Compliance Bricks and Mortar – Compliance Building

Compliance Bricks and Mortar for May 17

These are some of the compliance-related stories that caught my attention this week.

The Board Member’s Oversight of AI Risk – Moving from Middle to Modern English

By Sean Dowd, Rich Kando, and Chris Crovatto, AlixPartners LLP
Harvard Law School Forum on Corporate Governance

Risk assessments take on many forms, but there are three critical components of a risk assessment that, when consistently applied, help to compartmentalize a company’s often highly complex risk environment and measure progress. A risk assessment requires (1) the identification of the inherent risks present within a company’s operations, in this case a company’s GenAI program and its use case, (2) the effectiveness of a company’s existing safeguards in addressing those inherent risks, and (3) the remaining residual risks after the application of those safeguards.

PCAOB Adopts New Quality Control and Auditor Responsibility Standards

by David Lynn
The Corporate Counsel .net

On Monday, the PCAOB adopted two new standards. First, the PCAOB adopted a new audit quality control standard, replacing the existing AICPA standard that pre-dated the creation of the PCAOB. The new standard requires all PCAOB registered firms to identify their specific risks and design a quality control system that includes policies and procedures to address those risks.

How Bank Regulation and Supervision Can Weaken Financial Stability

By Hamid Mehran and Chester Spatt
The CLS Blue Sky Blog

We argue that bank regulation and supervision interfere with pricing risk by creating opacity. Given that market disclosures enhance the efforts of supervisors, and vice versa, more disclosure could enhance financial stability (see Spatt, 2010)[1]. In addition, we believe that disclosure would provide information on the competence and performance of regulators and supervisors (reducing adverse selection about regulators) and increase their incentives (reducing moral hazard). This would make capital markets more effective in addressing future banking problems and reducing reliance on bank regulators who have arguably failed the public. We question the value of withholding vast amounts of banks’ privileged information and argue that, although this unique regulatory practice has a long history, it is not ethical in the context of fair treatment of investors in public entities. Indeed, firms are required under the securities laws to disclose material nonpublic information, at least when they raise capital.

CFPB Survives Another Attack

Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited __ US ___ (2023)

The Bureau’s funding statute satisfies the requirements of the Appropriations Clause. The statute authorizes the Bureau to draw public funds from a particular source—“the combined earnings of the Federal Reserve System”— in an amount not exceeding an inflationadjusted cap. 12 U. S. C. §§5497(a)(1), (2)(A)–(B). And, it specifies the objects for which the Bureau can use those funds—to “pay the expenses of the Bureau in carrying out its duties and responsibilities.” §5497(c)(1). The Bureau’s funding mechanism also fits comfortably within the historical appropriations practice described above. P. 15– 16.

Compliance Bricks and Mortar for May 10

These are some compliance-related stories that recently caught my attention.

SEC Grants $2.4 Million Whistleblower Award to Compliance Official

by Geoff Schweller
Whistleblower Network News

The SEC order further clarifies that while the whistleblower learned of the misconduct in a role where their principal duties involve compliance or internal audit responsibilities, they were eligible for an award because “Claimant reported the information internally to Claimant’s supervisor and to the Chief Compliance Officer or its equivalent, and then waited at least 120 days to report the information to the Commission.”

SEC Rule 240.21F-4(b)(4)(iii)(B) provides for this 120-exception for compliance and audit whistleblowers.

The SEC Whistleblower Program had a record setting year in the 2023 Fiscal Year. The program issued nearly $600 million in whistleblower awards, the most ever in a fiscal year, including a $279 million award, the single largest award in program history. The whistleblower program also received a record 18,000 whistleblower tips over the course of the fiscal year.

Many Places Still Have Not Recovered from the Pandemic Recession

by Jaison R. Abel, Richard Deitz, Jonathan Hastings, and Joelle Scally
Liberty Street Economics

Employment fell nearly 15 percent in the United States between February 2020 and April 2020—a shockingly large decline in such a short period of time. The country had dug itself out of this massive hole by the summer of 2022, recovering all of the jobs that were lost, and employment is now nearly 4 percent above pre-pandemic levels. As the map below shows, however, the recovery has been uneven and remains incomplete in many places. Indeed, while most metro areas have recouped the jobs that were lost during the recession (shown as blue dots), more than 25 percent still have not (shown as red dots). Most of these areas are concentrated in the Rust Belt along the Great Lakes, though clusters are present in parts of the South—Louisiana in particular—as well as in California, Oregon, and Hawaii. In fact, employment is still more than 5 percent below pre-pandemic levels in New Orleans, and more than 3 percent below in Honolulu and San Francisco. Likewise, sizable job shortfalls remain in Cleveland, Detroit, and Pittsburgh. At the other end of the spectrum, employment in fast-growing parts of the country such as Austin, Boise, Phoenix, Raleigh, Charleston, and Sarasota is now more than 10 percent above pre-pandemic levels.

