SEC Chair Gensler Breaks Down the "Effective Administration" of Enforcement

Speech by SEC Chair Gary Gensler | “This Law and Its Effective Administration

Economic realities inform every sector of our enforcement program. To use “effective administration” in my speaking time, though, let me point to a few cases from this past year.

First: If you fail to register a security as required—or to register appropriately as an investment company—you violate the securities laws, regardless of the “form” or “name” of the securities involved.

That’s why, when BlockFi failed to register the offers and sales of a crypto lending product, and made materially false and misleading statements about those securities, we charged them.

Second: If you improperly trade securities on inside information, you violate the securities laws, regardless of the “form” or “name” of the securities involved.

That’s why, when a former Coinbase manager and others allegedly misappropriated confidential information to purchase crypto asset securities, we charged them.

Finally, fraud is fraud, regardless of the types of investors you have defrauded and the types of securities used in the fraud.

That’s why, when several firms—Allianz Global Investors, Archegos Capital Management, and Infinity Q Capital Management, or in some cases their executives—used complex products allegedly to defraud investors, we charged them.

If you defraud any investor—retail or institutional, sophisticated or not—you will be held accountable.

SEC Accountant Warns of Heightened Fraud Risk Amid Recession Fears, Market Selloff

Wall Street’s top watchdog is warning that the market selloff and fears of a recession could encourage more companies to cook their books, and it is pressuring auditors to catch them.

“The current economic environment is subject to significant uncertainties and, historically, that oftentimes leads to heightened fraud risk,” Paul Munter, acting chief accountant at the Securities and Exchange Commission, said in an interview. “So we are trying to be proactive and speak to the marketplace.”

Good severance

One funny thing that could happen to you is that your employer could promise to pay you $680,000 over 16 months, meaning about $42,500 per month, but then in the contract, instead of typing “we will pay you $680,000 in monthly installments over 16 months,” they might type “we will pay you $680,000 per month for 16 months.” That would be better, for you, though you’d definitely have to go to court about it. Here is law professor Jeff Lipshaw on a real case….

What the OFAC Coin Center Lawsuit Means for Crypto Regulation

The argument that Coin Center seemingly presents, however, overlooks that crypto service providers ultimately cannot reside outside of regulation forever. When technology takes over the functions that would otherwise fall to people or entities, its creators and users can no longer claim it sits outside the rule of law.

Policymakers will not sit by and allow this framework to go unregulated even if Coin Center temporarily prevails in its lawsuit. And this is why regulatory measures are being drafted across jurisdictions and are expected to be implemented in the near future.

The crypto community should not view the coming of regulation as a dark cloud hanging over the industry. Regulatory measures—when tailored to the unique attributes of the crypto market—can offer clear guidelines on how decentralized technology should be applied, who may use it, and for what purpose.

Apparel Company Hit with Supply Chain-Related Securities Lawsuit

In the current difficult business environment, many businesses face a broad array of daunting business challenges, including economic inflation, rising interest rates, supply chain and labor supply disruptions, the continuing threat of COVID-19 shutdowns, and the war in Ukraine. These various circumstances not only represent potential operational hurdles they may also involve increased litigation risk as well – as I have noted on previous posts (for example, here) these various business challenges can translate into litigation, as well. In the latest example of this phenomenon, earlier this week a plaintiff shareholder launched a securities class action lawsuit against the healthcare apparel firm FIGS, Inc. relating to the increased supply chain costs the company experienced since its June 2021 IPO. A copy of the November 1, 2022 complaint against the company can be found here.

SEC seeks more input on Finra proposal to allow supervision from home offices

In July, the Financial Industry Regulatory Authority Inc. filed a proposal with the Securities and Exchange Commission that would allow a broker working remotely to supervise other brokers without the broker’s home being designated as a branch office.

The so-called residential supervisory location would be subject to examination by the parent brokerage once every three years instead of the annual inspection that must be performed at an office of supervisory jurisdiction.

The SEC, which must approve Finra rules, put the proposal out for an initial comment period over the summer. The agency heard from firms and industry groups that supported the measure. But it also received letters from the North American Securities Administrators Association, which represents state regulators, and the Public Investors Advocate Bar Association, which both warned that remote supervision would undermine investor protection.

India’s Crypto Taxes May ‘Kill the Industry,’ Binance CEO Says

Binance Holding Ltd. Chief Executive Officer Zhao “CZ” Changpeng said India’s onerous taxes on cryptocurrency transactions will probably “kill the industry” there.

“India has high tax which is probably going to kill the industry,” Zhao said in livestreamed remarks during panel at a fintech conference in Singapore on Thursday.

Zhao’s comments add to a litany of warnings on the outlook for India’s crypto industry, after the government this year introduced a tax package that’s caused trading volumes to evaporate. Instead of introducing comprehensive regulations, India has opted for heavy taxes on capital gains and transactions to curtail the business.