SEC Staff Letter: Engaging on Fund Innovation and Cryptocurrency-related Holdings In a published letter dated January 18, 2018, SEC Staff write to the Investment Company Institute and the Securities Industry and Financial Markets Association. READ FULL TEXT Staff Letter.In part, the Staff states that it appreciates that:
[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. . . .
(DOJ Press Release 18-59) Pursuant to the filing in the United States District Court for the Eastern District of New York of a two-count Criminal Information charging wire fraud, HSBC Holdings plc (HSBC) entered into a deferred prosecution agreement (DPA) and agreed to pay a $63.1 million criminal penalty and $38.4 million in disgorgement and restitution to resolve charges that it engaged in a scheme to defraud two bank clients through a multi-million dollar scheme commonly referred to as "front-running." READ the FULL-TEXT DPA. READ the FULL-TEXT Information
Joint Statement by SEC and CFTC Enforcement Directors Regarding Virtual Currency Enforcement Actions / SEC Co-Enforcement Directors Stephanie Avakian and Steven Peikin and CFTC Enforcement Director James McDonald 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.
UBS Complex Director Wins Margin Call Battle (BrokeAndBroker.com Blog) The Financial Industry Regulatory Authority recently warned that margin debt has risen sharply in recent months to an all-time high of $627.4 billion. FINRA warns that investors often mistakenly believe that a firm must contact them first for a margin call to be valid. As a recent FINRA expungement arbitration demonstrates, mistaken beliefs about margin calls still abound.
(DOJ Press Release 18-017) Having been the third-generation of my family in the wine and liquor business before becoming a lawyer, this case certainly caught my attention! Nicolas De-Meyer was indicted in the United States District Court for the Southern District of New York on one count of interstate transportation of stolen property for his role in the alleged theft of $1.2 million from a victim who is described in various press reports as Goldman Sachs Group Inc. Co-President David Solomon. READ the FULL TEXT Indictment
FINRA Firm Sues For $5.6 Million In Unfair Competition Arbitration (BrokeAndBroker.com Blog) As readers of the BrokeAndBroker.com Blog know, we frequently discuss the dangers of filing lawsuits -- as in the risk of you suing someone over something that maybe you shouldn't have hired a lawyer for and wasted your time and, go figure, not only do you lose your case but to add insult to injury, the guy you sued turned around, sued you, and, omigod, you really got hammered with damages, interest, cost, and fees.
CFTC Charges Illinois Traders Richard D. Carter and Mark R. Slobodnik and their Company, Blue Guru Trading, LLC, with Fraud / Alleged Ongoing Commodity Pool Fraud Took in at Least $750,000 from at Least 18 Pool Participants (CFTC Press Release pr7672-18) The Commodity Futures Trading Commission filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois, charging Defendants Richard D. Carter, Mark R. Slobodnik, and their company Blue Guru Trading, LLC with fraudulent solicitation, issuing false statements, and misappropriation in connection with investments in their Blue Guru commodity pool; and with registration violations. A Statutory Restraining Order froze the assets of Carter, Slobodnik, and Blue Guru, and prohibits the destruction of their books and records. READ the FULL TEXT Complaint and Restraining Order
Bureau of Prisons Tests Micro-Jamming Technology in Federal Prison to Prevent Contraband Cell Phones (DOJ Press Release 18-51) The Federal Bureau of Prisons tested micro-jamming technology to determine if micro-jamming could prevent wireless communication by an inmate using a contraband device at the individual cell housing unit level. Contraband cellphones have been an ongoing correctional security and public safety concern for federal, state, and local correctional agencies because the devices are used to further ongoing criminal activity, including threats to public officials, intimidation of witnesses, and continuance of criminal enterprises.
(DOJ Press Release 18-47) The former head of Barclays Capital Inc.'s (Barclays) New York foreign exchange trading operation, Robert Bogucki, was indicted in the Northern District of California on one count of conspiracy to commit wire fraud and six counts of wire fraud. READ the FULL TEXT INDICTMENT. According to the indictment, in September and October 2011, Bogucki misused information provided to him by HP, which had hired Barclays to execute a foreign exchange transaction related to the planned acquisition of a UK-based company
FINRA Fines Firm When Unregistered Principal Acted Presidential (BrokeAndBroker.com Blog) It would seem a fairly basic premise of FINRA regulation that you can't act as the President of a broker-dealer unless you're registered as a principal. Of course, stuff happens and, you know, sometimes a member firm didn't realize that someone was taking on a senior role requiring principal registration, and, other times, someone thought that the guy was registered or that they put the gal's U4 through but, oh well, our bad. In a recent FINRA regulatory settlement, the self-regulator goes about its business in exemplary manner and I've got nothing to say in defense of the respondent firm. Clearly, not the crime of the century and FINRA's moderate sanctions underscore that point. On the other hand, what the hell is with the Corrective Action Statement? Why not just take your lumps quietly, pay the fine, and get on with your business?
In the Matter of Guardian 8 Holdings, Idaho North Resources Corporation, Mecklermedia Corporation, and Verde Science, Inc.(Order Denying Stay, Securities and Exchange Commission, Admin. Proc. Rul. Rel.No. 5465; Admin, Proc, File No. 3-18221 / January 16, 2018 An individual claiming to be a "major shareholder" of Mecklermedia Corporation emailed an SEC ALJ's office requesting "6 months to update filings" so that another entity can purchase Mecklermedia.
(DOJ Press Release) Following a three-week federal criminal jury trial, Fraser Thompson, former Senior Vice President of Strategic Operations at Mobile Messenger was convicted and sentenced today to five years in prison and three years of supervised release, and ordered to forfeit $1,552,114.56. for his participation in a fraudulent scheme to charge mobile phone customers over $100 million dollars in monthly fees for unsolicited, recurring text messages without the customers' knowledge or consent - a practice known as "auto-subscribing." eing auto-subscribed through Mobile Messenger. THOMPSON, moreover, personally received over $1.5 million in fraud proceeds as a result of his participation in the illegal scheme.
In the Matter of Michael W. Crow, Alexandre S. Clug, Aurum Mining, LLC, PanAm Terra, Inc., and The Corsair Group, Inc. (Order Regarding Inability to Pay Evidence, United States Securities and Exchange Commission, File No. 3-16318; Admin. Proc. Rul. Release No. 5456 / January 12, 2018) SEC Administrative Law Judge Patil had previously found at a hearing that Respondent Clug had "convincingly demonstrated his inability to pay disgorgement or a civil penalty," and, accordingly, the ALJ discounted the amount of disgorgement and did not impose a civil penalty on Clug. The Commission remanded for reconsideration at which time the Division of Enforcement submitted evidence Clug and his wife purchased a home in a cash transaction. This asset was not disclosed in Clug's financial statement, and Clug did not update his financial statement before the ALJ issued the initial decision or while the proceeding was before the Commission on appeal.