Securities Industry Commentator by Bill Singer Esq

May 6, 2022

Jury Finds Sarasota Man Guilty Of Running $80 Million "Oasis" Forex Ponzi Scheme (DOJ Release)

SEC Charges New Jersey-Based Securities Fraud Recidivist with Defrauding Investors (SEC Release)

SEC Charges Nevada Resident with Offering Fraud (SEC Release)

Federal Court Orders BitMEX's Three Co-Founders to Pay a Total of $30 Million for Illegally Operating a Cryptocurrency Derivatives Trading Platform and Anti-Money Laundering Violations / Co-Founders Ordered to Pay $10 Million Each (CFTC Release)

A Century with a Gold Standard by SEC Chair Gary Gensler

Remarks at SEC Small Business Capital Formation Advisory Committee Meeting by SEC Commissioner Hester M. Peirce

To Err Is Human, To Forgive Is Not FINRA's Concern ( Blog)

The Curious Case of Donald Howard ( Blog)
There are those investor advocates who detest FINRA's expungement program because they fear it launders Wall Street's dirty linen. Frankly, that's a fair concern. Unfortunately, there are cases when a stockbroker was wrongly named in a complaint or the allegations raised are absurd. Then what? FINRA's answer is to resort to an arbitration process that forces the victim to shoulder significant forum fees and legal costs as the price of entry. It may be a nice cash register for the self-regulatory-organization but that doesn't justify placing a regulatory matter before an arbitration panel. It's not sound investor protection. It's not affordable remediation for a victimized stockbroker.
Without admitting or denying the findings in an SEC Order, NVIDIA Corporationagreed to a cease-and-desist order and to pay a $5.5 million penalty. As alleged in part in the SEC Release:

[D]uring consecutive quarters in NVIDIA's fiscal year 2018, the company failed to disclose that cryptomining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed for gaming. Cryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers. As demand for and interest in crypto rose in 2017, NVIDIA customers increasingly used its gaming GPUs for cryptomining.

In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC's order also finds that NVIDIA's omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company's business were driven by demand for crypto, creating the impression that the company's gaming business was not significantly affected by cryptomining.

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-94860; Whistleblower Award Proc. File No. 2022-55)
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending an Award to Claimant 1 and a denial of an Award to Claimant 2; however, after review of Claimant 2's reconsideration request and new evidence, the CRS found Claimant 2 eligible for an award for the Covered Action. CRS recommended an Award of over $2.8 million to Claimant 1 (inclusive of the CRS recommendation for an Award for an "Other Agency Action"); and over $600,000 to Claimant 2 (CRS recommended the denial of an Award for an "Other Agency Action" to Claimant 2). The SEC adopted CRS' recommendation. The Order asserts that [Ed: footnote omitted]:

The record on reconsideration demonstrates that Claimant 2 voluntarily provided original information to the Commission that led to the successful enforcement of the Covered Action. Claimant 2, an outsider unaffiliated with the Company, provided new evidence showing that his/her information constituted "original information" by showing that it was derived from "independent analysis."15 Claimant 2's information was the result of unusual effort and intensive research over the course of many weeks, and developed through a detailed analysis of publicly-available information.16 Claimant 2's information revealed allegations that were not previously known to Commission staff. Accordingly, Claimant 2 qualifies for a whistleblower award. 

Based on the specific facts and circumstances here, we find that an award of Redacted percent ( *** %) for the Covered Action is appropriate. In reaching that determination, we assessed the following facts: (1) there were no negative factors at issue in Claimant 2's submission; (2) Claimant 2's information focused Enforcement staff's investigation on new allegations that led to the Covered Action; and (3) Claimant 2's information was provided approximately fifteen months after the investigation was opened, based upon information provided by Claimant 1. 

We deny a related action award to Claimant 2 for the Other Agency Action. The record shows that the investigation that resulted in the Other Agency Action was opened based upon information provided by Claimant 1. The record also shows that Claimant 2's information did not significantly contribute to the Other Agency Action. Accordingly, Claimant 2 is not entitled to a related action award for the Other Agency Action.

= = =

Footnote 15: To be credited with providing "independent analysis," the whistleblower's examination and evaluation should contribute significant independent information that "bridges the gap" between the publicly available information and the possible securities violations. "[I]n each case, the touchstone is whether the whistleblower's submission is revelatory in utilizing publicly available information in a way that goes beyond the information itself and affords the Commission with important insights or information about possible violations." Adopting Release for Amendments to Whistleblower Rules, Release No. 34-89963 (Sept. 23, 2020) at 112-13. 

Footnote 16: As stated in our interpretive guidance, "the Commission may determine that a whistleblower's examination and evaluation of publicly available information reveals information that is 'not generally known or available to the public' -- and therefore is 'analysis' within the meaning of Rule 21F-4(b)(3) -- where: (1) The whistleblower's conclusion of possible securities violations derives from multiple sources, including sources that, although publicly available, are not readily identified and accessed by a member of the public without specialized knowledge, unusual effort, or substantial cost; and (2) these sources collectively raise a strong inference of a potential securities law violation that is not reasonably inferable by the Commission from any of the sources individually." Id. at 119; see also Order Determining Whistleblower Award Claim, Release No. 92780 (Aug. 27, 2021) (granting award to claimant whose information was the "product of unusual effort and expertise developed over many years").

In an Indictment filed in the United States District Court for the Southern District of Florida, Luiz Capuci, the Chief Executive Officer of Mining Capital Coin ("MCC"), was indicted for conspiracy to commit wire fraud, conspiracy to commit securities fraud, and conspiracy to commit international money laundering. As alleged in part in the DOJ Release, Capuci:

misled investors about MCC's cryptocurrency mining and investment program, under which investors could invest in MCC by purchasing "Mining Packages." Under this program, Capuci and his co-conspirators touted MCC's purported international network of cryptocurrency mining machines as being able to generate substantial profits and guaranteed returns by using investors' money to mine new cryptocurrency. Capuci also touted MCC's own cryptocurrency, Capital Coin, as a purported decentralized autonomous organization that was "stabilized by revenue from the biggest cryptocurrency mining operation in the world." As alleged in the indictment, however, Capuci operated a fraudulent investment scheme and did not use investors' funds to mine new cryptocurrency, as promised, but instead diverted the funds to cryptocurrency wallets under his control.  
. . .
The indictment further alleges that Capuci touted and fraudulently marketed MCC's purported "Trading Bots" as an additional investment mechanism for investors to invest in the cryptocurrency market. Capuci claimed that MCC joined with "top software developers in Asia, Russia, and the U.S.A. to create an improved version of Trading Bot[s] that [were] tested with new technology never seen before." Capuci further represented that MCC's Trading Bots operated in "very high frequency, being able to do thousands of trades per second," and that each of MCC's Trading Bots would generate daily returns for investors. As he did with the Mining Packages, however, Capuci allegedly operated an investment fraud scheme with the Trading Bots and was not, as he promised, using MCC Trading Bots to generate income for investors, but instead was diverting the funds to himself and co-conspirators.  
. . .
Capuci is also alleged to have recruited promoters and affiliates to promote MCC and its various investment programs through a multi-level marketing scheme, commonly known as a pyramid scheme. For successfully luring investors to invest, Capuci promised MCC's network of promoters and affiliates a range of gifts, from Apple watches and iPads to luxury vehicles such as a Lamborghini, Porsche, and even Capuci's personal Ferrari. Capuci further concealed the location and control of the fraud proceeds obtained from investors by laundering the funds internationally through various foreign-based cryptocurrency exchanges., the SEC charged charges the MCC International Corp. d/b/a "Mining Capital Coint Corp.," CPTLCOIN Corp., Bitchain Exchanges, Luiz Carlos Capuci, Jr., a/k/a "Junior Caputti," and Emerson Sousa Pires with violating the registration and anti-fraud provisions of the Securities Act, the Securities Exchange Act (Exchange Act); and further charged Capuci and Pires with control person liability on behalf of MCC under the Exchange Act. As alleged in part in the SEC Release:

[S]ince at least January 2018, MCC, Capuci, and Pires sold mining packages to 65,535 investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of "profit sharing" and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading. The complaint also alleges that, in its early days, MCC investors were promised returns in Bitcoin, but later, defendants required investors to withdraw their investments in tokens called Capital Coin (CPTL), which was MCC's own token. In addition, the complaint alleges that MCC investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments.

Robert Narvett, 57, pled guilty in the United States District Court for the Eastern District of Wisconsin to one count of wire fraud and one count of money laundering, and he was sentenced to 180 months in prison plus three years of supervised release, and ordered to pay restitution and a $100 Special Assessment. As alleged in part in the DOJ Release:

[N]arvett defrauded nearly 70 different victims, including his family, friends, and neighbors of over $2 million and that he engaged in the scheme for over a decade. More than a dozen of Narvett's victims spoke at the sentencing hearing, describing the ways in which Narvett ruined their lives. Many described ruined credit scores, inability to afford basic life necessities, and having to re-enter the workforce after retiring. One victim told Judge Griesbach that Narvett's fraud made her a "prisoner of my life."

Judge Griesbach described Narvett's crime as "horrible," noting that it had the "earmarks of violent crime" because of the way it impacted Narvett's victims. He described Narvett's conduct as "astounding" and explained that the 15-year sentence he was imposing was necessary to provide just punishment, protect the public, and send a serious message to others that financial crimes that victimize people do not pay.

Providence Man Sentenced in Wide-Ranging Bank Fraud and COVID Small Business Loan Schemes (DOJ Release)
Courtney Hilaire, 29, pled guilty in the United States District Court for the District of Rhode Island to conspiracy to commit wire fraud, fourteen counts of wire fraud, and two counts of aggravated identity theft; and he was sentenced to 60 months in prison plus three years of federal supervised release. As alleged in part in the DOJ Release:

Hilaire's involvement in bank fraud and credit card fraud schemes was discovered by Warwick Police on July 3, 2020, when officers found Hillaire and two other men sleeping inside a stolen vehicle in the parking lot of a Warwick hotel. Inside the vehicle, officers discovered eighteen cell phones and other electronic devices; a list of identities and corresponding stolen PII; equipment used to transfer information to credit card magnetic strips; 44 counterfeit credit cards and numerous fraudulent drivers' licenses from multiple states; and approximately $13,000 in crisp, clean $100 and $50 dollar bills.

A forensic audit of the electronic devices by Homeland Security Investigations revealed links to folders containing templates to create credit cards, fraudulent driver's licenses, currency, and a link to lists of PII available for purchase on the "dark web."

One month after being arrested by Warwick Police, Pawtucket Police encountered Hilaire in a rented vehicle; on this occasion, he was found to be in possession of three cell phones, nearly $3,000 in cash, and eight debit cards linked to fraudulently obtained Pennsylvania unemployment benefit accounts. A forensic audit of the cell phones revealed numerous sets of stolen PII and evidence of involvement in Small Business Administration loan fraud.

As a result of their continuing investigation into Hilaire's fraudulent activity, Homeland Security Investigations arrested Hilaire in April 2021. During a search of his residence, agents seized $47,119 in cash; eleven cell phones and two laptop computers; and devices used to create fraudulent credit cards. When agents arrived at his residence, Hilaire was online filing a fraudulent COVID-related unemployment benefits claim with the state of Alabama. A forensic audit of the cell phones and computers found in his residence revealed that Hilaire had filed 60 fraudulent COVID Economic Injury Disaster Loan applications with eight states, including Rhode Island, with an intended loss to the program of $3,328,695.  Loans totaling $328,700 were issued.

Forensic auditors also uncovered evidence that Hilaire spent time online collaborating with and counseling other would-be fraudsters, and provided them with materials and advice on committing economic fraud.
Paul Diogenes a/k/a "Paul Dejullio," 50, pled guilty in the United States District Court for the District of Rhode Island to wire fraud and assault of a federal officer; and he was sentenced to 120 months in prison plus three years of federal supervised release, and ordered to pay $831,572 in restitution. As alleged in part in the DOJ Release:

[P]aul Diogenes, a/k/a Paul Dejullio, 50, orchestrated a sophisticated and elaborate scheme in which he used stolen banking information from various businesses and a fictitious catering company to fraudulently obtain $831,572 worth of lobster, sea bass, shrimp, scallops, filet, rib eye steak, and wild boar, most of which he resold to area businesses. In some instances, Diogenes sold the ill-gotten products to the same business whose stolen banking information he used to gain credit from food distributors.

On August 3, 2021, as FBI agents, FBI Task Force officers, and Rhode Island State Police attempted to arrest Diogenes behind an East Providence business, he rammed his car into two FBI task force vehicles, one with a task force officer and State Police trooper still inside; drove his vehicle toward an FBI agent who narrowly avoided serious injury; and rammed his car into a delivery van parked nearby before speeding away. The defendant was located by the U.S. Marshals Service and the FBI nine days later at a Middleborough, MA., hotel. He was in possession of a briefcase containing $116,404 in cash, which is to be forfeited to the government.
. . .

Diogenes, described in court documents as "an unrepentant and compulsive fraudster," has been, according to court records, convicted in various courts and jurisdictions thirty-four times, including multiple convictions for fraud-related criminal activity and for charges brought as a result of his violent behavior toward law enforcement.
After a 13-day trial in the United States District Court for the Middle District of Florida, Michael J. DaCorta, 57, was found guilty of conspiracy to commit wire fraud and mail fraud, money laundering, and filing a false income tax return. As alleged in part in the DOJ Release:

[F]rom November 2011 through April 18, 2019, DaCorta ran an investment company named Oasis International Group, Ltd. ("OASIS"). DaCorta and his co-conspirators persuaded at least 700 victims to invest in OASIS through promissory notes and other means, causing victims' losses exceeding $80 million. DaCorta, who had effectively been banned from conducting foreign exchange trading ("FOREX") by agreement with the National Futures Association, induced victims to invest in OASIS by falsely representing to victim-investors that OASIS was reaping enormous profits by being a "market maker" and collecting "spread" on voluminous FOREX trades. DaCorta also pitched the opportunity as essentially risk free and OASIS as well-collateralized. In reality, OASIS was not making markets and had no true revenue. The "spread" earnings were being paid on each trade by OASIS back to OASIS to create the illusion of revenue, which was published to investors on fictious account statements and an online investor portal. The online investor portal showed the "spread" credits but concealed catastrophic underlying trading losses.

DaCorta and his conspirators used the balance of the victim-investors' funds to make Ponzi-style payments to perpetuate the scheme and to fund lavish lifestyles. For example, DaCorta used victim-investors' funds to purchase a Maserati and Range Rovers for his family members, a country club membership, multiple million-dollar homes in Florida, college tuition for family members, flights on private jets, and lavish trips to Europe and the Cayman Islands. DaCorta also underreported his income on his 2017 federal income tax return, claiming a negative income and receiving a tax refund.
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged Mark Marchi with violations of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder. Without admitting or denying the allegations in the SEC Complaint, Marchi consented to the entry of a judgment that enjoins him from violating the charged provisions, imposes an officer-and-director bar, and prohibits him from participating, directly or indirectly, in the issuance, purchase, offer, or sale of any security, with the exception of purchasing or selling securities for his own personal account. The judgment also provides for the court to order, upon motion of the Commission, disgorgement with prejudgment interest and/or a penalty against Marchi, if deemed appropriate. A parallel criminal action was filed against Marchi. As alleged in part in the SEC Release:

[B]etween February 2016 and September 2020, Marchi solicited over $2.8 million of investments in Precipio from at least 22 investors by falsely telling them he was profitably trading securities in Precipio's accounts. In order to conceal his fraud, Marchi allegedly falsified investment documentation, including entering thousands of fake trades into an electronic portal accessed by investors. The complaint alleges that Marchi misappropriated investor funds by secretly paying over $1.4 million in Ponzi-like disbursements to earlier-in-time investors and by diverting cash from Precipio's bank accounts to his own bank accounts. As alleged in the complaint, Marchi is a recidivist who pleaded guilty in 1998 to felony charges of conspiracy to violate the federal securities laws, was barred by the New York Stock Exchange in 1999, and was subject to an Administrative Consent Order imposed by the New Jersey Bureau of Securities in 2015., the SEC charged Derek J. Slattery and his company Trade Smart Software RIC Corporation with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5(a) and (c) thereunder. As alleged in part in the SEC Release:

[B]etween October 2018 and March 2020, Slattery and TradeSmart raised as much as $1.8 million from as many as 300 investors in the United States, Europe, Asia, and Australia through a fraudulent offering of securities in the form of "redeemable units" purportedly in a "fixed portfolio" consisting solely of Apple, Inc. stock options. The complaint alleges that Slattery falsely claimed that TradeSmart used specialized, proprietary software that he created to trade Apple options and generate guaranteed annual returns of 30% or more. As alleged in the complaint, Slattery and TradeSmart enticed investors by promising that investor proceeds would be used to trade Apple options. According to the complaint, however, no trading occurred in Apple options or any other securities on behalf of investors. Contrary to his representations, Slattery allegedly misappropriated investor funds and used them to pay living expenses, to pursue other "business" activities, and to make intermittent Ponzi-like payments to investors requesting withdrawals from their accounts.

The United States District Court for the Southern District of New York entered Consent Orders against the three co-founders of the BitMEX cryptocurrency derivatives trading platform: 
  • Arthur Hayes, 
  • Benjamin Delo, and 
  • Samuel Reed, 
who will each will pay a $10 million civil monetary penalty, and they are enjoined from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged. Hayes, Delo, Reed, and one other individual were indicted on charges of willfully causing BitMEX to violate the Bank Secrecy Act and conspiracy to commit that same offense. Hayes, Delo, and Reed entered guilty pleas to violating the Bank Secrecy Act. As alleged in part in the CFTC Release:

The orders stem from a CFTC complaint filed on October 1, 2020 against the entities operating the BitMEX trading platform and their three founders. The complaint charged the entities and their founders with operating the BitMEX platform while conducting significant aspects of BitMEX's business from the U.S., and unlawfully accepting orders and funds from U.S. customers to trade cryptocurrencies, including derivatives on bitcoin, ether, and litecoin. The CFTC resolved the action against the BitMEX entities through a consent order entered on August 10, 2021, that incorporated a $100 million civil monetary penalty and injunctions against future violations of the CEA and CFTC regulations. [See CFTC Press Release No. 8412-21] 

. . .

The consent orders find that from at least November 2014 through October 1, 2020, Hayes, Delo, and Reed each controlled BiMEX and are responsible for BitMEX's violations of the CEA and CFTC regulations, as charged, because the co-founders failed to implement and enforce effective controls to prevent or detect BitMEX's unlawful conduct. BitMEX's violations, as found in the court's August 10, 2021 order, include the operation of a facility to trade or process swaps without having CFTC approval to operate as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF).  In addition, BitMEX operated as a Futures Commission Merchant (FCM) without CFTC registration, failed to implement a Customer Information Program (CIP) and Know-Your-Customer (KYC) procedures, and failed to implement an adequate Anti-Money Laundering (AML) program.

Thank you. It's good to join the Annual Conference on Financial Market Regulation once again alongside my SEC colleagues, including Chief Economist Jessica Wachter and Commissioner Allison Herren Lee.

The field of economic research is central to our work at the SEC. It helps shape every aspect of our policymaking, from the early design phase to the proposing releases to the consideration of public comments to the adopting releases. It helps us determine the size of fines for enforcement actions. It provides important context for every one of our meetings. I look forward to hearing more about the presentations from today's conference.

As is customary, I'd like to note that my views are my own, and I'm not speaking on behalf of the Commission or SEC staff.

I want to begin by noting a big birthday. Tomorrow happens to be the 100th anniversary of my dad's birth.

Sam Gensler was the first of his siblings to be born in the U.S. My grandmother was so proud to be in the U.S. that she decided to name her first American-born child after Uncle Sam (at least, that's the family lore). During World War I, the U.S. government raised money from the public through "Liberty Bonds," marketed on posters featuring Uncle Sam. Americans turned to our capital markets to support the war efforts.

The Roaring Twenties brought about the rise of the automobile, the electrification of factories, and the large migration of Americans to cities. The retail public started to invest, in part thanks to that Uncle Sam advertising. At the time, though, there were basically no federal protections for those investors, leading to a lot of pain in the Great Depression.

President Franklin Delano Roosevelt and Congress addressed this crisis through a number of landmark policies. Amongst these policies, in 1933, President Roosevelt formally suspended the use of the gold standard.[1] Then, in 1934, the Gold Reserve Act was enacted, prohibiting government and financial institutions from redeeming dollars for gold.[2]

Additionally, in 1933 and 1934, when my dad was in junior high, Congress and FDR came together to craft the first two federal securities laws. These statutes created requirements and regulations around disclosure, registration, exchanges, and broker-dealers, and established the SEC to oversee the markets.

In other words, in those two key years, one could say we replaced one gold standard with another gold standard: the securities laws. Unlike the literal gold peg, these federal securities standards have stood the test of time. The regulated marketplace has led to economic growth through greater efficiency, competition, transparency, access to capital, and fairness.

A number of principles informed these statutes. I'll highlight three principles:

First, a basic faith that investors could make decisions if there was full, fair, and truthful disclosure.

Second, exchanges needed particular regulations to promote the integrity and functioning of the market.

Third, there should be additional laws and rules for individuals and companies that managed other people's money.

These core principles of the securities markets not only were important for issuers and investors in our domestic markets. I believe they also contributed to America's geopolitical standing around the globe. When my dad was coming of age, the world started to turn to the U.S. dollar as the world's reserve currency. I don't think that timing is entirely a coincidence.

I believe the SEC and the federal securities laws have been a major part of America's economic success.

We are blessed with the largest and most innovative capital markets in the world. The U.S. capital markets represent 38 percent of the globe's capital markets.[3] This exceeds even our impact on the world's gross domestic product, where we hold a 24 percent share.[4]

We also benefit from both private and public markets. Private capital markets, such as venture capital, have brought new ideas to market faster and more flexibly than other capital markets. After serving in World War II, my dad used his mustering-out pay to open a small pinball machine business in Baltimore. As a business owner, he never tapped the public markets, but when I was in junior high, he began to invest.

"Wise Restraints"
A generation after my dad started his business, I had to make my own career decision: law school or Wall Street?

I chose the latter. It was on Wall Street that I, a pro-markets person, came to believe in the benefits of rules of the road.

An example from the path not taken - law school - might help explain. Each spring, during their graduation exercises, newly minted JDs at Harvard Law School hear the following declaration: "You are ready to aid in the shaping and application of those wise restraints that make men [people] free."

What is a "wise restraint"? In the context of the SEC, we turn to our mission: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

For the economists in the audience, a wise restraint might be a law or regulation that promotes economic growth, competition, efficiency, and access. Product safety and investor protection lower risks and increase trust.

For example, it's like the seatbelts in our cars and the speed limits on our roads. Those rules of the road facilitated innovation when my dad was a kid, turning Detroit into the center of the automobile industry.

Though I chose not to go to law school - I didn't get into Harvard Law! - it doesn't surprise me that the graduation tradition about "wise restraints" dates to the late 1930s.[5] James Landis, who later served as Chairman of the SEC, had helped Congress and FDR draft the securities laws: our first "wise restraints." He later became Dean of Harvard Law School in 1937. I can't help but wonder if that's more than coincidence.  

I think we, at the SEC, need to look for opportunities to freshen up our rules to ensure America remains the gold standard of the world's capital markets. We can't take our leadership in capital markets for granted. New financial technologies and business models continue to change the face of finance for investors and issuers. More retail investors than ever are accessing our markets. Other countries are developing deep, competitive capital markets as well, seeking to surpass our own.

I'll mention three areas of particular focus: efficiency, disclosure, and resiliency.

First, I'll turn to how "wise restraints" enhance efficiency and competition in our markets.

Congress made significant amendments to our statutes in 1975. In the very first line of that bill, it said they were "amend[ing] the Securities Exchange Act of 1934 to remove barriers to competition." That word, "competition," appears 20 times in the text.[6]

Congress returned to this idea of competition again in 1996. In rulemaking, Congress said, the Commission must consider efficiency, competition, and capital formation, in addition to investor protection and the public interest.[7]

In my view, the principles underlying the wise restraints from the 1930s, '70s, and '90s promote efficiencies where economic rents, or excess profits above market competition, might otherwise accrue. This efficiency benefits investors, innovators, issuers, and intermediaries alike.

Fundamentally, finance is about the pricing and allocation of risk and money in our economy. Our capital markets sit in the middle - between those who want to lay off risk and those who want to bear it, between issuers seeking to raise capital and investors seeking to grow their nest eggs.

We have a $100-plus trillion market. Trillions of dollars' worth of transactions flow through our capital markets each day. Thus, it becomes ever more important to promote efficiency in the middle, using the tools of competition, access, and transparency.

That's why I'm so committed to our ongoing projects designed to drive efficiencies in the $23 trillion Treasury market, $28 trillion non-Treasury fixed income market, nearly $50 trillion equity markets, and $18 trillion of assets under management by private funds.[8] We must always remain vigilant to opportunities to enhance efficiency. That is critical to our maintaining that gold standard, even as markets, global competitors, and technologies evolve.

Next, I'd like to discuss how we can update rules of the road related to disclosure and transparency.

Markets don't stand still. Our disclosure and transparency rules can't stand still, either. Thus, over the generations, the Commission often has updated disclosure and transparency regimes.

Going back to the 1930s, we have a disclosure-based regime, not a merit-based one. The core bargain is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures.

Disclosure and transparency reduce the advantages of asymmetric information. For example, the academic research overwhelmingly finds that post-trade transparency improves efficiency and competition in the markets they serve, from the stock market to bond markets.[9]

The Commission has proposed to enhance disclosures in a number of ways. For example, we've proposed to mandate climate-related and cybersecurity-related disclosures by public companies. Further, we also have transparency projects related to short selling, stock buybacks, the stock loan market, and security-based swaps.

We've also proposed to enhance disclosures around special purpose acquisition companies (SPACs) so that they are subject to similar disclosure requirements as traditional initial public offerings.[10] Speed limits apply to all cars, whether they're electric or gas-powered. This consistency generates greater efficiencies.

We must always remain vigilant to opportunities to enhance transparency, which helps foster innovation and growth, and helps maintain our markets as the world's gold standard.

Finally, we use "wise restraints" to strengthen the resiliency of our financial system. Financial stability is a critical part of our work at the SEC, alongside other regulators. Resiliency gets to each part of our mission, especially as it relates to maintaining fair, orderly, and efficient markets.

When it comes to markets, the test of a gold standard is that such markets can function in orderly times and in stress times.

Market participants can continue to allocate capital and price risk. Such resiliency helps ensure that shock waves don't propagate into the real economy. It also allows the rest of the world to rely on our capital markets, helping the U.S. dollar best retain its status as the reserve currency.

Cycles and stress are a part of economic and financial history. That's what led to the reforms when my dad was a kid. Even though our markets are the gold standards, ups and downs are inevitable.

We saw this, unfortunately, in living through the 2008 financial crisis. More recently, during the start of the COVID crisis, we saw how prime money market funds, municipal bond funds, and taxable bond funds can raise issues of financial stability.[11] We also observed challenges in the Treasury market.

Today, we are in the midst of uncertain geopolitical events. Furthermore, around the globe, central banks have started to transition from an accommodating to a tightening policy stance. In such times of uncertainty and transition, we are reminded of the importance of financial resiliency. We cannot take it for granted.

I think we have opportunities to strengthen the resiliency of our capital markets. Over the years, Congress has given the SEC oversight of broker-dealers and funds, along with market infrastructure such as clearinghouses and exchanges.

Staff and the Commission are considering resiliency with respect to the cybersecurity of the financial system. We have projects in the asset management space, including money market funds, open-end bond funds, and private funds. We also are working to strengthen the resiliency of the Treasury markets and central clearing.[12]

In conclusion, as we continue to navigate geopolitical challenges, we must always think about ways to enhance the efficiency, resiliency, and transparency of our markets. Which new rules of the road might we need to meet the promise of our modern markets?

As we make proposals and put them out for public comment, I encourage you all to weigh in. We benefit from your feedback and the economic analysis you provide.

In considering the appropriate rule sets for the 2020s and the 2030s, I can't help but think about my dad's birth in the 1920s and the "wise restraints" placed on our federal securities regime in the 1930s. Nearly a century later, these laws still help America maintain markets that are the envy of the world. These laws help us maintain our extraordinary competitiveness on the world stage. They are the gold standard. Let's do our part to keep them that way!

Thank you.

[1] See Federal Reserve History, "Roosevelt's Gold Program," available at

[2] See Federal Reserve History, "Gold Reserve Act of 1934," available at

[3] See Securities Industry and Financial Markets Association, "2021 SIFMA Capital Markets Fact Book," available at

[4] See World Bank data: What's more, U.S. market participants rely on capital markets more than market participants in any other country. For example, debt capital markets account for 80 percent of financing for non-financial corporations in the U.S. In the rest of the world, by contrast, nearly 80 percent of lending to such firms comes from banks.

[5] Quotation by John MacArthur Maguire. See Harvard Law School Library, available at

[6] See Securities Acts Amendments of 1975, available at

[7] "Whenever pursuant to this title the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation." See Securities Act of 1933, Securities Exchange Act of 1934, Investment Advisers Act of 1940, and Investment Company Act of 1940.

[8] Market sizes (Treasury and non-Treasury fixed income markets) as of Q4 2021. See SIFMA, "Research Quarterly: Fixed Income - Outstanding," available at

[9] See, e.g., Hendrik Bessembinder, Chester Spatt, and Kumar Venkataraman, "A Survey of the Microstructure of Fixed-Income Markets" (Journal of Financial and Quantitative Analysis, Vol. 55, No. 1, Feb. 2020, p. 1-45), available at, and Simon Z. Wu, "Transaction Costs for Customer Trades in the Municipal Bond Market: What is Driving the Decline?" (July 2018, MSRB), available at

[10] See Gary Gensler, "Remarks before the Healthy Markets Association Conference" (Dec. 9, 2021), available at

[11] During the two-week period of March 11 to 24, 2020, publicly offered institutional prime money market funds had a 30 percent redemption rate (about $100 billion). See In March 2020, bond mutual funds experienced $255 billion in net outflows while bond ETFs experienced $21 billion in outflows. Municipal bond funds and ETFs experienced $44.5 billion in outflows in that period. See

[12] See Gary Gensler, "Cybersecurity and Securities Laws" (Jan. 24, 2022), available at; "The Name's Bond" (April 26, 2022), available at, "Prepared Remarks at the Institutional Limited Partners Association Summit" (Nov. 10, 2021), available at; "Prepared Remarks at U.S. Treasury Market Conference" (Nov. 17, 2021), available at; and "Statement on Rules Regarding Clearing and Settling" (Feb. 9, 2022), available at

Thank you, Carla [Garrett], the rest of the Committee, and to today's guest speakers for sharing your thoughts on the potential effects of the Commission's proposed rules relating to climate change-related disclosures and SPACs on small businesses.  Welcome to the Committee, Donnel [Baird].  I look forward to your contributions in the months to come.  

Today's dialogue represents an important part of the rulemaking process given the consequential nature of these proposals for small businesses.  The climate change proposal would vastly expand the disclosure requirements and compliance burdens for all public companies.  When we proposed the rules, I laid out my general concerns, but will not reiterate them here.[1]  Small companies are likely to face unique challenges in complying with the proposal, and I hope to hear today what some of those challenges might be.  Smaller reporting companies would be exempt from the Scope 3 disclosure requirement and would have a longer transition period for compliance than other public companies.  Is this limited relief sufficient?  To justify not exempting small public companies from the rules, the Commission explained that "climate-related risks may pose a significant risk to the operations and financial condition of domestic and foreign issuers, both large and small."[2]  Do you agree that climate-related risks are material for all small public companies?  If so, do the proposed benefits of the rule justify the costs associated with compliance?  Should the Commission exempt smaller reporting companies from some or all of the proposed climate-related disclosure requirements?  Should the Commission exempt emerging growth companies from some or all of the proposed requirements?[3]  The release was dismissive of the notion that the costs associated with the proposed rules could deter a private company from going public.[4]  Was the Commission correct, or might these new requirements be a material consideration for companies considering going public?

The proposal's effects will extend to small private companies.  To calculate their Scope 3 emissions, public companies inevitably will demand that private company suppliers supply them with climate data.  Public companies may do more than demand data.  The Commission bluntly stated "[a]lthough a registrant may not own or control the operational activities in its value chain that produce Scope 3 emissions, it nevertheless may influence those activities, for example, by working with its suppliers and downstream distributors to take steps to reduce those entities' Scopes 1 and 2 emissions (and thus help reduce the registrant's Scope 3 emissions) and any attendant risks."[5]  What will the costs be for small private companies to reduce their emissions to improve the public image of their public company counterparties at the behest of the Commission?

The SPAC proposal would require significant changes to the operations, economics, and timeline of SPACs.  I have spoken at length about SPACs and the proposal elsewhere,[6] but again would like to highlight a few questions.  Does the proposal diminish the desirability of SPACs as a vehicle by which small businesses can become public companies?  What is attractive about SPACs to small businesses seeking to enter the public markets, and what about the traditional initial public offering process is uninviting to these companies?  As you consider the proposal, be mindful of the fact that it addresses more than just SPACs; for example, it would deem any business combination transaction involving a reporting shell company and another entity that is not a shell company to constitute a sale of securities.  How will this change affect the ability of reporting shell companies to enter into business combinations with operating companies?  Are there unintended consequences for shell companies and their investors?[7] 

Insights from the committee members, guest speakers, and any subsequent recommendations offered by the committee will be valuable inputs for the Commission to consider as part of the rulemaking process.  Thank you to this committee and its guest panelists for engaging in a thoughtful dialogue on these issues today.  I look forward to learning your views on these subjects.

[1] Commissioner Hester M. Peirce, We are Not the Securities and Environment Commission - At Least Not Yet, (Mar. 21, 2022),

[2] See The Enhancement and Standardization of Climate-Related Disclosures for Investors, Proposing Release No. 33-11042 (87 FR 21334) at 277 (hereinafter "Climate Proposal"), available at    

[3] The Commission raised some of these questions in the Climate Proposal.  See id. at Question 175.  I encourage members of the public to weigh in with their views on these and other questions raised in the Climate Proposal: 

[4] See Climate Proposal at 404-05. 

[5] Climate Proposal at 161. 

[6] and

[7] I also encourage members of the public to weigh in with their views on these and other questions raised in the SPAC Proposal:
In "An Essay on Criticism," Alexander Pope famously wrote that "To err is human, to forgive divine." Erring is something that we all do with regularity accompanied by regret and followed by more errors. As the poet said, to err is human, and an indelible aspect of our humanity is our unending ability to make mistakes. As to the forgiveness of our errors, alas, that is left to Divine Providence; and, frankly, when it comes to our financial markets, it's more about the Dark Side. In a recent FINRA regulatory settlement, we are presented with full-blown humanity and very little divinity.

The Curious Case of Donald Howard ( Blog) /
In 2020, the SEC swore in a Complaint filed in a United States District Court that Donald Lee Howard was 65. In 2021, the SEC alleged in a administrative order that Howard was 76. Ummm . . . someone wanna explain to me (and, while you're at it, to the SEC) how a human being aged 11 years in one year. Sort of a Benjamin Button in reverse.