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SEC Addresses Wall Street 'Misconceptions' about Conflicts of Interest

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The U.S. Securities and Exchange Commission (SEC) on Wednesday published a staff bulletin that seeks to clarify how broker dealers and investment advisors must address conflicts of interest when providing advice and recommendations to investors, Reuters reported. The guidance aims to spell out expectations amid industry "misconceptions," an SEC official told reporters, adding that while all financial firms and professionals have some conflict, the "nature and expense" of those conflicts can vary. The guidance specifically clarifies brokers' and advisors' obligations around disclosing conflicts of interest under the SEC's long-standing Investment Advisor Fiduciary Standard and its Regulation Best Interest rule, passed in 2019. "The steps firms take to address conflicts of interest need to be tailored to their particular business model," an SEC official said.

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Binance.US Delists Cryptocurrency Cited by SEC as a Security

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Binance.US, the U.S.-based arm of crypto exchange Binance, delisted a small cryptocurrency in the wake of the Securities and Exchange Commission’s investigation into insider trading at rival Coinbase Global Inc., the Wall Street Journal reported. Binance on Monday said that it was delisting the AMP token as of Aug. 15. The cryptocurrency trades for less than a penny with a market value of less than $400 million, according to CoinMarketCap. Despite its small size, AMP looms large because it was one of nine cryptocurrencies cited by the SEC as unregistered securities as part of its investigation of insider trading at Coinbase. The entire crypto industry has grown up without clear definitions of the assets within it and regulations for trading. The SEC has informally said that the two largest tokens, bitcoin and ether, aren’t securities. However, both the current SEC chairman, Gary Gensler, and his predecessor, Jay Clayton, said that most cryptocurrencies meet the legal definition of a security, potentially putting crypto exchanges in the position of selling unregistered securities. Binance said its decision was based on the fact that AMP was the only one of the nine cryptocurrencies in the insider-trading case that trades on its platform.

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Coinbase Faces SEC Probe on Crypto Listings; Shares Tumble

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Coinbase Global Inc. is facing a U.S. probe into whether it improperly let Americans trade digital assets that should have been registered as securities, Bloomberg News reported. The company’s shares dropped as much as 9.2%. The U.S. Securities and Exchange Commission’s scrutiny of Coinbase has increased since the platform expanded the number of tokens in which it offers trading, said two of the people, who asked not to be named because the inquiry hasn’t been disclosed publicly. The probe by the SEC’s enforcement unit predates the agency’s investigation into an alleged insider trading scheme that led the regulator last week to sue a former Coinbase manager and two other people. The drumbeat in Washington for U.S. regulators to do more to oversee crypto has grown louder as digital currencies have tumbled from all-time highs, erasing hundreds of billions of dollars in market value. SEC Chair Gary Gensler has homed in on trading platforms and argued that they should do more to protect retail investors.

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Oct 2022
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Corporate Governance
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Federal Consumer Finance Watchdog to Tighten Bank Rules Around Money-Transfer Scams, Report Says

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The Consumer Financial Protection Bureau (CFPB) said that it plans to tighten rules around fraudulent money transfers via services like Zelle by pushing banks to repay more customers harmed by these alleged scams, CNBC reported. These services facilitate quick digital payments from person to person. The CFPB is preparing to issue guidance in the coming weeks that would raise banks’ financial obligations to customers who lose money in a payment-services scam. Banks generally only have liability for such transactions when they’re unauthorized by customers, but the CFPB could raise the bar by deeming payments made to a scammer as unauthorized. A spokesperson for Early Warning Services LLC, a group of seven banks that own Zelle, said the service has helped millions of consumers in their everyday lives, whether to pay rent, get money quickly when in need or satisfy debts to friends quickly. “Protecting consumers is one of our top priorities,” the spokesperson said. “As a network, we constantly adapt consumer protection measures to address the dynamic and evolving nature of deceptive activities fraudsters employ.”
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SEC Working to Register Cryptolending Firms: Gensler

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The U.S. Securities and Exchange Commission (SEC) is working to get some cryptolending companies properly registered if they operate more as investment firms, the head of the Wall Street regulator said, Reuters reported. SEC Chair Gary Gensler also said that it was up to large financial institutions to decide whether they want to include crypto options in their portfolios for clients, but that the risks of cryptotokens need to be made public. Cryptocurrency companies have said they remain unsure of U.S. regulations governing products that allow customers to earn interest on holdings instead of trading them. Focus on cryptomarkets has intensified again since May amid recent spells of volatility that have long alarmed watchdogs. Several cryptolenders have stumbled in recent weeks amid slumping cryptoprices. Celsius Networks has filed for bankruptcy. BlockFi signed a deal with FTX that gives the cryptoexchange the option to buy BlockFi for up to $240 million. The comments follow Gensler's repeated statements that in his view, some cryptotrading platforms may meet the definition of "securities" and should be traded and regulated as such.
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Ex-Coinbase Employee and 2 Others Charged with Insider Trading of Cryptoassets

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Federal authorities filed criminal and civil charges against a former Coinbase employee and two other men in an insider-trading case involving confidential information about cryptocurrency assets that were about to be posted on Coinbase’s exchange, The New York Times reported. The three men were involved in trades over 10 months using information about 14 listings on Coinbase that generated about $1.5 million in illegal profits. The men were charged criminally with three counts of wire fraud and conspiracy to commit wire fraud. The case is the first time the authorities have filed criminal insider-trading charges involving cryptocurrency assets. The prosecutors, as well as the Securities and Exchange Commission in civil charging documents, said Ishan Wahi, who at the time was part of a Coinbase team that listed assets on the exchange, passed on confidential information about when some cryptocurrency assets would be listed to his brother, Nikhil Wahi, and his brother's friend Sammer Ramani. Nikhil Wahi and Mr. Ramani used that information to buy the assets before Coinbase announced they’d be listed, the authorities said. After the announcement, the men sold the assets for a profit. The alleged scheme came to light after Coinbase began an internal investigation in April in response to a post on Twitter about unusual trading.
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Lawmaker Slams "Power-Hungry" SEC in Hearing

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Rep. Tom Emmer (R-Minn.) blasted the Securities and Exchange Commission’s (SEC) perceived overreach in its cryptoregulation practices during a congressional hearing, Crypto Briefing reported. SEC Division of Enforcement Director Gurbir Grewal admitted in the hearing that the regulatory body has routinely acted against cryptoindustry participants in ways that may lie outside of its jurisdiction. When asked by Rep. Emmer how the SEC would react to a cryptocompany not answering a sweep letter (a request from regulators for companies to produce documents on a voluntary basis) because the company itself doesn’t fall within the SEC’s jurisdiction, Grewal answered that the agency could “proceed with a subpoena, and then a subpoena enforcement action.” “We’re not limited by our jurisdiction when we’re collecting evidence,” Grewal said. “We follow the evidence wherever it leads us to.” The answer prompted a strong rebuke from Rep. Emmer, who declared that SEC Chair Gary Gensler had in the past ordered sweep letters to be sent to cryptoindustry participants in order to “jam them into a violation” and even “make it a ‘bloodbath’ for [companies that do not respond].” The SEC’s approach to crypto has been coming under fire from multiple sides.
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‘Gensler Has to Act Soon’: Congress, Wall Street Await More SEC Action Amid Crypto Meltdown

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With crypto platforms going bankrupt and investors unable to withdraw funds from some crypto outfits, Senator Elizabeth Warren (D-Mass.) is calling on the Securities & Exchange Commission (SEC) to act, the Daily Times reported. “Congress needs to act, but the SEC has a responsibility to use its authorities to put guardrails in place and crack down on crypto actors that break the rules,” Sen. Warren said. “Too many crypto firms have been able to scam customers and leave ordinary investors holding the bag while insiders make off with their money.” It’s not just members of Congress — analysts are also baffled as to why SEC Chairman Gary Gensler has not been more aggressive. Under Gensler’s leadership, the SEC has been reluctant to propose rules to regulate crypto or apply existing securities laws. And this after Gensler has repeatedly said over the past year and a half that nearly all cryptocurrency tokens are securities, and platforms that trade those tokens are exchanges. More enforcement action is expected, according to one crypto industry lobbyist, who also said that a significant amount of the crypto industry is afraid to proactively engage with the SEC over fears of enforcement actions. When asked why the SEC hasn’t acted more aggressively to write rules to protect investors, Gensler said he rejected the premise. “We have rules in place for what it means to be an investment company, like a mutual fund, when you put your money in,” he said. Gensler also pointed to enforcement actions the Commission has taken against crypto firms that violated securities laws, specifically, crypto company BlockFi.
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Soaring Dollar Could Help Fed in Fight Against Inflation

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The Federal Reserve’s interest rate hikes have driven the U.S. dollar to its highest level in decades, treating American tourists to bargains in Europe and Asia, putting imported goods on sale at home and squeezing the economies of several U.S. trading partners, The Washington Post reported. The dollar reached multi-decade highs against major currencies including the euro and Japanese yen and is almost certain to head higher still. With consumer prices rising by 9.1 percent over the past year — the fastest pace since 1981 — the Fed has signaled additional rate increases are coming, starting July 27. The robust greenback is evidence that the Fed’s anti-inflation campaign is starting to gain traction, even as prices overall continue ticking up. But it’s a different story overseas, where currency weakness in Europe and the United Kingdom — the flip side of the dollar’s strength — is making the fight against inflation even tougher. As years of low inflation and low interest rates have given way to a more volatile era, currencies are trading in a wider arc. In particular, the war in Ukraine, which upended global food and fuel markets, has dealt more punishing blows to Europe and many developing countries than it has the U.S., which helps explain the dollar’s current shine. The more muscular dollar is straining budgets for countries that are heavily dependent upon oil imports, which are priced in dollars, such as India, South Korea and Thailand. Several developing countries that need financial infusions to cover their debt payments, like Ecuador and Tunisia, also are hurting as the U.S. currency climbs. The dollar’s outperformance — up 13 percent this year in the DXY Index — reflects the strength of the U.S. recovery from the pandemic, which was faster than in Europe or Japan.
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