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U.S. stock exchanges will soon have to adopt policies that require public companies to claw back incentive-based executive pay if it is awarded due to accounting fraud or mistakes. The Securities and Exchange Commission voted yesterday to adopt such a rule, one of the few remaining that were mandated by the 2010 Dodd-Frank financial reform law passed in response to the financial crisis of 2007-2010, MarketWatch.com reported. The rule will “strengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors,” SEC Chairman Gary Gensler said in a statement. Companies listed on U.S. exchanges will be required to establish compensation-recovery policies that would be triggered any time the company restates its earnings. If the misstatements led to incentive-based compensation, the company must recover those funds. The rule requires companies to claw back compensation when it finds both “big R” earnings restatements, which require companies to alert investors and reissue financial reports from previous years, and “little r” revisions, which are less serious and don’t require that investors be alerted. Financial-reform advocates have worried since the rule was first proposed in 2015 that a decline in the number of more serious earnings restatements and a rise in the number of less serious revisions is being driven by companies pressuring accountants and auditors into massaging results in order to reduce the need for full restatements. The 2015 proposal would not have required that “little r” revisions trigger a clawback analysis, but the rule adopted today does. The rule takes effect 60 days after being published in the Federal Register, and exchanges will then have 90 days to propose listing standards on clawbacks. Those standards must go into effect one year after publication. The SEC is also voted to amend its rules around required disclosures to retail investors in exchange-traded funds and mutual funds to mandate that shareholders receive “concise” and “visually engaging” annual and semi-annual reports that would typically run three or four pages, versus the much longer documents currently sent to investors.

Sen. John Hickenlooper (D-Colo.) is urging the Securities and Exchanges Commission (SEC) to issue regulations for digital-asset securities through a transparent notice-and-comment regulatory process, The Hill reported. In a letter sent to the SEC yesterday, Hickenlooper wrote that existing laws and regulations do not apply to how crypto assets are being used on the market. He said the lack of a coordinated regulatory framework can create “uneven enforcement” and deprive potential investors of “a clear understanding of how they are protected from fraud, manipulation, and abuse.” The lawmaker asked the agency to clarify what types of digital assets are securities, address how to issue and list digital securities, establish a registration service for digital asset security trading platforms, set regulations on how trading and custody of digital assets should be carried out, and determine what disclosures are required for potential investors to be informed about. “Given the complexity of these issues, and recognizing that some digital assets are securities, others may be commodities, and others may subject to a completely different regulatory regime, a formal regulatory process is needed now,” Hickenlooper wrote in his letter. “This will significantly improve policy development and allow the SEC to collect views and understand concerns. Furthermore, it will create clear rules that will benefit investors who currently may not be fully aware of the risks associated with digital asset investments.”

The U.S. Securities and Exchange Commission's scrutiny of how Wall Street handles work-related communications on personal devices and apps such as WhatsApp has expanded beyond broker-dealers to investment funds and advisers, Reuters reported. Late last month, the SEC and the Commodity Futures Trading Commission (CFTC) fined 16 financial firms, including large banks such as Goldman Sachs Group Inc and Morgan Stanley, a combined $1.8 billion after staff discussed deals and trades on their personal devices and apps, in a sweeping probe of record-keeping practices. That probe primarily targeted broker-dealers rather than asset-managers, although funds did become more cautious as a result and joined banks in tightening controls on personal cellphones, as well as text messages and apps such as WhatsApp. The SEC's enforcement unit has sent inquiries to a number of funds and advisers asking for information about their protocols for so-called "off-channel" business communications as recently as last week. The agency has asked firms to preserve and produce documents and share information on policies related to the use of devices and platforms. The regulatory agency has also asked for details on the firms' organizational charts and past violations and remediation efforts.

The long list of celebrities promoting cryptocurrencies just got shorter. Kim Kardashian is being barred from doing so for three years — and will pay a $1 million fine — to settle federal charges that she recommended a crypto security to her 330 million Instagram followers without making clear that she was paid to do so, the Associated Press reported. The reality TV star also must give up the $250,000 she was paid for the Instagram post about Ethereum Max tokens, plus interest, according to a Securities and Exchange Commission settlement announced Monday. Kardashian is the latest celebrity to get ensnared in regulations that require full disclosure by people getting paid to promote financial products. In 2020, actor Steven Seagal agreed to pay more than $300,000 as part of a similar settlement with the SEC, which also banned him from promoting investments for three years. In 2018, the SEC settled charges against professional boxer Floyd Mayweather Jr. and music producer DJ Khaled for failing to disclose payments they received for promoting investments in a digital currency.

