Third Circuit to SEC on Agency Not Making Crypto Rules: "Explain Yourself"

U.S. Judges Demand SEC ‘Explain Itself’ for Rebuffing Coinbase Call for Crypto Rules

The U.S. Securities and Exchange Commission must now thoroughly “explain itself” for refusing to grant Coinbase.’s formal request that the agency write regulations for how the industry should assess whether crypto assets are securities or not, according to a circuit-court ruling on Monday.

A three-judge panel for the U.S. Court of Appeals for the Third Circuit, in a legal rebuke of the securities regulator, partially sided with Coinbase’s effort to get the agency to offer legal clarity by writing crypto regulations.

“Rather than force the agency to make a rule, we order it to explain its decision not to,” one of the judges wrote. “Indeed, a rule may not prove necessary to solve the notice problems here; the agency could just state its position on crypto assets unequivocally.”

Judge Stephanos Bibas added a caution to the SEC: “It should not give yet another poor explanation in an already-long line of them.”

Ashford Inc. To Settle Negligence-Based Charges for Misleading Investors Regarding a Cyber Incident

The Securities and Exchange Commission filed settled charges against Ashford Inc. for materially false and misleading disclosures to investors regarding a cyber incident. Ashford, a formerly registered issuer based in Dallas, Texas, is an alternative asset management company with a portfolio of strategic operating businesses that provides global asset management, investment management, and related services to the real estate and hospitality sectors.

According to the SEC’s complaint, Ashford learned in September 2023 that it had been subjected to a cybersecurity attack and ransomware demand by a foreign-based threat actor. As part of the attack the threat actor gained access to Ashford’s servers and exfiltrated more than 12 terabytes of data which was stored on Ashford’s internal computer systems and which contained, among other things, sensitive hotel guest information. In a quarterly report filed with the SEC in November 2023, Ashford indicated that it had “completed an investigation” and had “not identified that any customer information was exposed.” Ashford made similar disclosures in two additional quarterly reports, along with Ashford’s annual report filed with the SEC for the period ended December 31, 2023. However, Ashford knew or should have known that the exfiltrated data contained sensitive personally identifiable information and financial information related to guests.

Twelve Firms to Pay More Than $63 Million Combined to Settle SEC’s Charges for Recordkeeping Failures

The Securities and Exchange Commission today announced charges against nine investment advisers and three broker-dealers for failures by the firms and their personnel to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws.

The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $63.1 million, as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations. One of the firms, as noted below, self-reported its violations and, as a result, will pay significantly lower civil penalties than it would have otherwise.

Two Robinhood Broker-Dealers to Pay $45 Million in Combined Penalties for Violating More Than 10 Separate Securities Law Provisions

The Securities and Exchange Commission today announced that broker-dealers Robinhood Securities LLC and Robinhood Financial LLC (collectively, Robinhood) have agreed to pay $45 million in combined civil penalties to settle a range of SEC charges arising from their brokerage operations.

“It is essential to the Commission’s broader efforts to protect investors and promote the integrity and fairness of our markets that broker-dealers satisfy their legal obligations when carrying out their various market functions,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “Today’s order finds that two Robinhood firms failed to observe a broad array of significant regulatory requirements, including failing to accurately report trading activity, comply with short sale rules, submit timely suspicious activity reports, maintain books and records, and safeguard customer information.”

Everything Might Be Accounting Fraud

… “The CEO was accused of sexual misconduct, settled the accusations quietly, didn’t tell shareholders, and when it came out the stock went down” is a perfectly plausible everything-is-securities-fraud sort of case, though there are some problems with it in this case. (The stock didn’t go down that much when it came out, and quickly recovered.)

But “the CEO was accused of sexual misconduct, settled the accusations quietly, didn’t tell accountants, and therefore the financial statements were wrong” is a new one for me. Not everything is accounting fraud, but some surprising things are.

SEC Charges Former Public Company Officer and His Sister-In-Law with Insider Trading

The Securities and Exchange Commission today charged Alfred V. Tobia, Jr., the former president and chief investment officer (CIO) of one public company and a member of the board of another, and his sister-in-law, Elizabeth Lee, with insider trading that resulted in more than $428,000 in illegal profits. The defendants have agreed to pay more than $1.36 million to settle the charges.

According to the SEC’s complaint, Tobia allegedly breached his fiduciary duty as president and CIO of the public company by tipping Lee in the Summer of 2021 about his company’s plan to make an offer to acquire all of the outstanding shares of Spok Holdings Inc., after which Lee promptly placed trades to purchase Spok stock. When Tobia’s company later issued a press release announcing the offer, Spok’s stock price increased by approximately 26 percent. Within two days, Lee allegedly sold all of the Spok shares she had purchased, generating illicit profits of more than $262,000. In addition, while serving as a member of the board of the other public company, Tobia allegedly learned material nonpublic information about PFSWeb, Inc.’s sale of one of its business units known as LiveArea. Tobia allegedly tipped the information to Lee, who purchased 60,000 shares of PFSWeb and sold those shares once the LiveArea transaction was announced. As a result, Lee made more than $166,000 in profit.