%1

Wall Street’s main regulator is demanding more investor protections for deals involving special purpose acquisition companies, tightening rules on a once-popular pathway for taking firms public, Bloomberg News reported. After surging during the COVID-19 pandemic as an alternative to traditional initial public offerings, blank-check companies have fallen out of favor. In a move that could further reduce interest, the Securities and Exchange Commission approved new rules on Wednesday to make SPAC deals more like traditional IPOs — driving up legal risks and costs for those behind the transactions. Blank-check companies, which list on public stock exchanges to raise money so they can buy other companies, were touted as a faster and potentially cheaper way to do a public listing. But critics have long warned that deals can be rife with conflicts of interest and amount to an end-run of the traditional IPO process. “Just because a company uses an alternative method to go public does not mean that its investors are any less deserving of time-tested investor protections,” SEC Chair Gary Gensler said ahead of a vote on the plan. The regulations, which were first proposed in March 2022, revoke legal protections that shielded sponsors of the deals from getting sued by investors over embellished statements. They require the later part of the transaction, the so-called de-SPAC, to include more disclosures around forward-looking projections. Even without the new rules in place, the once white-hot market for SPACs fizzled as the SEC’s enforcement division stepped up scrutiny and interest-rate increases damped demand for risky investments. Just a few dozen blank-check companies went public last year after hundreds did so in the 2021 heyday, according to data from SPAC Research. After the SEC proposed its rule changes, underwriters including Goldman Sachs Group Inc. and Bank of America Corp. pulled back on their services for the market within a matter of months.

The world's largest crypto exchange Binance and the U.S. Securities and Exchange Commission (SEC) kicked off their oral arguments before a federal judge in Washington, D.C., yesterday in a high-profile case that could help define how cryptocurrencies are regulated, Reuters reported. Binance has asked federal Judge Amy Berman Jackson to toss out a lawsuit the SEC filed alleging Binance broke its rules, and is expected to make its case for dismissal before her on Monday. The lawsuit is one of the last major legal challenges in the U.S. facing Binance. Last year, Binance agreed to pay $4.3 billion to settle with the Department of Justice and the Commodity Futures Trading Commission over illicit finance breaches, founder Chanpeng Zhao pleaded guilty to breaking U.S. anti-money-laundering laws. But the SEC's case is still hanging over the exchange.

U.S. authorities are investigating B. Riley Financial Inc.’s deals with a key client who was linked to a securities fraud, and the use of his assets to help the investment bank obtain a loan from Nomura Holdings Inc., Bloomberg News reported. The U.S. Securities & Exchange Commission carried out interviews in recent months about B. Riley and its relationship with Brian Kahn, the people said, requesting anonymity as details aren’t public. Kahn is an unidentified co-conspirator in a Department of Justice criminal case prompted by the 2020 demise of the Prophecy Asset Management hedge fund, Bloomberg News previously reported. Officials have been scrutinizing how Kahn led a buyout of a retail business called Franchise Group Inc. in a deal arranged last year by B. Riley. Nomura partly financed the transaction, with some of Kahn’s assets pledged as collateral, according to the people and documents reviewed by Bloomberg.

A federal judge in Manhattan yesterday grilled Coinbase and the Securities and Exchange Commission (SEC) about their divergent views on whether and when digital assets are securities, in a case closely watched by the cryptocurrency industry, Reuters reported. Coinbase has asked the court to dismiss the Securities and Exchange Commission's lawsuit alleging the largest U.S. crypto exchange is flouting its rules. Judge Katherine Polk Failla on Wednesday heard arguments from both sides, focusing her questions on the legal precedent defining securities, and the attributes of several crypto tokens traded on Coinbase and elsewhere that the regulator has deemed investment contracts. Failla did not decide the matter from the bench, noting she was still weighing some questions after the more than four-hour hearing. The judge's ruling is likely to have implications for digital assets by helping to clarify the SEC's jurisdiction over the sector. The case is one of a slew the SEC has brought against the crypto sector. The agency focused initially on companies selling digital tokens, but under the leadership of chair Gary Gensler has targeted firms offering trading platforms and clearing activity, and acting as broker-dealers.

The chief executive of Future FinTech Group, Shanchun Huang, denied allegations from the U.S. Securities and Exchange Commission that he artificially inflated the company’s share price before taking over as CEO, the Wall Street Journal reported. Through his attorney, Huang said Wednesday morning that he intends to fight the SEC’s lawsuit in court and provide evidence that he didn’t trade in Future FinTech’s stock before becoming CEO in March 2020. The agency alleged last week that Huang used manipulative trading techniques in early 2020 to push the fintech firm’s share price up, with the intention of preventing the stock from being delisted from the Nasdaq exchange for trading below the $1 minimum bid price. According to the SEC, the trades were placed after Future FinTech’s founder and former chief executive approached Huang about taking over as CEO. The securities regulator also alleges that Huang failed to make required filings about his ownership stake in the company until a year after he became CEO, by which time he no longer owned any company stock.