U.S. regulators yesterday fined 16 financial firms, including Barclays, Bank of America, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley and UBS, a combined $1.8 billion after staff discussed deals and trades on their personal devices and apps, Reuters reported. The sweeping industry probe, first reported by Reuters last year and subsequently disclosed by multiple lenders, is a landmark case for the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), marking one their largest collective resolutions. From January 2018 through September 2021, the banks' staff routinely communicated about business matters such as debt and equity deals with colleagues, clients and other third party advisers using applications on their personal devices such as text messages and WhatsApp, the agencies said. The institutions did not preserve the majority of those personal chats, violating federal rules which require broker-dealers and other financial institutions to preserve business communications. That impeded the agencies' ability to oversee financial markets, ensure compliance with key rules, and gather evidence in other, unrelated investigations, the agencies said.

Two former MoviePass Inc. executives illegally misled investors by promising they could turn a profit charging theater-goers just $9.95 a month for unlimited tickets, the U.S. Securities and Exchange Commission alleged in a lawsuit, Bloomberg News reported. Theodore Farnsworth and Mitch Lowe were accused by the agency of securities fraud in a complaint filed late Monday in federal court in Manhattan. Farnsworth is the former chief executive officer of the analytics firm Helios and Matheson Analytics Inc., which bought MoviePass in 2017 and ran it until it collapsed into bankruptcy in 2020. Lowe was MoviePass’ CEO from 2016 to 2020. The SEC claims Farnsworth and Lowe made misstatements in financial filings and in the press “regarding whether MoviePass could be profitable at its new, $9.95 per month subscription price.” Before Helios took over, unlimited subscriptions cost $40 to $50 a month.

The Securities and Exchange Commission charged three men on Monday in a scheme that resulted in a $100 million valuation for a New Jersey deli and a separate shell company, the agency said yesterday. "We allege that the defendants’ brazen schemes resulted in the artificial inflation of the stock price of two publicly traded companies with little to no annual revenues,” said Scott Thompson of the agency's enforcement office in Philadelphia.

The US Securities and Exchange Commission will stop short of banning payment for order flow, a controversial way to process retail stock trades, as it proposes new rules for the $48 trillion American equities market, Bloomberg News reported. The decision follows months of internal deliberations at the agency. It marks a win for brokerages that get paid for processing rights, although the SEC may still enact other changes that make the practice less profitable. The regulator is expected to unveil its plans in the coming months. Wall Street has been on edge since Gary Gensler signaled last year that the agency may outlaw payment for order flow during the overhaul. The practice often involves one brokerage routing retail stock trade orders to another firm for execution rather than to the New York Stock Exchange or Nasdaq. The arrangements are pitched as giving investors the benefits of greater liquidity, but critics have questioned whether traders actually are getting the best price, with some of their potential profits going to the firm that bought the trading rights.

Gary Gensler, the chair of the Securities and Exchange Commission, Gary Gensler, has repeatedly warned that cryptocurrencies must be regulated to protect investors. On Thursday he took a big step toward that goal, saying that he will work with Congress to help create legislation that would increase crypto oversight, the New York Times reported. Gensler doubled down on the need for regulation, saying crypto start-ups wouldn’t prosper without it. “Detroit would not have taken off without some traffic lights and cops on the beat,” he said. His speech immediately prompted outcry from the crypto community, which sees great potential in digital currencies precisely because they are decentralized. The push comes as crypto’s biggest players seek to consolidate their dominance. This month, Binance, the world’s largest cryptocurrency exchange, will unilaterally convert some stablecoins that were issued to its customers by other companies into Binance-branded tokens. This is the kind of move that has lawmakers rushing to draft legislation for stablecoins, or cryptocurrencies ostensibly pegged to the value of a stable asset, like the dollar.

The Securities and Exchange Commission is telling American audit firms to be cautious about taking on as new clients Chinese firms that trade in New York, Bloomberg News reported. The warning on Tuesday follows several businesses switching to U.S. auditors amid an ongoing dispute between regulators in Washington and Beijing over access to audit work papers that could lead to about 200 companies being kicked off American stock exchanges. China and Hong Kong are the lone two jurisdictions worldwide that haven’t allowed American inspections of the documents, with officials there citing national security and confidentiality concerns. Auditors need to fully vet their clients before engaging them, including making sure they’ll be able to get all the information they need both from a foreign company’s management team as well as their prior reviewers, Paul Munter, the SEC’s acting chief accountant, said in a statement. “Such arrangements pose special challenges that raise questions about whether the newly engaged registered public accounting firms — whether located in the U.S. or elsewhere — will be able to satisfy their responsibilities to serve as the lead auditor,” he said. Over the past several months, the SEC been publishing a list of firms based in China and Hong Kong that could face possible delisting if American inspectors aren’t allowed to review work papers as required by U.S. law.