Grayscale and SEC Drop the Gloves

SEC Rejects Grayscale’s Spot Bitcoin ETF Application

Grayscale Investments’ application to convert its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot-based bitcoin ETF was denied by the SEC on Wednesday despite the company’s extensive efforts to win approval (Grayscale is owned by Digital Currency Group, which is also the parent company of CoinDesk).

The SEC stated in its filing that the application failed to answer the SEC’s questions about preventing market manipulation, as well as other concerns.

SEC Includes Novel Probe Into Lawyers’ Actions in EY Settlement

Wall Street’s top cop is putting the screws to one of the world’s biggest audit firms—and going after its lawyers, too.

As part of a $100 million enforcement action announced Tuesday against Ernst & Young, the Securities and Exchange Commission demanded the firm undertake a separate, follow-up investigation into the actions of its own lawyers and managers. The SEC accused EY of misleading regulators about an internal report of cheating on required ethics exams, and suggested the firm’s lawyers and other executives were aware of the tip but failed to reveal it.

EY Cheating a ‘Wake-Up Call’ as SEC Targets Market Gatekeepers

Ernst & Young LLP’s $100 million fine for unchecked cheating on ethics tests and other training, coupled with a string of similar cases at other firms, threatens to undermine a profession that sells itself as a trusted protector of the public’s interest, from taxpayers to shareholders.

The latest news means affiliates of three of the Big Four firms have faced discipline after staff was found cheating on professional training programs since 2019. And EY’s record penalty effectively resets the bar for audit enforcement under Gary Gensler’s leadership of the Securities and Exchange Commission, which has repeatedly warned firms about risks that threaten their objectivity and cautioned that repeat violations would carry tougher penalties.

Crypto Loves Its Shadow Banks

…If you are a person who invents a business like this, and you are able to do it for a year or two and squirrel away the $2.4 billion, it is very very good for you and you can buy yachts and stuff. But in the long run, if you are borrowing at 8% and lending at 20%, you are taking some huge risk somewhere. Those 20% loans are risky and correlated and illiquid and possibly Ponzi schemes; that 8% money is flighty and unstable; you are lending out all the money you are borrowing and there is no cushion anywhere. At some point the people lending you the money at 8% are all going to ask for it back, and the people borrowing the money at 20% aren’t going to give it back, and you’re not going to have the money to pay back the 8% people, and they’re going to be really mad, and that’s when it will be useful for you to have a yacht to sail away on.

Crypto Litigation May Grow In Absence Of Regulatory Scheme

Despite its recent thrashing, the cryptocurrency market is still valued at a little over $915 billion.

That high market capitalization, alongside widely discussed regulatory uncertainty, has created fertile ground for litigation and enforcement to grow.

If recent trends are any indication, they are doing just that. Three recent cases illustrate how uncertainty has led to novel applications of existing law and encouraged litigation….

CEO Stock Sales Raise Questions About Insider Trading

A Wall Street Journal analysis of 75,000 prearranged stock sales by corporate insiders, using a comprehensive compilation of the data, shows that about a fifth of them occurred within 60 trading days of a plan’s adoption. The timing in aggregate made the trades more profitable: On average, those trades preceded a downturn in share price more often than when insiders waited longer to trade, the analysis found.

Collectively, insiders who sold within 60 days reaped $500 million more in profits than they would have if they sold three months later, according to the analysis, which examined trades from 2016 through 2021 and adjusted returns to remove the effect of sector-wide moves in the market.

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Academic researchers have suggested some corporate insiders might be using nonpublic information to game the preset trading plans, and the Securities and Exchange Commission has called trades that are initiated soon after plans are adopted “potentially abusive.”