SEC's Cyber Unit Brings Action for Misleading Disclosures About Ransomware Attack

SEC Charges Software Company Blackbaud Inc. for Misleading Disclosures About Ransomware Attack That Impacted Charitable Donors

The Securities and Exchange Commission today announced that Blackbaud Inc., a South Carolina-based public company that provides donor data management software to non-profit organizations, agreed to pay $3 million to settle charges for making misleading disclosures about a 2020 ransomware attack that impacted more than 13,000 customers.

The SEC’s order finds that, on July 16, 2020, Blackbaud announced that the ransomware attacker did not access donor bank account information or social security numbers. Within days of these statements, however, the company’s technology and customer relations personnel learned that the attacker had in fact accessed and exfiltrated this sensitive information. These employees did not communicate this information to senior management responsible for its public disclosure because the company failed to maintain disclosure controls and procedures. Due to this failure, in August 2020, the company filed a quarterly report with the SEC that omitted this material information about the scope of the attack and misleadingly characterized the risk of an attacker obtaining such sensitive donor information as hypothetical.

What Happens If Ether Is a Security?

Is ether (ETH), the native cryptocurrency of the Ethereum blockchain and the second-largest by market cap behind bitcoin, an investment security?

The question has been a source of simmering speculation ever since Ethereum switched last year to a “proof-of-stake” blockchain network where investors can “stake” their coins in exchange for rewards – not too dissimilar from the interest that’s paid out on bonds.

A fresh allegation Thursday from a New York state regulator could push the legal debate back to the front burner.

In a lawsuit filed against Seychelles-based crypto-exchange KuCoin on Thursday, New York Attorney General (NYAG) Letitia James alleged the firm broke the law by selling unregistered securities. Among the unregistered securities listed in the suit was ether.

CFTC Chair Says Ethereum Is a Commodity—Despite Gensler’s ‘Bitcoin Only’ Position

Rostin Behnam told the Senate Agriculture Committee on Wednesday that Ethereum, the second-largest cryptocurrency next to Bitcoin, is a commodity.

“It’s been listed on CFTC exchanges for quite some time, and for that reason,” said Behnam, who argued that it creates a “direct jurisdictional hook” for the agency to police both ETH’s derivatives market and underlying market.

His opinion appears to directly contradict that of SEC chairman Gary Gensler, who argued last month that “everything other than Bitcoin” falls under securities laws….

SEC Is Focusing on Earnings Manipulation by CompaniesRegulators are on high alert. In recent months, the Securities and Exchange Commission has brought a string of cases accusing executives of cooking the books to meet numbers. Today’s tough climate for earnings will likely swell the pipeline of future actions.

“My money is on a few years from now, say 2026, we’ll see a lot more of these earnings management cases,” said Lenin Lopez, an attorney at insurance brokerage Woodruff Sawyer & Co.

The SEC’s enforcement armory includes its so-called EPS Initiative, which uses data-driven analytics to try to root out earnings manipulation. So far, that has resulted in cases against six companies and an unusually high number of individuals, including five current or former chief financial officers.

SEC Settles Insider Trading Charges Against Spouse of Corporate Insider

The Securities and Exchange Commission announced today that California resident Mahmoud Abdelkader has agreed to settle charges for insider trading in the securities of Audentes Therapeutics, Inc. before the December 2, 2019 public announcement that Audentes would be acquired by Astellas Pharma, Inc. for approximately $3 billion.

According to the SEC’s complaint, Abdelkader’s wife worked for Audentes. The SEC alleges that Abdelkader determined, based on facts he learned from his wife, that there was a high likelihood of Audentes being acquired. Using this material nonpublic information he misappropriated from his wife, Abdelkader allegedly purchased short-term, out-of-the money Audentes call options on October 17 and October 18, 2019. The SEC further alleges that when Audentes’ stock price rose by approximately 106% following the acquisition announcement, Abdelkader obtained ill-gotten gains of approximately $81,580.

Liquidating SPAC Hit With Investor Suit Over Planned Asset Distribution

As I have noted in prior posts (most recently here), many of the SPACs that completed IPOs during the SPAC frenzy in 2020 and 2021 are nearing the end of their two-year search period. Many of these SPACs have not identified suitable merger partners and the SPACs are liquidating. One question I have been asking as these SPACs liquidate is whether there might be litigation. One the one hand, in the liquidation, the investors get their money back. On the other hand, in our litigious society litigation is always possible when plans don’t work out. In the latest example of how litigation might arise in the SPAC liquidation context, investors in SPAC which has announced its plan to litigate have brought an action against the SPAC, its directors and officers, and the SPAC sponsor, in a fight about how assets the SPAC holds beyond the IPO trust funds are to be distributed.

Silicon Valley Bank’s Financial Stability Worries Investors

Silicon Valley Bank’s spiral was set off by its surprise announcement Wednesday that it would take extraordinary and immediate steps to shore up its finances amid a dimming economic environment for the start-ups and other technology companies that dominate its client base. The bank disclosed that it had sold off $21 billion of its most liquid, or easily tradable, investments; borrowed $15 billion; and organized an emergency sale of its stock to raise cash.

Banks are loath to take any of those steps — let alone all three at once — and when they do, the moves are typically carefully choreographed. Silicon Valley Bank’s stock price plummeted 60 percent on Thursday as investors rushed to sell shares after the announcement.

Fed Unveils Crypto Team to Keep Tabs on Assets

The Federal Reserve is assembling a new crypto-focused team to help ensure the central bank can stay on top of developments in the asset class.

Michael Barr, the Fed’s vice chair for supervision, said Thursday the group would help bolster oversight abilities. He also warned about potential dangers of stablecoins and said that the central bank was working on additional crypto guidance.