NY AG Sues Three Major Crypto Firms for $1 Billion Fraud Scheme

New York Attorney General Sues Crypto Firms in $1 Billion Fraud Case

Continuing a crackdown on cryptocurrency companies, the New York attorney general accused three major players in the digital asset industry of lying to investors and concealing losses in a $1 billion fraud scheme, according to a lawsuit filed on Thursday.

The suit targets Gemini Trust, the exchange run by the twin brothers Tyler and Cameron Winklevoss; the lender Genesis Capital; and Digital Currency Group, the parent company of Genesis.

The attorney general, Letitia James, contends in the suit that Gemini lied to investors about the dangers of Gemini Earn, a program started by Gemini and Genesis that promised investors a high rate of return — up to 8 percent — if they essentially lent their cryptocurrency to Genesis.

Elon Musk, Mark Cuban Back Supreme Court Challenge to SEC

In a new amicus brief to the Supreme Court, Musk, Dallas Mavericks owner Mark Cuban and others who have wrestled with the securities regulator over the years have come to the aid of a hedge fund manager challenging SEC administrative proceedings in a case before the justices.

“Each of the individual amici is a sophisticated businessperson and investor who has publicly litigated against the United States Securities and Exchange Commission,” stated the brief filed by lawyers at Paul Hastings and Quinn Emanuel Urquhart & Sullivan LLP. According to the brief, Musk is represented by the Quinn Emanuel team.

In SEC v. Jarkesy, the SEC is fighting to save its in-house enforcement system against a constitutional challenge from respondents George Jarkesy and Patriot28, a hedge fund manager and investment adviser barred from the industry and slapped with a $300,000 penalty after an administrative law judge found they broke multiple securities laws.

Top US Cyber Agency Pushing Toward First Hack Reporting Rule

A new US notification requirement for victims of malicious hacks could push in-house counsel to disclose cyberattacks when faced with ransomware and other network compromises.

Among the first-ever cyber regulations to be enforced by the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency, the top US cyber authority, the proposed rules would require companies in 16 critical infrastructure sectors—including healthcare, energy, and finance—to report security incidents within three days and ransomware payments in 24 hours.

Sam Bankman-Fried Trial: Where Did FTX’s Missing $9 Billion Go?

A forensic accountant at the trial of Sam Bankman-Fried tried to explain what happened to $9 billion in FTX customer funds that were missing in June 2022, five months before the company filed for bankruptcy.

Peter Easton, an accounting professor at the University of Notre Dame, said Wednesday that $11.3 billion in FTX customer funds were supposed to be held at Alameda Research, but only $2.3 billion were actually in its bank accounts. The funds were ultimately used for a variety of purposes, including investments at Anthony Scaramucci’s SkyBridge Capital and Lily Zhang’s Modulo Capital, he said.

Private Companies and SEC Enforcement Actions

The reach and scope of the federal securities laws is a concern most obviously relevant to publicly traded companies. However, as I have emphasized previously, private companies are not immune from scrutiny under the federal securities laws. The SEC has in fact an extensive history of pursuing enforcement actions against private companies for alleged federal securities laws violations; one needs to go back no further than the high-profile enforcement action brought against the supposed blood testing company Theranos for an example of this phenomenon in action.

A recent memo from Wiley law firm underscores these points about the exposures of private companies; as the memo’s authors put it, “private entities should be aware that an aggressive SEC can investigate and penalize them (and their executives), even if they are not directly involved in issuing securities.” The law firm’s September 23, 2023, memo, entitled “Think Because You Are a Private Company the SEC Is Not Your Problem? Think Again,” can be found here.

US court upholds Nasdaq board diversity rule

A U.S. appeals court upheld Nasdaq’s board diversity rule on Wednesday, requiring companies listed on the exchange to have women and minority directors on their boards or explain why they do not.

In a lengthy opinion, the New Orleans-based 5th U.S. Circuit Court of Appeals rejected lawsuits seeking to block the rule by the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, a group formed by conservative legal activist Edward Blum.

The SEC acted within its authority in approving the rule, and was allowed to consider the opinions of investors who said board diversity information was important to their investment decisions, the court said.