SEC Brings Action Against Merrill Lynch for Failing to File Hundreds of SARs

SEC Charges Merrill Lynch and Parent Company for Failing to File Suspicious Activity Reports

The Securities and Exchange Commission today announced charges against Merrill Lynch, Pierce, Fenner & Smith Incorporated and its parent company BAC North America Holding Co. (BACNAH) for failing to file hundreds of Suspicious Activity Reports (SARs) from 2009 to late 2019. Merrill Lynch agreed to pay a $6 million penalty to settle the SEC charges and, in a parallel action, Merrill Lynch agreed to pay a separate $6 million fine to settle charges brought by the Financial Industry Regulatory Authority (FINRA).

According to the SEC’s order, BACNAH assumed responsibility for creating and implementing Merrill Lynch’s SAR policies and procedures and for filing Merrill Lynch’s SARs. Over the course of a decade, however, BACNAH improperly used a $25,000 threshold instead of the required $5,000 threshold for reporting suspicious transactions or attempted transactions where a suspect may have been seeking to use Merrill Lynch to facilitate criminal activity and could not be identified. As a result, BACNAH caused Merrill Lynch’s failure to file hundreds of required SARs.

The Accountant Shortage Is Showing Up in Financial Statements

One of the most explicit examples of the fallout came from Advance Auto Parts, which said it had identified a material weakness in its ICFR due to turnover in key accounting positions during the fiscal quarter ended April 22. The company said it wasn’t able to attract and retain enough qualified people to fulfill internal-control responsibilities.

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Another company that has struggled with an accountant shortage is Joby Aviation, a maker of electric vertical takeoff and landing aircraft, or eVTOLs. In a May 5 quarterly filing, the company said it was continuing to fix the control deficiencies that led to its material weakness. The remaining aspect of the material weakness, as of Dec. 31, 2022, related to the lack of sufficient accounting personnel with deep technical knowledge to identify and resolve complex accounting issues in a timely manner, the Santa Cruz, Calif.-based company said. Joby Aviation declined to comment.

Elon Musk Blames the Lawyers

One second after closing, Musk owned Twitter, and could tell Twitter not to pay any bills. (And he did, and he has gotten sued for it.) But one second before closing, Musk did not own Twitter, and Twitter could pay all the bills it wanted to. He asked it not to, and it did anyway, and that was fine. “Twitter executives ignored the first half of the Closing Day Directive and instead accelerated Twitter’s outbound payments to third parties,” complains Musk.

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… You could imagine Musk demanding a list of transaction expenses, not closing the deal until he got it, getting it, reviewing it, saying “this Wachtell bill is too big,” and refusing to close the deal until it was renegotiated. Or you could imagine him settling the merger litigation by signing some sort of settlement agreement that covered, among other things, litigation expenses. But he didn’t do that. He settled the merger litigation by saying “never mind, I’ll close the deal,” not a negotiated settlement but a pure capitulation. And then, once he did that, he closed the deal as quickly as possible. He did everything impetuously, and one result of that is that he paid a $90 million fee to the law firm that beat him. And now he is complaining! Fine. But it is only his fault.

A Path Forward for Regulating Crypto Markets

For these reasons we continue to believe that other actions, besides litigation, should be taken if we are to reach an appropriate end.

Most notably, the SEC and CFTC should jointly develop basic investor and market protection standards for trading platforms as they exist today. The agencies could act directly or through a self-regulatory organization, shifting funding responsibility to the industry. Having Congress mandate this approach would be even better.

The standards could easily be based on existing rules and, while rule-making takes time, it will get us to a much improved state of affairs faster.by CoinDesk

A Second Round of the Lummis-Gillibrand Crypto Bill Elevates U.S. CFTC, Defines DeFi

The bill’s big-ticket item is the border it draws between securities oversight and everything else – the long-awaited division that would give the SEC and CFTC their crypto marching orders. Broadly, it says that assets that don’t give the investor a financial interest in a business shouldn’t be considered securities, even if they “benefit from entrepreneurial and managerial efforts that determine the value of the assets.” Those issuing cryptocurrencies would make twice-yearly disclosures to the SEC, but as long as their tokens don’t represent debt or equity or tick other ownership boxes, they’d stay outside SEC reach – unless the agency wins a court challenge also outlined in the bill.

Big Law Turns to Government Talent for White-Collar Defense, National Security Practices

While the revolving door remains active, law firm hiring of government talent has cooled off in recent months after a flurry of Big Law hires in late 2021 into 2022, as economic uncertainty has forced firms to tighten their purses.

There was a noticeable slowdown in the number of moves from U.S. attorney’s offices to law firms, with 14 attorneys leaving between October to April of this year, compared with the 43 attorneys who left in a similar period in 2021-22, according to the data from Leopard Solutions.

The number of tracked hires from the SEC and Justice Department, outside of the U.S. attorney’s offices, to law firms was also down slightly between October to April compared with the prior period in 2021-22.

English Court Rejects Climate Change Case Against Shell Board

In numerous recent posts, I have detailed how activist investors have been trying to use the courts to advance their ESG-related agenda, whether the groups’ goals are to advance or oppose ESG initiatives. For example, earlier this week I discussed the recent Delaware case in which activist investors sought to hold the Disney board liable for the company’s actions regarding Florida’s “Don’t Say Gay” legislation. A high-profile example of litigation from the other direction, in which activists seek to hold board accountable for the company’s alleged insufficient actions on ESG issues, is the claim brought in English courts earlier this year against the Board of Shell, alleging that the company’s actions to address climate change were insufficient.

Defendant Charged With Theft Of Cryptocurrency And NFTs Through Spoofing Of OpenSea Marketplace

Damian Williams, the United States Attorney for the Southern District of New York, and Christie M. Curtis, the Acting Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of a four-count Indictment charging SOUFIANE OULAHYANE, a/k/a “Soufiane Oulahya,” for a scheme to impersonate the OpenSea marketplace in order to obtain unauthorized access to cryptocurrency and non-fungible tokens (“NFTs”). In September 2021, OULAHYANE stole approximately $450,000 worth of cryptocurrency and NFTs from a victim in Manhattan. OULAHYANE is currently in custody in Morocco for foreign charges.

U.S. Attorney Damian Williams said: “As alleged, Soufiane Oulahyane used a common cybercrime technique to steal victim cryptocurrency and NFTs. ‘Spoofing’ is one of the oldest tricks in the criminal playbook. Oulahyane adapted this old tool for use in a new and developing arena – the crypto space. The charges unsealed today should serve as a reminder that digital assets, such as cryptocurrency and NFTs, are not immune from cyber fraudsters and that my Office is committed to prosecuting these fraudsters both here and abroad.”