How "Data Tagging" Will Help SEC Enforcement Against Public Companies

SEC’s Data Tagging Will Ensnare Companies Next Year

In 2024, the SEC will use investigative tools powered with artificial intelligence to better identify companies that violated disclosure requirements. Similar to speed cameras enhancing traffic control for police, this data tagging technology—known as Inline XBRL—will allow the Securities and Exchange Commission to more effectively analyze large quantities of corporate disclosures in support of the agency’s enforcement activities.

As we approach 2024, the extensive list of corporate filings that are now required to be filed in the Inline XBRL format will continue to grow. As a result of the avalanche of SEC rulemaking, many public companies likely overlooked, or didn’t fully appreciate, the seemingly simple data tagging provision stated in most of the recently finalized rules, such as the SEC’s cybersecurity risk governance rule or its proposed climate change disclosure rule.

But this data tagging format on corporate filings will enhance the SEC’s ability to initiate enforcement actions against public companies—which have already begun to increase in frequency since the amended Inline XBRL format was fully implemented.

Swift SBF Conviction Vindicates Prosecution ‘Need for Speed’

Bankman-Fried’s case was a high-pressure test of Williams’s trumpeted aim to pursue white collar prosecutions selectively and swiftly. In part, the defense team banked on prosecutors’ speed undermining their ability to put on a strong, trial-ready case. Thursday’s verdict sends a different message to the financial world.

“This case moved at lightning speed,” Williams said at a press conference after the verdict. “That was not a coincidence. That was a choice.”

Williams has often said that prosecutors need to address major controversies while they’re in the public eye. In the case of FTX, customer outrage over the exchange’s collapse added to the pressure to act quickly and decisively.

Interviews with half a dozen former prosecutors, colleagues and friends of Williams and Assistant US Attorney Danielle Sassoon offer insight into how the massive prosecution came together so swiftly.

Sam Bankman-Fried and the SEC

Mr. Gensler has since spun Mr. Bankman-Fried’s fraud as a cautionary tale of the crypto “wild West.” The SEC chief claims crypto currencies are securities—ergo, exchanges and token developers must submit to agency regulation. But a federal judge this year disagreed, and Congress hasn’t given the SEC authority to regulate crypto.

Mr. Gensler has tried to regulate anyway, even before the FTX collapse. But regulators and prosecutors don’t need new powers to charge fraud under existing U.S. laws. And while Mr. Gensler charged crypto companies for marketing unregistered securities and operating unregistered trading platforms, that didn’t stop Mr. Bankman-Fried’s crimes.

Mr. Bankman-Fried scoffed last November to a reporter at Vox that regulators “don’t protect customers” and “can’t actually distinguish between good and bad.” He may have demonstrated his point. One question for Congress to investigate is whether Mr. Gensler’s preoccupation with expanding his regulatory and enforcement power caused the agency to overlook the FTX fraud in plain sight.

Barclays Hit with Securities Suit Over Disclosures About CEO’s Relationship with Jeffrey Epstein

Jeffrey Epstein’s life, misdeeds, and death make for a sordid and scandalous tale. Epstein’s story is the backdrop of a new securities class action lawsuit that has been filed against Barclays, its former CEO, James “Jes” Staley, and certain other company executives, in which the plaintiff alleges that Staley and Barclays misled investors about the relationship Staley had with Epstein during Staley’s prior position at JP Morgan Chase Bank. This new complaint’s filing follows shortly after the U.K Financial Conduct Authority in October announced its decision to fine Staley and ban him from officer positions in the financial services industry based on its finding that Staley “recklessly approved a letter to the FCA” that the agency said “misled” the FCA and the Barclays board about Staley’s relationship with Epstein. A copy of the new securities lawsuit complaint, filed on November 1, 2023, can be found here.

Sam Bankman-Fried guilty verdict: I was there in the courtroom. I think I know why he did it.

I caught his eye a couple times but couldn’t get a read. However, I think his emptiness of expression helped me to make some sense of all this. Sam Bankman-Fried, known as a math nerd and effective altruist, saw the world in probabilities and calculations, going so far as to figure out he had a “5 percent chance of becoming president someday,” per his ex-girlfriend and most damning witness, Caroline Ellison. What did he think were the odds he could get away with losing billions of dollars of fiat and cryptocurrency capital from customers, investors, and friends who’d trusted him? Maybe the exact number doesn’t matter, and never did; SBF presented himself as someone willing to bet on just about anything, even if such a bet gambled with the entirety of human existence. If there were a nonzero chance of a truly positive outcome, no matter how dire the alternative, it might have been a chance worth taking. SBF clearly thought he had a worthy-enough shot at a lot of things—at ballooning his wealth and influence in perpetuity, at remaking significant aspects of the world in the way he deemed best, at getting himself out of any scrapes along the way. Yet in the long term—ha?—he overplayed his hand and destroyed himself, as well as a lot of other people’s savings and livelihoods. In the end, that was just the cost of some ill-fated gambling. It’s not really a tragedy, but it’s not a farce either. It’s kinda just pathetic.

Bankman-Fried’s Pre-Trial Antics Haunt Him Before Sentencing

Former federal prosecutors predict the fallen FTX co-founder will receive at least 20 years in prison. That would be a harsher sentence than defendants in some other recent high-profile white-collar cases, including Elizabeth Holmes, who received a prison term just over 11 years last November for defrauding Theranos Inc. investors.

At the high end, federal sentencing guidelines could recommend what equates to a life sentence for Bankman-Fried, who turned 31 in March. District Judge Lewis A. Kaplan has been critical of the guidelines and often imposed more lenient sentences in previous cases before his court. But Bankman-Fried did himself no favors by rankling the judge, both before and during the trial.

U.S. SEC’s Knock From GAO Unlikely to Budge Agency’s View on Crypto Accounting

As the U.S. Securities and Exchange Commission (SEC) Chair keeps chasing non-compliance in crypto, his agency was slammed by the watchdog Government Accountability Office (GAO) for its own compliance failure in issuing crypto accounting standards without treating the policy as a formal rule.

So, what now? In practical terms, probably nothing much.

The agency is likely to rectify the accusation that it sidestepped the Congressional Review Act (CRA) by submitting Staff Accounting Bulletin 121 (SAB 121) to Congress, as the GAO argued should have been done when the controversial policy was issued in 2022.

What Does the SEC’s Complaint Against SolarWinds Mean for CISOs and Boards?

The SEC’s complaint charges SolarWinds and Brown with direct anti-fraud violations for alleged misstatements as well as direct and secondary liability against them for internal controls violations. This case marks a significant precedent, as it is the first instance where the SEC charged a CISO with fraud, representing a profound departure from its traditional focus on officers with explicit accounting and disclosure duties and SEC reporting expertise. This unprecedented action highlights the increasing importance of cybersecurity in the realm of federal securities law and underscores the gravity of the role CISOs play in the accurate representation of a company’s cyber health. The SEC’s complaint seeks not only corrective actions but also significant penalties, including injunctions, the return of ill-gotten gains and a prohibition on Brown serving as an officer or director in any public company, reflecting the severity with which the agency views these alleged infractions.