SEC, DOJ Charge SafeMoon and Execs with Fraud

SEC Charges Crypto Company SafeMoon and its Executive Team for Fraud and Unregistered Offering of Crypto Securities

The Securities and Exchange Commission today charged SafeMoon LLC, its creator Kyle Nagy, SafeMoon US LLC, and the companies’ Chief Executive Officer, John Karony, and Chief Technology Officer, Thomas Smith, for perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon. According to the SEC’s complaint, the Defendants promised to take the price of the token “Safely to the moon,” but instead of delivering profits, they wiped out billions in market capitalization, withdrew crypto assets worth more than $200 million from the project, and misappropriated investor funds for personal use.

“Decentralized finance claims to deliver transparency and predictable outcomes, but unregistered offerings lack the disclosures and accountability that the law demands, and they attract scammers like Kyle Nagy, who use these vulnerabilities to enrich themselves at the expense of others,” said David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU).

US media veterans back new trading firm with financial news arm

A group of veteran US financial journalists is teaming up with investors to launch a trading firm that is designed to trade on market-moving news unearthed by its own investigative reporting.

The business, founded by investor Nathaniel Brooks Horwitz and writer Sam Koppelman, would comprise two entities: a trading fund and a group of analysts and journalists producing stories based on publicly available material, according to several people familiar with the matter.

The fund would place trades before articles were published, and then publish its research and trading thesis, they said, but would not trade on information that was not publicly available.

Sam Bankman-Fried lawyer says government portrayed FTX founder as a ‘monster

Cohen broke the case up into two time periods. The first was 2019 to 2021, when there’s no indication of criminal intent. Up until June 2022, everyone involved thought they were operating the most successful crypto exchange in the world, Cohen said.

The second period was from June to November of 2022. Crypto winter had led to the failure of a number of businesses in the industry. That’s the first time it became clear that Alameda was using customer funds. In the fall of that year, Bankman-Fried saw a liquidity problem, not a solvency problem, Cohen said. He always thought there were sufficient funds on and off the exchange.

While FTX’s lack of a risk management system or chief risk officer reflected poor system controls, bad business decisions aren’t crimes, Cohen said.

SBF Often Didn’t Recall in His Testimony. But the Prosecution Did.

Asked by Cohen why he had told Sassoon “no” under oath when asked if he had spent the missing $8 billion of FTX customer funds, Bankman-Fried had a couple of answers. One was, “Money is fungible anyway.” In other words: Hey, who’s to say?! But the other seemed to speak to one of Sam’s broader, odder points of view. “The other part of it, I mean, I don’t know if this is right or wrong, but for better or for worse, it has been a part of me that, like: I wasn’t particularly interested in trying to dole out blame for it. That wasn’t my priority. It generally wasn’t my priority. It was generally something I de-prioritized.”

This tracked with something his mother, a law school professor and ethicist, had written for the Boston Review a decade ago: a polemic against “blame mongering.” It also tracked with what Bankman-Fried had told Michael Lewis in the course of being interviewed for his book Going Infinite: that at his first job out of MIT, “Jane Street [Capital] really didn’t like blaming people. … They sort of asked, ‘Did anyone do anything contrary to what they were being told?’ When the answer was no, they said it could just as easily have been the CEO who did it.”

SEC’s shadow trading case sparks new ‘major questions’ challenge

ICAN’s amicus brief is focused entirely on the SEC’s theory of the case, not the fight over facts. According to the nonprofit, the commission is overreaching Supreme Court precedent and its mandate under federal securities laws by trying to block investors from trading in shares of a competing or related company based on confidential information about their own employer.

ICAN said that SEC has improperly staked out new ground for insider trading liability without authorization from Congress, which has toyed with the prospect of clarifying the rules for trading based on confidential information but has not enacted any new insider trading laws.

The commission’s bold incursion into new legal territory, according to ICAN, is prohibited by the Supreme Court’s major questions doctrine.

“The entire insider trading body of law has a weak statutory basis. So it’s a step too far to pile on top of that a new ‘shadow’ theory,” said ICAN founder Nick Morgan of Paul Hastings and amicus brief author Stephen Cazares of Orrick, Herrington & Sutcliffe via email. “The SEC should first obtain clear statutory delegation from Congress before pursuing such an expansive theory.”

Ex-Goldman Trader Brijesh Goel Sentenced in ‘Squash Buddies’ Insider Case

Former Goldman Sachs Group Inc. investment banker Brijesh Goel was ordered to spend three years in prison for passing confidential deal information to a close friend and squash partner who traded on it.

Goel, 39, was sentenced Wednesday in Manhattan by US District Judge P. Kevin Castel. The former Goldman vice president was found guilty of insider trading and obstruction by a federal jury in June, following a roughly weeklong trial. Castel ordered Goel to surrender into custody on Jan. 9.

Gary Gensler and the SEC Lose Again

Is Gary Gensler ever going to win a case? On Tuesday the Fifth Circuit Court of Appeals handed the Securities and Exchange Commission Chairman another legal defeat by scuttling the agency’s stock-buyback rule (U.S. Chamber of Commerce v. SEC.)

The SEC in May finalized a rule requiring public companies to disclose their daily share repurchases and the reason for buying back their stock. Mr. Gensler claimed companies might buy back their stock to boost executive compensation, which is sometimes tied to accounting metrics such as earnings per share.

Brazilian lawyer pleads guilty to insider trading while at Gibson Dunn law firm

A Brazilian lawyer pleaded guilty in U.S. court on Wednesday to insider trading after profiting off information about a $1.7 billion deal involving a client of his former law firm, Gibson, Dunn & Crutcher.

Romero Cabral da Costa Neto, 33, entered his guilty plea in Washington, D.C., federal court, two months after his arrest. He is scheduled to be sentenced on Dec. 20.

The SEC’s Director of Enforcement Announces a New Paradigm for Assessing Compliance Effort

On October 24, 2023, the Director of the Securities and Exchange Commission’s Enforcement Division, Gurbir S. Grewal, gave a keynote address to the New York City Bar Association’s 2023 Compliance Institute.

This address, which was targeted primarily at compliance officers in the private funds space, represents a maturation in how the Enforcement Division views the role of the Chief Compliance Officer. This new framework may represent a “New Deal for CCOs,” which signals some fairly rigorous expectations and requirements on CCOs and other legal and compliance officers.

NY Financial Regulator Rolls Out Updated Cybersecurity Standards

New York regulators assigned heightened cybersecurity requirements to banks, insurers, and financial services providers based in the state with the release of finalized rule amendments Wednesday.

Covered entities will have to use multifactor authentication, expand cybersecurity governance duties, and conduct consistent threat testing under the regulation updated by the New York Department of Financial Services.