Regulator Explores Naming Companies Tied to Auditing Deficiencies Amid Investor Pushback

By Mark Maurer
The Wall Street Journal

“That’s an issue that we have definitely heard, and it’s under consideration,” Public Company Accounting Oversight Board Chair Erica Williams told The Wall Street Journal, referring to investor feedback. “There have been previous boards that have focused on that issue, and so we’re looking at the work that they’ve done there.”

PCAOB staff are looking into this issue as it has for years under previous boards, Williams said. No formal consideration is under way, meaning the staff could recommend the issue be added to the agenda or drafted as a proposal for the board to vote on, but hasn’t yet, she said.

Behind Nigeria’s Arrest of Binance Employee, Claims of a Bribe Request

By David Yaffe-Bellany and Emily Flitter
The New York Times

On a trip to Nigeria in January, Tigran Gambaryan, a compliance officer for the giant cryptocurrency exchange Binance, received an unsettling message: The company had 48 hours to make a payment of roughly $150 million in crypto.

Mr. Gambaryan, a former U.S. law enforcement agent, understood the message as a request for a bribe from someone in the Nigerian government, according to five people familiar with the matter and messages reviewed by The New York Times. He and a group of his Binance colleagues had just met with Nigerian legislators, who accused the company of tax violations and threatened to arrest its employees.

FTX Customers Poised to Recover All Funds Lost in Collapse

By David Yaffe-Bellany
The New York Times

But the recoveries come with a caveat. The amount owed to customers was calculated based on the value of their holdings at the time of FTX’s bankruptcy in November 2022. That means customers won’t reap the benefits of a recent surge in the crypto market that sent the price of Bitcoin to a record high. A customer who lost one Bitcoin when FTX imploded, for example, would be entitled to less than $20,000, even though a Bitcoin is now worth more than $60,000.

Compliance Bricks and Mortar for April 26

I haven’t published one of these in a while. Here are a bunch of compliance-related stories that recently caught my attention.

In Silicon Valley, You Can Be Worth Billions and It’s Not Enough
by David Streitfeld in The New York Times

Twenty one years later, Mr. Bechtolsheim may have seized a different kind of opportunity. He got a phone call about the imminent sale of a tech company and allegedly traded on the confidential information, according to charges filed by the Securities and Exchange Commission. The profit for a few minutes of work: $415,726.

Two SEC Lawyers Resign After Agency Censured for Abuse of Power in Crypto Case
By Austin Weinstein in Bloomberg

But the asset freeze was reversed after Shelby found that the SEC may have made “materially false and misleading representations.” The judge would go on to sanction the SEC for “gross abuse of the power entrusted to it by Congress” and ordered the agency to pay some of DEBT Box’s attorney’s fees.

Biden-Harris administration announces rule to protect retirement savers’ interests by updating investment advice fiduciary definition

The Biden-Harris administration announced today that the U.S. Department of Labor has finalized its Retirement Security Rule to protect the millions of workers who are saving for retirement diligently and rely on advice from trusted professionals on how to invest their savings. This final rule will achieve this by updating the definition of an investment advice fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code.

The final rule and related amended prohibited transaction exemptions require trusted investment advice providers to give prudent, loyal, honest advice free from overcharges. These fiduciaries must adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests — financial or otherwise — at the retirement savers’ expense. Under the final rule and amended exemptions, financial institutions overseeing investment advice providers must have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines.

Supreme Court Rejects Securities Lawsuit Based On “Pure Omission” From SEC Filings
By William M. Jay , Daniel Roeser, Douglas H. Flaum, Jesse Lempel
Goodwin Procter

In a narrow but potentially significant decision, the Supreme Court has held that securities-fraud plaintiffs cannot recover based on a “pure omission” from a company’s public statements under the most common legal basis for private securities lawsuits, the SEC’s Rule 10b-5(b). The Court’s unanimous April 12 decision in Macquarie Infrastructure Corp. v. Moab Partners L.P. wipes out precedent from the Second Circuit that potentially made any omission from the “Management’s Discussion & Analysis” (MD&A) section of periodic reports filed under the federal securities laws actionable.

Compliance Bricks and Mortar for May 13

These are some compliance stories that recently caught my attention.

Coinbase earnings were bad. Worse still, the crypto exchange is now warning that bankruptcy could wipe out user funds
By Nicholas Gordon

Coinbase said in its earnings report Tuesday that it holds $256 billion in both fiat currencies and cryptocurrencies on behalf of its customers. Yet the exchange noted that in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.

Elon Musk’s Belated Disclosure of Twitter Stake Triggers Regulators’ Probes
By Dave Michaels

The Securities and Exchange Commission is probing Mr. Musk’s tardy submission of a public form that investors must file when they buy more than 5% of a company’s shares, the people said. The disclosure functions as an early sign to shareholders and companies that a significant investor could seek to control or influence a company.
The Tesla Inc. chief executive made his filing on April 4, at least 10 days after his stake surpassed the trigger point for disclosure. Mr. Musk hasn’t publicly explained why he didn’t file in a timely manner.

Federal Reserve Board issues enforcement action with former employee of Deutsche Bank

Romero altered the proposed annual base salary in an offer letter he received from a competing financial institution, and provided that offer letter containing the altered salary to the Bank in an effort to increase his annual base salary; …
[T]he Bank in December 2018 matched the altered salary from the competing financial institution and increased Romero’s annual base salary by approximately $28,000….

FTC Takes Action Against Lions Not Sheep and Owner for Slapping Bogus Made in USA Labels on Clothing Imported from China

Utah-based Lions Not Sheep is an apparel company that sells t-shirts, sweatshirts, jackets, and sweaters on their own website as well as through Amazon and Etsy. The company and its owner Whalen heavily marketed it through social media channels, claiming that it would “show people it’s possible to live your life as a LION, Not a sheep.” Their Made in USA claims online and on product labels included “Made in the USA,” “Made in America,” “Are your products USA Made?” “100% AMERICAN MADE,” and “BEST DAMN AMERICAN MADE GEAR ON THE PLANET.” In most cases, the products advertised using these claims consist of wholly imported shirts and hats with limited finishing work performed in the United States.

Compliance Bricks and Mortar for May 6

These are some compliance-related stories that recently caught my attention.

A Best Lawyers List Is Suing Another Best Lawyers List
By Jacob Gershman

[The New Jersey Supreme Court-appointed committee on attorney advertising] cautioned New Jersey attorneys against touting dubious distinctions. While lawyers in the state may promote their inclusion in lawyer directories like “Super Lawyers” or “Best Lawyers,” they may not advertise themselves as a “super lawyer” or the “best lawyer.” An attorney can still sip coffee from a “World’s Greatest Lawyer” mug like the Saul Goodman character on “Better Call Saul,” according to the advertising committee’s chairman.

SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit

Since its creation in 2017, the unit has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion. The expanded Crypto Assets and Cyber Unit will leverage the agency’s expertise to ensure investors are protected in the crypto markets….

The SEC’s New Risk Alert Warns about the Use of Alternative Data
by Andrew J. Ceresney, Avi Gesser, Julie M. Riewe, Kristin A. Snyder, Jonathan R. Tuttle, Charu A. Chandrasekhar, and Mengyi Xu

The Risk Alert should be considered along with the SEC’s September 2021 enforcement action against alternative data provider App Annie and EXAMS’ recent statement in its 2022 Priorities that it plans to scrutinize advisers’ use of alternative data in their business and investment decision-making processes. When viewed together, these actions demonstrate the agency’s increasing scrutiny of the usage of alternative data for securities trading and the potential that such data may contain MNPI. As discussed in our blog post on the case, the SEC found that alternative data provider App Annie made material misrepresentations and omissions about its policies and procedures for handling alternative data (in that case, data on companies’ mobile app usage) and failed to implement its policies and procedures involving such data.

The pandemic’s true death toll
The Economist

“How many people have died because of the covid-19 pandemic? The answer depends both on the data available, and on how you define “because”. