SEC Commissioner Uyeda: SEC Should be Reluctant to "Set Regulatory Policy through Enforcement Actions"

Remarks to the 2023 Conference on SEC Regulation Outside the United States: Fifth Annual Scott Friestad Memorial Lecture– SEC Commissioner Mark T. Uyeda

However, enforcement actions are not subject to notice and comment. The only individuals involved in the discussions are the enforcement staff, the defendants, and their counsel. The language of enforcement orders is negotiated among them, and the full context of those discussions may not be included. While some may view an order as providing guidance on the SEC’s views, it may be difficult to ascertain how the order might apply to other situations as it is limited in scope to the facts and circumstances of the specific case. Thus, using enforcement actions as a method to set regulatory policy means that the public is denied a chance to provide input.

Today, I want to discuss three areas where insufficient clarity may result in a lack of understanding, and potentially fair notice, of novel interpretations that the SEC has undertaken in recent enforcement actions. These areas are: (1) the scope of the definition of a dealer under the Securities Exchange Act of 1934; (2) cryptocurrencies; and (3) off-channel communications by broker-dealers.

Thinking About Emerging AI Risks

For readers of this blog, one rather urgent question is the extent to which AI also presents corporate and securities litigation risks. It doesn’t take much of an imagination to prognosticate that AI-related risks could lead to significant corporate and securities litigation, although it perhaps does take more imagination than this author can muster to envision all of the various ways that AI-related issues could lead to future litigation. For now at least, there are certain categories of claims that seem to be the most likely.

First Conviction for Insider Dealing in Irish Legal History

The case is the first criminal conviction for insider trading in the history of the State. In May 2022, the High Court confirmed sanctions imposed by the Central Bank Enforcement Division on a former director and chairman of several public companies, who was found to have engaged in insider dealing in 2008. He was fined €75,000 and disqualified from being involved in the running of a regulated financial services provider for five years. The offences occurred prior to the introduction of the Market Abuse Regulations and there was therefore no criminal conviction.

The SBF Case Was Easy

… And for a normal person who does not love financial complexity and have a soft spot for fraud, this case was very very very very very very very simple. Obviously a lot of people — not just Bankman-Fried but also the prosecutors, journalists, etc. — have some incentive to make it seem complicated. But all that you actually need to tell a jury is:

–Customers deposited billions of dollars at FTX.

–Bankman-Fried spent a whole lot of it on baubles like Bahamas beachfront real estate, political donations, Tom Brady, etc.

–The customers asked for their money back and it wasn’t there.

There is just no coming back from that, you know? Bankman-Fried did not: Last Thursday, after four weeks of trial and less than five hours of deliberation, the jury came back with a verdict of “obviously guilty, come on….”

FTX Founder SBF Found Guilty of Fraud: Crypto Needs More Regulation

It’s tempting to treat FTX founder Sam Bankman-Fried’s conviction as a morality play, replete with the familiar elements of a hubristic protagonist’s rise and fall. That’s understandable, but the bigger lesson here is not that startup founders should be humbler, true though that may be. It’s that regulation is better than criminal law at preventing harm.

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In short, criminal law is not a very good deterrent to wrongful action when people either think they’re doing nothing wrong, or think they won’t be caught.

Regulation, on the other hand, takes a completely different approach. Its aim is to operate ex ante, before any crime can be committed, rather than ex post, after money has disappeared.

Bored Ape crypto fans report ‘eye burn’ after Hong Kong party

The company behind the Bored Ape crypto art craze has said it is looking into reports that some attendees suffered “eye burn” from bright light displays at an event it hosted over the weekend in Hong Kong.

The ApeFest event was targeted at holders of so-called non-fungible tokens — artwork linked to blockchain technology that soared in price and popularity at the height of the now-deflated cryptocurrency bubble.

About 2,250 people attended the Saturday evening party at a cruise terminal, said organiser Yuga Labs, one of the pioneers in this market. Since then, more than a dozen have posted on social media complaining of a burning sensation in the eyes and sometimes also impaired vision.