Theranos' Holmes Awaits Sentence Today

Elizabeth Holmes to Be Sentenced in Fraud Trial

The letters — which came from family members, childhood and college friends, former employees, roommates, consultants and board members — tried reframing Ms. Holmes as a warm and selfless person. They also painted the first detailed picture of what her life has been like in recent years. Outside of her testimony at her trial, Ms. Holmes has not spoken publicly since Theranos collapsed in 2018.

The court filings showed that she became pregnant with her second child since her conviction. She also logged 500 hours as a rape crisis counselor and swam across the San Francisco Bay. Her dog, Balto, was killed by mountain lions.

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Prosecutors countered those portraits with evidence presented at Ms. Holmes’s trial. She manipulated regulators, lied to the media, falsified documents and intimidated whistle-blowers, leading one employee, Tyler Shultz, to contemplate suicide, they wrote. She enjoyed the fruits of her fraud, they wrote, flying on a private jet, living in a $15 million mansion, appearing on magazine covers and dining at the White House.

…. “She accepts no responsibility,” they wrote. “Quite the opposite, she insists she is the victim. She is not.”

Digital Assets: Putting Investors First

Decades of legal precedent on what constitutes an “investment contract” or “note” under our securities laws also provides ample guidance to the industry, as well as the sophisticated securities law bar. It’s not a matter of a lack of guidance but more that the existing guidance may not be what many market participants want to hear.

There is also a narrative that the SEC is engaged in “regulation by enforcement.” But I see something different. The laws are well-established, and the cases brought to date have clear applications, as has been apparent in court rulings on these issues. This is not regulation by enforcement, but enforcement of our securities laws as Congress intended.

FTX Auditors Doubled as Crypto Industry Cheerleaders

When FTX faced a liquidity crunch, the auditor of its U.S. unit seized the moment to promote its services for other crypto companies that were under the spotlight.

It is a “great time to remember” Armanino LLP’s specialized crypto assurance, the firm tweeted last week, referring to a product that verifies customer assets held by crypto firms.

When FTX’s former chief executive, Sam Bankman-Fried, gave evidence to a congressional committee in December, the firm, which is in the Top 20 firm by revenue, cheered him on. “Let’s go buddy!” the firm tweeted.

There is a race among crypto brokers, lenders and exchanges to calm their anxious clients by getting the blessing of an auditor. But the type of audits they are getting and the collapse of an audited firm such as FTX shows how far that sector is from a traditional regulated, scrutinized industry.

FTX Bankruptcy: Where Did the Customer Money Go?In a bankruptcy filing, FTX’s lucky emergency CEO — a veteran of the Enron bankruptcy, note — looks upon Sam Bankman-Fried’s works and despairs: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” He added: “I award you no points. And may God have mercy on your soul.”

As Matt Levine notes, the filing makes clear that not only could FTX not be arsed to keep track of the bets it made with other people’s money, it’s not clear it even wrote down how much of other people’s money it had in the first place, much less where it all went. You may argue SBF and friends were decentralizers and disruptors, dude, not boring financiers. But you don’t need an MBA to grok the accounting concept of “don’t misplace the customers’ money.

You Aren’t Just Imaging Things: The Current SEC Really is More Active

If you have had the sense that under the current administration the SEC is more active and more aggressive, two reports issued this past week will confirm that your sense is correct. First, on November 15, 2022, the SEC’s Enforcement Division issued its Enforcement Results Report for FY 2022 (ended September 30, 2022), showing that during the fiscal year money ordered in SEC enforcement actions totaled $6.439 billion, the most on record in SEC history. Second, on November 16, 2022, Cornerstone Research, in conjunction with the NYU Pollack Center for Law & Business, issued its report on SEC Public Company-related enforcement activity during FY 2022, which shows that the agency’s actions against public companies increased relative to prior fiscal years and that the agency’s $2.8 billion in aggregate total monetary settlements with public companies was the highest in any fiscal year.

How One Crypto Is Avoiding SEC Regulation

Right now, cryptos have two basic options when it comes to SEC regulation, and neither of them is very attractive. The first option is to stand and fight, which is what XRP (XRP 0.83%) did back in 2020. The SEC insisted that XRP was a “security,” and XRP insisted it was a “cryptocurrency,” and that led to a huge legal battle that has now raged on for nearly two years now. This legal battle has taken a massive toll on XRP’s future prospects, and it’s hard to see other cryptos viewing this as a desirable course of action.

The second option, of course, is to accept whatever penalty the SEC decides to enforce. You can think of this as the Kim Kardashian strategy. She admitted no wrongdoing, paid a huge penalty, and agreed to all of the SEC’s demands. While the SEC has primarily focused on high-profile individuals and entities, what if you’re a tiny crypto that gets hit with an SEC enforcement action? That might pose an existential risk. So this is not a very desirable course of action, either.

That’s why I find the Polkadot approach so interesting. Instead of fighting the SEC, Polkadot decided to engage in constructive dialogue with the SEC. At each step of the way, says Polkadot, it listened to the SEC’s input and adapted its token so it matches what the SEC is looking for. After three years, Polkadot thinks it has done everything right and is now going public with its new identity as software.