisan ire in House over crypto

Lawmakers from both major parties in the House of Representatives on Tuesday renewed their attacks on Wall Street’s chief regulator over his agency’s policies on cryptocurrencies, accusing the U.S. Securities and Exchange Commission of hampering the industry’s growth.

The sometimes heated questioning coincides with mounting election-year political pressure and soaring campaign cash contributions from the industry, which SEC Chair Gary Gensler has described as rife with criminality and other non-compliance leading to steep investor losses.

All five of the SEC’s members appeared on Tuesday at a hearing of the U.S. House Financial Services Committee, only the third time this has happened in the past 17 years, allowing Republican commissioners to voice dissent alongside its majority Democratic members.

Caroline Ellison Sentenced to Two Years in Prison for Role in FTX Fraud

Caroline Ellison, a former top adviser to the cryptocurrency mogul Sam Bankman-Fried, was sentenced to two years in prison on Tuesday for her role in the $8 billion fraud that led to the implosion of the once high-flying FTX crypto exchange.

Judge Lewis A. Kaplan of U.S. District Court in Manhattan said that he believed Ms. Ellison was genuinely remorseful and that her cooperation with the government had been substantial. But given the severity of the fraud, he added, he could not give her a “‘get out of jail free’ card.”

Ms. Ellison is set to report to a minimum security prison in the Boston area by around Nov. 7, almost exactly two years after FTX collapsed.

SEC Drops Auditor Misconduct Cases After In-House Judges Ruling

Among the cases the regulator tossed out in August was an action against a Marcum LLP audit partner who is suing the SEC challenging its administrative enforcement process. The SEC also dismissed a case against a former audit partner at PwC, also known as PricewaterhouseCoopers. The commission said the former partner had failed to document and report a $109 million error in toymaker Mattel’s financial statements.

The SEC declined to comment on the reason for the dismissals, but securities lawyers say the regulator is taking stock of how the high court’s June SEC v. Jarkesy decision could alter which cases to pursue before its in-house judges. In the ruling, the Supreme Court found that defendants accused of securities fraud, like former hedge fund manager George Jarkesy, have the right to a jury trial when the SEC seeks financial penalties.

Bars and suspensions could be considered punitive under the Jarkesy decision, said Richard Hong, a former SEC trial attorney and partner with Morrison Cohen LLP.

Hunterbrook

The essential question is: What is the best way to make money from finding out bad stuff about a company? Shorting the stock is the most traditional approach, but it is risky and uncertain and makes people mad at you and ties up a lot of capital. In the US, finding plaintiffs for a consumer class action lawsuit is a potentially very lucrative way to monetize bad stuff about a company. Finding plaintiffs for a securities class action — not “you did a bad thing to me,” but rather “you did a bad thing to someone else, which caused your stock to drop, and I am a shareholder” — is also pretty common. Filing a whistleblower complaint with the US Securities and Exchange Commission can also be pretty good; the SEC pays big bounties to whistleblowers.

You don’t have to choose, though; you can do all of those things. Find out the bad thing, short the stock, file the whistleblower complaint, announce a consumer class action, and then, if the stock drops on the announcement, (1) take some profits on your short3 and (2) also file the shareholder class action. Use every part of the bad news.

SEC Charges Former CEO of Tech Startup SKAEL with $30 Million Fraud

The Securities and Exchange Commission today announced fraud charges against Baba Nadimpalli, the co-founder and former CEO of SKAEL Inc., a San Francisco-based private technology company that developed business automation software.

According to the SEC’s complaint, from January 2021 through February 2022, Nadimpalli raised more than $30 million from investors by falsely claiming that SKAEL had millions of dollars in annually recurring revenue, which was more than 10 times the true amount. The complaint also alleges that Nadimpalli falsely suggested to investors that SKAEL’s customers included a number of well-known companies, and, further, that Nadimpalli forged bank statements to show nonexistent payments from customers. Nadimpalli also allegedly spent hundreds of thousands of dollars of SKAEL’s money on his own personal expenses, including payments on his house and car.

Eleven Firms to Pay More Than $88 Million Combined to Settle SEC’s Charges for Widespread Recordkeeping Failures

The Securities and Exchange Commission today announced charges against 12 firms, comprising broker-dealers, investment advisers, and one dually-registered broker-dealer and investment adviser, for widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications in violation of recordkeeping provisions of the federal securities laws.

The firms admitted the facts set forth in their respective SEC orders, acknowledged their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $88,225,000 as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations. The firms are as follows….

SEC Charges Former Foot Locker Employee with Insider Trading

The Securities and Exchange Commission charged New York resident Barry Siegel with insider trading ahead of two earnings announcements by Foot Locker, Inc.

According to the SEC’s complaint, Siegel had access to material nonpublic sales and inventory data in his role as Senior Director of Order Planning Management, North America at Foot Locker. The SEC alleges while in that role, Siegel shorted Foot Locker stock in advance of the company’s first quarter 2023 earnings announcement in May 2023. The SEC further alleges that, after the announcement, Foot Locker’s stock price fell by 27.24%, and Siegel covered his short position for a $82,736.06 profit. The complaint further alleges, in early August 2023, about a week after being laid off from his job at Foot Locker, Siegel sold short Foot Locker stock again, this time in advance of the company’s announcement of its second quarter 2023 earnings. According to the complaint, after that announcement, the stock price fell by 28.28% and Siegel covered his short position for a $30,132.89 profit. The SEC further alleges that before each of his trades, Siegel was in possession of material nonpublic information concerning Foot Locker’s operating results, including negative sales and inventory figures, and that he traded based on that information despite being subject to Foot Locker’s Policy Prohibiting Insider Trading.