Both the head of the Commodity Futures Trading Commission (CFTC) and leader of the SEC agree that the crypto markets need regulating, and specific rules may help clarify which agency has authority to regulate various cryptocurrency activities. The client alert below discusses both CFTC Chairman Rostin Behnam’s comments and SEC
Securities Regulation
SEC Eyes Further Crypto Regulation as Concerns over Conflicts of Interest Loom
By Michael Guggenheim on
SEC Chair Gary Gensler appears to be readying the SEC for increasing oversight of cryptocurrency exchanges, the latest in a series of regulatory actions targeting the growing industry.
In prepared remarks at PLI’s recent SEC Speaks conference, Gensler called on cryptocurrency platforms to register each function they perform with the SEC – for example, requiring crypto dealers, brokers, and lenders to separately register those functions with the SEC. Such a move could result in a dramatic shakeup in the crypto market, where there are currently several cryptocurrency platforms that perform all of these functions. This is in stark contrast to the traditional securities markets, in which such services are separated from each other.
New York Law Journal: What Makes a Scheme
The Second Circuit Court of Appeals recently issued a decision that may prevent the expansion of scheme liability under the federal securities laws. The SEC brought scheme liability allegations against Rio Tinto, its CEO, and its CFO, based on their alleged failure to correct prior materially misleading statements that had…
S.D.N.Y Dismisses Dodd-Frank Whistleblower Action
By Steven J. Pearlman on
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SEC Continues to Use Advanced Data Analytics to Investigate Insider Trading
By Joshua M. Newville & Julia M. Ansanelli on
The SEC has continued to pursue a number of insider trading cases this year, both large-scale and small. Some of those matters involved trades that yielded relatively small amounts of profits: $40,000-$60,000. Why does the enforcement division spend resources on these smaller cases? First, they serve as a reminder that violations can be identified, even if trades are relatively small. And the cases are relatively easy to prove when a connection to an insider source can be readily identified. More importantly, these cases demonstrate that the SEC is uncovering new leads through data analysis.
It is worth noting that the FY 2018 budget recently published by the White House proposes eliminating the SEC’s annual $50 million “Reserve Fund,” created under Dodd-Frank and used to advance the SEC’s technological resources. Although the budget is unlikely to be passed in its current form, cutting this fund may affect the SEC’s funding to mine and analyze large data sets.
Proskauer Attorneys Pen Cover Article for New York Law Journal’s White-Collar Crime Special Report
By Joshua M. Newville & Lindsey Olson on
Proskauer partner Joshua M. Newville and associate Lindsey A. Olson recently wrote the lead article for New York Law Journal’s White-Collar Crime special report. In the article, they discuss how proposed amendments to the Electronic Communications Privacy Act of 1986 could affect financial fraud investigations by the SEC and DOJ. …
SEC Overrules Its Own Administrative Law Judge to Clear Customer of Fraud Charges
By Harry Frischer & Philip Arnold on
In a rare reversal of its own administrative law judge in the Matter of optionsXpress, the full Securities and Exchange Commission unanimously held that the SEC’s Enforcement Division had not met its burden of proof that the customer of a broker-dealer had committed securities fraud in connection with his clearing broker-dealer’s failure to deliver stock as required by Regulation SHO.
The customer in this case implemented an option trading strategy which exploited the price difference between certain options and their underlying securities. The trading strategy focused on “hard to borrow” securities, which were more expensive to borrow due to high short-seller demand. As a result of the trading strategy, the customer held substantial short positions in the underlying hard to borrow securities over a sustained period of time.
Under Regulation SHO, a broker-dealer is required to deliver securities to its clearing house in connection with a sale within three days of settlement. If it does not do so, it must close out the fail to deliver on the next settlement day by purchasing or borrowing similar securities in the market. Here, the broker-dealer repeatedly failed to deliver the securities in which the customer held short positions.
Joshua Newville Discusses Amendments to Rules Governing SEC Administrative Proceedings with Compliance Week
By Edward Canter & Tanya Dmitronow on
Last month, the SEC announced that it had adopted amendments updating the rules of practice governing its in-house administrative proceedings. On August 9, 2016, Compliance Week published an article on the recently-adopted amendments, entitled, SEC modifies administrative proceedings, but did it go far enough? The article features insights from Proskauer partner Joshua Newville, who discusses whether the amendments sufficiently address the SEC’s perceived “home-field advantage” in administrative proceedings.