[P]roponents of cryptocurrencies and related products have identified a range of potential benefits. We are also aware that critics of cryptocurrencies have raised various concerns regarding transparency of information, trading, valuation and other matters related to the nature of the underlying assets. In addition, the innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts. In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the 1940 Act and its rules. To facilitate the start of our dialogue, we have identified below a number of these questions, and we invite you and any interested sponsors to engage with us in detail on these. While we have identified the questions below, we note that the cryptocurrency markets are developing swiftly. Additional questions may arise from these developments. . . .. . .Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. . . .
According to HSBC's admissions, on two separate occasions in 2010 and 2011, traders on its foreign exchange desk misused confidential information provided to them by clients that hired HSBC to execute multi-billion dollar foreign exchange transactions involving the British Pound Sterling. After executing confidentiality agreements with its clients that required the bank to keep the details of their planned transactions confidential, traders on HSBC's foreign exchange desk transacted in the Pound Sterling for the traders and HSBC's own benefit in their HSBC "proprietary" accounts. HSBC traders then caused the large transactions to be executed in a manner designed to drive the price of the Pound Sterling in a direction that benefited HSBC, and harmed their clients. HSBC also made misrepresentations to one of the clients, Cairn Energy, to conceal the self-serving nature of its actions. In total, HSBC admitted to making profits of approximately $38.4 million on the first transaction in March 2010, and approximately $8 million on the Cairn Energy transaction in December 2011.Pursuant to its agreement with the Justice Department, HSBC agreed to pay a criminal penalty of $63.1 million. HSBC also agreed to continue to cooperate with the department and with foreign authorities in any ongoing investigations and prosecutions relating to the conduct (including of individuals), to enhance its compliance program, and to pay $38.4 million in disgorgement and restitution for its conduct related to one of the two victim companies. HSBC previously settled with the other victim company, Cairn Energy, for approximately $8 million, which the Department credited as full restitution for Cairn.The Department reached this resolution based on a number of factors, including the approximately $46.4 million that HSBC gained from the offense; the bank's remedial measures to date, including dedicating significant resources to improving its systems and controls and terminating the employment of employees involved in wrongdoing; and the bank's commitment to continuing to enhance its compliance program and internal controls. HSBC did not receive credit for voluntarily disclosing the misconduct. HSBC received substantial cooperation credit because, although as detailed in the DPA, the bank's initial cooperation with the government's investigation was deficient in certain respects, after being notified of the Department's concerns, HSBC changed course and its cooperation improved substantially.
When market participants engage in fraud under the guise of offering digital instruments - whether characterized as virtual currencies, coins, tokens, or the like - the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments.