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Wall Street's top watchdog on Wednesday proposed new rules that would raise the dollar threshold for venture capital funds to be covered by a principal statute regulating investment companies, Reuters reported. The U.S. Securities and Exchange Commission said this was called for under a 2018 congressional mandate, which called for adjustments for inflation every five years. So-called qualifying venture capital funds are excluded from the definition of "investment company" under the Investment Company Act of 1940, according to the SEC. The new rule would raise the threshold to $12 million in aggregate capital contributions and uncommitted capital from the current $10 million based on the Commerce Department's Personal Consumption Expenditures price index and create a process future inflation adjustments, the agency said in a statement.

Publicly traded companies need to avoid “AI washing” when talking to investors about their use of the technology, according to the head of the U.S. Securities and Exchange Commission, Bloomberg News reported. SEC Chair Gary Gensler said Tuesday that companies must clarify for investors what they mean when referring to artificial intelligence. Corporations need to be specific about how they’re using it, risks to operations, and decide if executives’ comments regarding the technology must be disclosed to investors. “As AI disclosures by SEC registrants increase, the basics of good securities lawyering still apply,” Gary Gensler said in a speech at Yale Law School. Companies from a range of industries have been advertising how they’re harnessing AI to improve operations. More than 40% of S&P 500 companies discussed the technology in their annual reports to the SEC, according to a recent Bloomberg Law analysis. Financial firms are also harnessing the technology in everything from lending to trade recommendations. Gensler has previously called AI the “transformative technology of this generation,” but he has also warned about dangers it could pose to financial stability. The SEC recently proposed new regulations to crack down on how brokerages and investment firms use the technology.

A new group of Wall Street firms has agreed to pay more than $81 million in civil penalties to settle U.S. Securities and Exchange Commission charges of record-keeping failures, the regulator said on Friday, Reuters reported. The settlements with broker-dealers and investment advisers, including Oppenheimer & Co. Inc. and U.S. Bancorp, are the latest in a multi-year initiative by the SEC to investigate how registered financial firms handle employees' work-related communications on personal devices and apps, such as WhatsApp. "The SEC’s investigations uncovered pervasive and longstanding uses of unapproved communication methods, known as off-channel communications," the agency said in a statement. The companies admitted that employees "communicated through personal text messages about the business of their employers" and "sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given," the SEC said. Since 2021, the SEC has hit dozens of firms including big banks such as JPMorgan Chase & Co and Wells Fargo & Co with fines of $1.7 billion over such compliance failures. Broker dealers and investment advisers, which are registered with the SEC, are subject to record-keeping requirements. The increasing use of off-channel communications has complicated companies' efforts to meet those requirements.

Two top U.S. markets regulators on Thursday jointly approved new reporting requirements for private funds and investment advisers, saying this would boost the government's ability to spot the build-up of risk in the $20 trillion private investment sector, Reuters reported. The Securities and Exchange Commission and the Commodity Futures Trading Commission also said they had agreed to share the confidential information collected on forms routinely filed by private funds. The changes will apply to SEC-registered funds and those registered with the CFTC as commodity pool operators or trading advisers, the agencies said. The amendments affect how advisers to large hedge funds will report exposures to investments, counterparties and currencies as well as exposures to countries and industries, the performance of investments by strategy and the liquidity of portfolios, among other things, the SEC said in a statement. This information can be used by the Financial Stability Oversight Council, an inter-agency body created in the wake of the Global Financial Crisis, to help monitor risk, it said.

Cryptocurrency platform TradeStation Crypto will pay $3 million to settle charges from the U.S. securities regulator and multiple states that it offered and sold unregistered securities through an interest-earning program, Reuters reported. TradeStation failed to register its crypto lending product that allowed U.S. investors to deposit or purchase assets on TradeStation's platform in exchange for yield, the Securities and Exchange Commission said. The product was offered to customers beginning in 2020 and was shut down in 2022.

The U.S. securities regulator on Tuesday adopted a rule requiring proprietary traders and other firms that routinely deal in U.S. government bonds and other securities to register as broker-dealers, subjecting them to stricter oversight, Reuters reported. The new Securities and Exchange Commission (SEC) rule is part of a broader effort to fix structural issues regulators say are causing liquidity problems in the $26 trillion Treasury market. Those changes, which include pushing more trades through clearinghouses, represent the biggest overhaul of the Treasury market in decades, market participants say. The SEC's five commissioners voted 3-2, with Republican members objecting, saying the rule would was too broad and would create undue burdens on market players. The rule primarily targets proprietary traders, which the SEC says have become "critical sources" of Treasury market liquidity and should be subject to the same strict oversight and risk management controls as other Treasury market dealers. "These measures are common sense," SEC Chair Gary Gensler said at the start of the meeting. "Congress did not intend for registration and regulatory requirements to apply to some dealers and not to others." The new rules, which were first proposed in March 2022, would apply to traders if they meet either of two activity-based tests, SEC officials said in advance of the meeting. Firms which routinely express interest in trading at the best available prices on both sides of the market, or which mainly derive revenue by trading on the spread between securities' bidding and asking prices or from incentives offered by trading venues.

The U.S. Securities and Exchange Commission is trying to fend off a legal challenge from the multitrillion-dollar private fund industry to agency rules requiring hedge funds and private equity firms to detail quarterly fees and expenses to investors, Bloomberg News reported. The regulator is set to face off Monday against the Managed Funds Association and other trade groups in a hearing before a three-judge panel of the U.S. Fifth Circuit Court of Appeals in New Orleans. In addition to fee disclosures, the rules adopted by the SEC in August would prohibit firms from allowing some favored investors to cash out more easily than others — unless those deals are offered to all fund investors. The SEC under Chair Gary Gensler has been tightening its grip on private funds, and the rules would bring increased transparency to a fast-growing industry known for its opaque and complex layers of fees. The industry groups, including the American Investment Council, argued in the lawsuit they filed a week after the rules were adopted that they would “fundamentally change the way private funds are regulated in America.” The groups said that private equity investors are among the most sophisticated in the world and would not be funneling their money into an industry if it was in need of a “government overhaul.” Lawyers for the industry also contend the SEC exceeded its authority in adopting the rules. But the SEC claims it’s working within its authority under the 2010 Dodd-Frank Act. The agency has said in court filings that the rules “are a flexible and measured approach to resolve problems affecting investors and their stakeholders.”

The founder of an online crypto trading course called the American Bitcoin Academy scammed students out of more than $1 million by persuading them to invest in a fake hedge fund, the Securities and Exchange Commission claimed Friday, Bloomberg News reported. From December 2017 through April 2018, Brian Sewell allegedly solicited investments for the Rockwell Fund, which would invest in digital assets using unique strategies and tools such as artificial intelligence. Instead of launching the fund, Sewell converted the investments into Bitcoin, which he lost when the wallet he was using was hacked, the SEC said in a news release announcing the settled case. He also deceived investors about the fund’s existence by sending them fake monthly account statements. Sewell’s alleged fraud scheme ultimately cost 15 students about $1.2 million, according to the regulator. “Whether it’s AI, crypto, DeFi or some other buzzword, the SEC will continue to hold accountable those who claim to use attention-grabbing technologies to attract and defraud investors,” Gurbir Grewal, the director of the SEC’s enforcement division, said in the news release. Sewell and his company, Rockwell Capital Management, agreed to settle with the regulator, without admitting or denying the allegations. As part of the deal, Rockwell Capital agreed to pay $1.6 million and Sewell, more than $200,000.

Crypto lender Genesis Global has settled a U.S. Securities and Exchange Commission lawsuit over its defunct Gemini Earn lending program, agreeing to a $21 million fine that will be paid only if Genesis is able to fully repay customers in its bankruptcy, Reuters reported. The deal will help Genesis avoid the costs and risks of defending itself from an SEC lawsuit that had accused the company of illegally selling securities. The settlement will allow Genesis to focus on repaying customers and other creditors, according to documents filed in U.S. Bankruptcy Court in Manhattan on Wednesday evening. Genesis did not admit or deny wrongdoing in the settlement agreement. The SEC sued Genesis the week before it filed for bankruptcy protection in January 2023, claiming that Genesis and cryptocurrency exchange Gemini Trust illegally sold securities to hundreds of thousands of investors through their jointly-managed crypto lending program, Gemini Earn. The two companies partnered in December 2020 to allow Gemini customers the chance to loan their crypto assets to Genesis in exchange for earning interest, ultimately collecting billions of dollars' worth of crypto assets from investors. The Earn program was halted during a crypto market crash in November 2023, and its failure has spurred litigation between Genesis, Gemini, and Genesis's parent company, Digital Currency Group. Gemini, run by the Winklevoss twins best known for their legal battle against Meta Platforms' CEO Mark Zuckerberg, had previously sued DCG over the failure of the companies' crypto lending partnership.

The Securities and Exchange Commission (SEC) yesterday charged Xue Lee (aka Sam Lee) and Brenda Chunga (aka Bitcoin Beautee) for their involvement in a fraudulent crypto asset pyramid scheme known as HyperFund that raised more than $1.7 billion from investors worldwide, according to a SEC press release. According to the SEC’s complaint, from June 2020 through early 2022, Lee and Chunga promoted HyperFund “membership” packages, which they claimed guaranteed investors high returns, including from HyperFund’s supposed crypto asset mining operations and associations with a Fortune 500 company. As the complaint alleges, however, Lee and Chunga knew or were reckless in not knowing that HyperFund was a pyramid scheme and had no real source of revenue other than funds received from investors. In 2022, the HyperFund scheme collapsed and investors were no longer able to make withdrawals. The SEC’s complaint, filed in federal district court in the District of Maryland, charges Lee and Chunga with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing the defendants from participating in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. Chunga agreed to settle the charges, to be permanently enjoined from future violations of the charged provisions and certain other activity, and to pay disgorgement and civil penalties in amounts to be determined by the court at a future date. The settlement is subject to court approval. The charges against Lee will be litigated. In a parallel action, the U.S. Attorney’s Office for the District of Maryland today announced criminal charges against Lee and Chunga. Chunga pleaded guilty to conspiracy to commit securities fraud and wire fraud.