Coinbase will argue at a court hearing on Wednesday that the U.S. securities regulator should drop its case against it because the tokens traded on its crypto exchange are not akin to securities, said a person familiar with the case and court filings, Reuters reported. The hearing is the next major development in a closely watched court battle between Coinbase and the Securities and Exchange Commission that is likely to have implications for digital assets since it could clarify the SEC's jurisdiction over the sector. Coinbase's plan is to lean on a core argument it has made in court filings: that the SEC is overreaching and the assets it lists for trading are not securities. Coinbase, the world's largest publicly traded cryptocurrency exchange, is expected to argue that crypto assets differ from assets such as stocks or bonds that are subject to oversight by the U.S. securities regulator and that the SEC has overstepped its authority. Other crypto firms have expressed similar views. The SEC sued Coinbase in June, saying the firm facilitated trading of at least 13 crypto tokens that should have been registered as securities and was operating illegally as a national securities exchange, broker and clearing agency without registering with the regulator. The SEC also targeted Coinbase's "staking" program, in which it pools assets to verify activity on blockchain networks and takes commissions, in exchange for "rewards" to customers. It said that program should have been registered with the agency. The lawsuit is one of a slew the SEC has brought against the crypto sector under the premise that many crypto assets are securities. The agency focused initially on companies selling digital tokens, but under the leadership of chair Gary Gensler has shifted focus to firms offering trading platforms and clearing activity, and acting as broker-dealers.

The Securities and Exchange Commission has charged Shanchun Huang with allegedly inflating Future FinTech Group’s share price just before he took over as the company’s chief executive, the Wall Street Journal reported. The SEC alleged in a complaint Thursday that Huang used manipulative trading techniques in early 2020 to push the fintech firm’s share price up, with the goal of preventing it from being delisted from the Nasdaq exchange. According to the complaint filed in New York federal court, Future FinTech’s founder and former chief executive approached Huang in late 2019 or early 2020 about becoming the company’s next chief executive. Huang allegedly started using an account in Hong Kong to trade in Future FinTech’s stock in January 2020, when the shares were at risk of being delisted because they had fallen below the $1 minimum bid price. The SEC claims Huang bought more than 530,000 shares over a two-month period and traded at a volume large enough to represent a high percentage of the stock’s overall daily volume. Huang also placed multiple buy orders in short time frames and made other trades that “generally would not make economic sense for an investor who sought to buy the stock at the lowest available price,” the agency alleged. (Subscription required.)

The Securities and Exchange Commission (SEC) yesterday approved the first U.S.-listed exchange traded funds (ETFs) to track bitcoin, in a watershed for the world's largest cryptocurrency and the broader crypto industry, Reuters reported. The SEC said that it approved 11 applications, including from BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck, despite warnings from some officials and investor advocates that the products carried risks. Most of the products are expected to begin trading Thursday, issuers said, kicking off a fierce competition for market share. A decade in the making, the ETFs are a game-changer for bitcoin, offering investors exposure to the world's largest cryptocurrency without directly holding it. They provide a major boost for a crypto industry beset by scandals.

U.S. asset managers remain hopeful the securities regulator will permit the trading of spot bitcoin exchange-traded funds (ETFs), even after a fake post on the agency's social media account saying they had been approved sparked confusion on yesterday. The Securities and Exchange Commission (SEC) will decide today whether to approve an application from asset managers Ark Investments and 21Shares to launch a spot bitcoin ETF. More than a dozen bitcoin ETF applications, including from BlackRock, Fidelity and VanEck, are also pending with the agency. The products would be a game-changer for bitcoin, offering institutional and retail investors exposure to the world's largest cryptocurrency without directly holding it, and a major boost for a crypto industry beset by a string of scandals.

One thing the Securities and Exchange Commission’s top cop promised when he took the job was increased enforcement and a crackdown on repeat offenders. More than two years later, he says the numbers so far prove the strategy works, the Wall Street Journal reported. Under Gurbir Grewal, director of the SEC’s enforcement division, the agency has brought a record number of actions. In the year ended Sept. 30, the SEC imposed financial remedies of about $5 billion through 784 enforcement actions, second only to the record set the year before at $6.44 billion in monetary penalties. “That was a conscious effort over the last two years to make sure the penalties we were seeking were having that deterrent effect” that was more than the cost of doing business, according to Grewal. Moving forward, the SEC is recalibrating penalties to identify and reward cooperation and remediation, Grewal said.