SEC's FY22 Included 760 Enforcement Actions, $6.44 Billion in Penalties/Disgorgement

SEC Announces Enforcement Results for FY22

The Securities and Exchange Commission today announced that it filed 760 total enforcement actions in fiscal year 2022, a 9 percent increase over the prior year. These included 462 new, or “stand alone,” enforcement actions, a 6.5 percent increase over fiscal year 2021; 129 actions against issuers who were allegedly delinquent in making required filings with the SEC; and 169 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders. The SEC’s stand-alone enforcement actions in fiscal year 2022 ran the gamut of conduct, from “first-of-their-kind” actions to cases charging traditional securities law violations.

Money ordered in SEC actions, comprising civil penalties, disgorgement, and pre-judgment interest, totaled $6.439 billion, the most on record in SEC history and up from $3.852 billion in fiscal year 2021. Of the total money ordered, civil penalties, at $4.194 billion, were also the highest on record. Disgorgement, at $2.245 billion, decreased by 6 percent from fiscal year 2021. Fiscal year 2022 was the SEC’s second highest year ever in whistleblower awards, in terms of both the number of individuals awarded and the total dollar amounts awarded.

FTX’s In-House Performance Coach Is Just as Surprised as You Are

…. On Twitter, people are calling [Bankman-Fried] the “millennial Madoff,” comparing him to one of the world’s most notorious fraudsters. (He has not yet been charged with any crimes.)

Dr. Lerner — who is not bound by doctor-patient confidentiality in his capacity as a coach at FTX, as he is in his role as psychiatrist — said he was shocked by the suggestion that Mr. Bankman-Fried was a criminal mastermind.

“I just can’t see him doing that, honestly,” Dr. Lerner said. “I mean, I guess maybe I would have to sit down with him and understand why. But I have difficulties making that jump.”

FTX Collapses Into Bankruptcy System That Still Hasn’t Figured Out Crypto

The U.S. bankruptcy system will hash out the largest-ever collapse of a cryptocurrency exchange through a legal process that has barely begun to answer how holders of digital currencies will fare in an insolvency.

Bankruptcy courts haven’t had the chance to decide complex legal questions around crypto ownership when an exchange or lender goes bust. As FTX’s chapter 11 case gets under way, the question of who even owns digital currencies—the exchanges or the customers who made the deposit—remains unsettled.

SEC Charges S&P Global Ratings with Conflict of Interest Violations

The Securities and Exchange Commission today charged S&P Global Ratings, a nationally recognized statistical rating organization (NRSRO) registered with the Commission, with violating conflict of interest rules designed to prevent sales and marketing considerations from influencing credit ratings.

The SEC’s order finds that an issuer engaged S&P to rate a jumbo residential mortgage backed security transaction in July 2017. Over a five-day period in August 2017, S&P commercial employees—employees responsible for managing the relationship with the issuer—on several occasions attempted to pressure the S&P analytical employees—employees responsible for evaluating and assigning the rating—to rate the transaction consistent with preliminary feedback the analytical employees had given the customer that turned out to include a calculation error. Despite sending the communications through the compliance department as required by S&P’s policies and procedures at that time, some emails sent by the S&P commercial employees to the S&P analytical team contained statements reflecting sales and marketing considerations. The order finds that, as a result of the content, urgent nature, high volume, and compressed timing of the communications, the S&P commercial employees became participants in the rating process during a time when they were influenced by sales and marketing considerations.

Greenleasing

If I were a young person looking for a place to start a career in finance, one niche that I might consider is ESG Consultant But Evil. A lot of big companies and investors these days are looking for ways to improve their environmental, social and governance ratings, and a lot of them will go to various sorts of ESG consultants who will tell them how to cut emissions or whatever. But some of them will go to ESG Consultants But Evil, who will sort of sneak in through the back door and say “hey I’ve got some carbon credits that fell off a truck, I’ll sell ’em to you for 20 cents on the dollar.” Lots of people want to go into ESG to save the world, so that is a competitive business. Getting into ESG for the financial engineering seems pretty interesting and possibly less crowded.

