SEC Strikes Again with Recordkeeping / "WhatsApp" Charges Against 11 Wall Street Firms

SEC Charges 11 Wall Street Firms with Widespread Recordkeeping Failures

The Securities and Exchange Commission today announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders. They acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of $289 million as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations.

–Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;

–BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;

–BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;

–Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;

–Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and

–SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.

The Declining Need for General Deterrence in Insider Trading Sentencing

The serious nature of insider trading is reflected in the sentences that courts impose in criminal cases and the monetary and non-monetary penalties that courts assess in enforcement actions by the U.S. Securities and Exchange Commission (“SEC”). But there is an additional premise that underlies courts’ willingness to impose substantial sanctions in insider trading matters—namely, that because insider trading is particularly difficult to detect (compared with other types of fraud), judges must impose particularly punitive sanctions in order to deter future would-be inside traders.

This concept is widely referred to as general deterrence. In the aftermath of the high-profile insider trading cases of the 1980s, courts have embraced the view—at the behest of the government—that insider trading is uniquely difficult to detect, and have incorporated that perspective into sentencing jurisprudence. As a result, many defendants are penalized more harshly than a court would be inclined to punish them based on the other more individualized sentencing considerations.

Nearly forty years later, the U.S. Department of Justice (“DOJ”) and the SEC continue to routinely argue for enhanced penalties against insider trading defendants in light of the supposed difficulty in detecting illicit trading. In this article, we argue that, in light of the government’s current market surveillance and data analytics capabilities, the government’s legacy general deterrence arguments in insider trading cases are outmoded, and that courts should adjust their sentencing calculations in recognition of this new paradigm.

Cell Phones

It’s not really the case that all business-related communications need to be in written electronic archived searchable form. It’s just that they need to be either that or in person. There are two allowable levels of formality, (1) formal archived written communication and (2) in-person communication. Either is fine, but everything in between is suspect.

There is something counterintuitive about this. You might feel that texting your colleagues is like in-person communication, that it’s a substitute for informal face-to-face chatting, and that therefore it’s okay, but the SEC disagrees. To the SEC, texting is a substitute for official email, and if you text on an unrecorded personal phone you are getting around your firm’s recordkeeping requirements.

PayPal is trying to drag its 435 million users into the $120 billion stablecoin market — here’s why

PayPal on Monday became the first major U.S. fintech company to offer its own crypto token with a dollar-pegged stablecoin known as PayPal USD, making big promises of how it can move money between millions of crypto investors.

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“Stablecoins are the killer application for blockchains right now,” said Jose Fernandez da Ponte, PayPal’s senior vice president and general manager of blockchain, crypto, and digital currencies.

“There are inherent advantages in cost, programmability, settlement time,” continued da Ponte, adding that the market is primed for new entrants that are fully backed – and unlike tether, fully regulated.

“Stablecoins are something that we cannot just sit out,” da Ponte added.

Ex-FTX Executive Salame Talking to Prosecutors About Plea Deal

Ryan Salame, the former co-chief executive of FTX Digital Markets, is in negotiations with federal prosecutors to plead guilty to criminal charges following the implosion of the cryptocurrency exchange, according to people familiar with the case.

The Republican megadonor may enter a plea as soon as next month to offenses including campaign finance law violations, according to the people, who asked not to be identified because the discussions aren’t public. It is unclear whether he will enter into a cooperation agreement with prosecutors and testify against FTX co-founder Sam Bankman-Fried.

Ex-Trump Officials Sue Target Alleging Pride Month Investor Risk

Target is facing a lawsuit from former Trump officials who claim the retailer misled investors about financial risks from LGBTQ Pride marketing that brought a conservative backlash costing shareholders billions of dollars.

America First Legal Foundation, led by former senior Trump adviser Stephen Miller, filed the lawsuit against Target Corp. on behalf of a company shareholder Tuesday in federal court in Florida. Target in May sold LGBTQ-themed merchandise that drew the retailer into the US culture wars alongside Bud Light maker Anheuser-Busch InBev NV and other companies.

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Target lost $10 billion in market valuation between May 18 and 28, as it failed to oversee the risks of ESG initiatives, according to America First Legal’s complaint filed in the US District Court for the Middle District of Florida.

“No rational board of directors or management of a retailer with a core customer base of working families would have approved such a nationwide campaign,” America First Legal said in the complaint. “Nonetheless, Target’s officials pursued.”

Desperately Seeking Crypto’s Killer App

Since the start of the year, I’ve been pre-occupied by a question I can’t seem to get decent answers to. I’ve asked it at conferences, on live panels, on podcasts, and to smart friends over zoom. It’s pretty simple: “If you couldn’t get rich off of it, what currently existing products in crypto would significant numbers of people still use?”

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A $1.2 trillion market cap, billions upon billions in funding, tens of thousands of developers and at least five years of buidling, is everything, aside from stablecoins, just powering speculation? In the wake of the horror show that was 2022, there has rightly been lots of debate about speculation actually messing up classic product market fit signals, with plenty of thoughtful pro-crypto people musing that perhaps crypto’s PMF was speculation. After all this time and money, where is crypto’s killer app for normies? It’s embarrassing we even have to ask.