Credit Suisse to Pay $10 Million to Settle SEC Charges it Provided Prohibited Mutual Fund Services

Credit Suisse Entities to Pay $10 Million for Providing Prohibited Mutual Fund Services

The Securities and Exchange Commission today announced that Credit Suisse Securities (USA) LLC and two affiliated Credit Suisse entities (collectively, the Credit Suisse Entities) agreed to pay more than $10 million to settle the SEC’s charges that they provided prohibited underwriting and advising services to mutual funds.

In October 2022, the Superior Court of New Jersey entered a consent order that resolved a case alleging that Credit Suisse Securities violated the antifraud provisions of the New Jersey Securities laws in connection with its role as underwriter to residential mortgage-backed securities. According to the SEC’s order, because the New Jersey court ordered that Credit Suisse Securities shall not violate New Jersey securities laws, Credit Suisse Securities and its affiliates were prohibited from serving as principal underwriter or investment adviser to mutual funds and employees’ securities companies pursuant to the Investment Company Act of 1940. The SEC order finds, however, that the Credit Suisse Entities continued serving in these prohibited roles until the Commission granted them time-limited exemptions on June 7, 2023. Credit Suisse was acquired by UBS Group AG on June 12, 2023.

SEC Approves 2024 PCAOB Budget and Accounting Support Fee

The Securities and Exchange Commission today approved the 2024 budget of the Public Company Accounting Oversight Board (PCAOB) and the related annual accounting support fee. The 2024 PCAOB budget totals $384.7 million, and the accounting support fee totals $358.8 million, of which $331.0 million will be assessed on public company issuers and $27.8 million will be assessed on registered broker-dealers.

“A critical feature of our capital markets is that investors rely on public company disclosures, including their financial results. Essential to investors’ trust in the reliability of such financial information is an independent audit of issuers’ financial statements,” said SEC Chair Gary Gensler. “Congress understood this when they passed the Sarbanes-Oxley Act of 2002 in response to some of the largest accounting frauds and bankruptcies in the history of our country. I support this $385 million budget — supporting a modest two percent increase in headcount — because of the important role the PCAOB plays in protecting investors and facilitating capital formation.”

Congress Should Change Agency In-House Courts’ Lax Evidence Rules

Although the issue in Jarkesy is whether a defendant is entitled to have a jury decide the facts, some of the discussion at oral argument last week had more to do with the rules that apply in those in-house forums.

In response to one of the justices, counsel for Jarkesy noted that the federal rules of evidence don’t apply in agency proceedings. It’s a point that should get more attention—as agencies across the federal government, including the SEC, the Board of Immigration Appeals, the Consumer Financial Protection Bureau, and the Federal Trade Commission, have their own more informal rules of evidence that can dramatically affect how the facts are determined.

Congress enacted these more lenient rules decades ago, before agencies were given the authority to seek massive civil penalties in in-house proceedings. Research from Northern Illinois University College of Law and other studies have shown that the SEC and banking agencies have sought increasingly steep penalties.

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Regardless what the Supreme Court decides, Congress—as the entity that made these rules—can and should step in.

Zvi Gabbay : “The SEC’s Approach Is Wrong, and I Think That They’re Already Paying For It”

“[The SEC] settles the vast majority of their cases because defendants – this could be companies or individuals – either can’t afford or don’t want to pay the legal fees for the battle. And, more importantly, in many cases, they don’t know if they’ll be able to stay alive, in that you’re poison once you have these types of proceedings [against you] … but Coinbase, Kraken and Binance are fighting for their lives. There is no alternative, and because there is no alternative, they’re going to fight.”

Furthermore, the big crypto platforms may have an advantage in terms of legal personnel and tactics.

“Their legal teams are comprised of former heads of the SEC enforcement division. And, with Ripple, it’s a former chairman of the SEC. It’s super senior people. In many cases, these are stronger legal teams than the SEC’s team.”

“So you’re talking super strong defense, together with the fact that [the crypto companies] have to fight, together with the fact that when [the SEC] embark on regulation by enforcement, you make mistakes and you’re forced to take positions that are legally weird, uncomfortable, and not persuasive.”

“The combination of these three factors leads me to believe that the SEC’s chances of winning are not the usual chances that they’re used to.”

Anonymous Crypto Interests Bombard Key Senator Sherrod Brown With Political Ads

U.S. Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, is arguably the most important lawmaker currently standing in the way of a crypto regulation bill, and industry interests have paid for a new campaign in his own back yard to nudge him.

The brand new Cedar Innovation Foundation – a crypto-backed organization that won’t identify who is funding it, according to an official there – is pushing videos at younger voters in Ohio’s metro areas, which suggest the Securities and Exchange Commission run by Chair Gary Gensler is forcing technology jobs overseas and stifling innovation to favor his friends on Wall Street.

“Tell Sherrod Brown to stand up to Gary Gensler,” one of the ads implores. “Fight for Ohio jobs.”

Unilever Under U.K. Investigation for Possible “Greenwashing” Product Claims

While academics and others may be asking whether it is time to “say RIP to ESG,” the fact is that though some observers may be done with ESG, ESG is not done with us. A recent action by a U.K. regulator shows that companies remain susceptible to investigations and other regulatory actions for their sustainability and other product or business-related claims. In a December 12, 2023 press release (here), the U.K. Competition and Markets Authority (CMA) announced that it has started a formal investigation into the London-based consumer products company Unilever to examine the company’s “green” claims about “a number” of its products.

As discussed below, this latest regulatory action underscores the fact that companies seeking to burnish their green credentials could be subject to scrutiny and even possible regulatory action. A December 13, 2023, Wall Street Journal article about the CMA’s investigation can be found here.