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So if you are a carbon-sensitive company, you find a carbon-insensitive company, and you park your carbon on its balance sheet. And you pay it some fee for the service, which is presumably less than you’re saving on your sustainability bonds or whatever. It is the purest sort of financial engineering, transferring this abstract cost to the cheapest bearer of the cost.

The SEC Scored Another Crypto Victory in the LBRY Case, but the Sky Is Not Falling

Rejection of the Fair Notice Defense: Judge Barbadoro resoundingly rejected LBRY’s complaint that the SEC had not provided adequate notice that (at least certain) tokens are securities. He found that the SEC’s claims were based on a “straightforward application of a venerable Supreme Court precedent that has been applied by hundreds of federal courts across the country over more than 70 years.” As the SEC noted in its motion for summary judgment, “[n]o federal court has ever found that the term ‘investment contract,’ as used in the Securities Act and as construed in Howey, is unconstitutionally vague.” So far, the fair notice argument has not gained any traction with the courts.

SEC v. LBRY is yet another victory for the SEC, and a reminder of some of the risks and uncertainties for digital asset innovators. But as a single district court decision based on facts and circumstances unique to the case, it may not be the earthquake many fear.

Is Gensler to blame for the FTX crash or did it vindicate him?

But the attacks on Gensler have been met with intense pushback from other industry observers who stress a different argument: The FTX crash actually proves that Gensler’s approach to crypto was correct. By embracing what the crypto industry denounced as unreasonable and rigid policies, Gensler actually minimized the harm the FTX meltdown had on U.S. consumers, they argue.

John Reed Stark, a staunch crypto critic and founding chief of the SEC’s Office of Internet Enforcement, said Gensler “saved millions, perhaps even billions, in investor crypto-losses” by taking on the industry “despite mammoth political opposition and rogue defendants with infinite financial resources.”

Marc Fagel, former SEC regional director for San Francisco who has represented crypto companies in his private practice, downplayed speculation that the SEC colluded with FTX simply because Gensler’s staff had meetings with the company.

“Plenty of players in the crypto industry have met with various members of the SEC,” Fagel told Protocol. “Indeed, I would be a little worried if the SEC didn’t take meetings with players as large as this.”

Charlie Munger blasts crypto after FTX meltdown: ‘Good for kidnappers’Billionaire and noted bitcoin critic Charlie Munger took a victory lap Tuesday after FTX’s recent meltdown – blasting cryptocurrencies as a “demented” enterprise rife with “fraud” and delusion.”

When asked about FTX’s collapse into bankruptcy, the 98-year-old Berkshire Hathaway vice chairman referred to digital currencies as a “very, very bad thing” ripe for exploitation by bad actors.

“The country did not need a currency that’s good for kidnappers and so on,” Munger said during a Tuesday appearance on CNBC. “There are people who think they’ve got to be on every deal that’s hot. They don’t care whether it’s child prostitution or bitcoin. If it’s hot, they want to be in on it. I think that it’s totally crazy.”

“Reputation is very helpful in financial life,” Munger added. “To destroy your reputation by associating with scumballs and scumball promotions is a huge mistake.”

‘Big Short’ Author Michael Lewis Spent Months With FTX’s Sam Bankman-Fried and Is Writing a BookBest-selling author Michael Lewis may have lucked into the story of a lifetime – quite the development given he has already published a long string of hit books including “The Big Short” and “Flash Boys.”

Lewis, according to a letter from Creative Artists Agency circulating in Hollywood, has just spent the past six months or so “traveling with and interviewing Sam Bankman-Fried,” the former billionaire whose cryptocurrency empire dramatically blew up this month after a CoinDesk scoop spurred fear that his business was built on a house of cards.