SEC Chair Gensler's House Testimony: "I’ve Never Seen a Field That is So Noncompliant"

Gensler defends SEC crypto crackdown in House hearingSecurities and Exchange Commission Chairman Gary Gensler faced a barrage of criticism from House Republicans on Tuesday over his agency’s crackdown on cryptocurrency trading platforms.

In more than four hours of testimony before the House Financial Services Committee, Gensler stood firm on his view that crypto trading platforms and exchanges should abide by strict U.S. securities laws.

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Republicans raised many of the points the crypto industry regularly makes about regulation, arguing that the SEC’s disclosure rules were designed to regulate traditional markets, and they are ill suited to decentralized digital currency exchanges.

SEC Charges Investment Adviser Betterment for Misstatements Concerning Tax Loss Harvesting Service

The Securities and Exchange Commission today charged investment advisory firm Betterment LLC for material misstatements and omissions related to its automated tax loss harvesting service (TLH), failing to provide clients with notice of changes to contracts, and failing to maintain certain required books and records. To settle the charges, Betterment agreed to pay a $9 million penalty and to distribute funds to affected clients.

The SEC’s order finds that, from 2016 to 2019, Betterment, in communicating with clients, misstated or omitted several material facts concerning TLH, a service that scans clients’ accounts for opportunities to reduce their tax burden. According to the order, at different times, Betterment failed to disclose a change in the software related to its scanning frequency, failed to disclose a programming constraint affecting certain clients, and had two computer coding errors that prevented TLH from harvesting losses for some clients. Collectively, these issues adversely impacted more than 25,000 client accounts, resulting in those clients losing approximately $4 million in potential tax benefits.

Coinbase

“Regulatory clarity” is largely a euphemism, though there is some literal truth to it. I think it is crystal, crystal, crystal clear that … the SEC’s answer to Coinbase’s question of “okay well how do we comply with the law and operate a US crypto exchange that is registered with the SEC?” is “hahaha you don’t, get outta here, enjoy England.”

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But the biggest uncertainty is, like, is this it? Is the SEC’s current posture the final answer on US crypto regulation? If we assume that the SEC is going to be maximally aggressive about, not “regulating” crypto, but cracking down on crypto, and if we assume that the SEC will win in court because it has a pretty strong case under existing law, then the basic path for crypto in the US is “it’s going to be more or less illegal to raise money for a crypto project, or to offer a new crypto token widely, or to operate a crypto exchange that trades anything other than Bitcoin and Ether.” It will take some time to get there, since the SEC moves kinda slowly and the courts move even more slowly and crypto people seem very committed to this bit of complaining about “regulatory uncertainty” rather than “the regulators are clearly and fully committed to stamping us out.” But the long-term path that we are currently on is pretty clear.

Tech Firms Try to Muzzle Workers With NDAs, SEC Tipsters Say

Some top US technology companies are forcing workers to sign allegedly illegal labor agreements, according to complaints filed with the Securities and Exchange Commission, despite years of enforcement by the agency against the practice.

Firms, including an Apple Inc. subcontractor, Electronic Arts Inc. and Block Inc. improperly used non-disclosure agreements that prohibit workers from reporting bad behavior to the SEC, according to tipster complaints viewed by Bloomberg News that were filed with the agency by law firm Kohn, Kohn & Colapinto LLP. The contracts, which ban employees from sharing confidential information with any outsider, don’t include an exception for alerting regulators.

ChatGPT Can Decode Fed Statements, Predict Stock Moves From Headlines

In the second study, Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models, Alejandro Lopez-Lira and Yuehua Tang at the University of Florida prompted ChatGPT to pretend to be a financial expert and interpret corporate news headlines. They used news after late 2021, a period that wasn’t covered in the chatbot’s training data.

The study found that the answers given by ChatGPT showed a statistical link to the stock’s subsequent moves, a sign that the tech was able to correctly parse the implications of the news.

Crypto Companies May Use a Supreme Court Doctrine to Push Back Against SEC: Lawyer

Gottlieb said crypto companies may try to hold off the SEC using the U.S. Supreme Court’s “major questions doctrine,” which holds that regulators can’t exceed their authority. The high court last used the doctrine in 2022 in a 6-3 decision involving the Environmental Protection Agency on whether it had the authority to issue an emissions cap on greenhouse gases.

Chief Justice John Roberts, writing for the majority, said no, and that it was up to Congress to provide EPA with clear authorization for such actions.

“What the Supreme Court has instructed is that administrative agencies, which are a branch of the executive department, are not allowed to take views that will affect major questions of the United States economy,” Gottlieb said.

So when it comes to crypto, “That’s for Congress to set the law, not for the SEC to say ‘we believe the law should be no crypto,’” he added.

Anthony Constantinou, Capital World Markets Boss, Missing From London Fraud CaseThe boss of a London foreign-exchange investment firm accused of defrauding investors out of £50 million ($62.2 million) has “voluntarily absented” himself from his London trial.

Anthony Constantinou, who ran Capital World Markets Ltd., is accused of seven offenses including fraudulent trading, after prosecutors claimed he ran a Ponzi-style scheme that lured in investors with promises of eye-catching returns.

“You will see that the defendant is not here,” Judge Gregory Perrins told the jury at a hearing at London’s Southwark Crown Court Tuesday. “He has voluntarily absented himself.”

“It is not in any way an admission of guilt in his part, he has maintained his not guilty pleas,” said Perrins, confirming that the trial will continue to go ahead without him.

SEC Settles Multi-Tiered Insider Trading Case Against Convicted Fraudster, His Friend and Tippee, and a Former IIIumina Accountant

On April 11, 2023, the United States District Court for the Southern District of New York entered a final judgment against Donald G. Blakstad, a self-employed individual from San Diego. On November 21, 2022, the Court entered final judgments against Robert J. Maron, a personal friend of Blakstad, and Martha Patricia Bustos, a former accountant at Illumina, Inc. and close friend of Blakstad.

According to the SEC’s amended complaint, Bustos tipped Blakstad material, nonpublic information concerning at least four different Illumina quarterly performance announcements. Blakstad enlisted two individuals to trade on his behalf ahead of two of the announcements, and also tipped Maron and at least three other individuals, each of whom traded in advance of at least one of the announcements. After receiving the tip, Maron purchased out-of-the-money, near-expiration Illumina put option contracts in an account owned by his friend Joubin Torkan, which generated $900,000 in unlawful profits for Maron and $113,833 for Torkan. Torkan previously settled the SEC’s relief defendant claims against him, agreeing to disgorge $113,833 and to pay prejudgment interest of $8,606, which the Court approved on September 29, 2021.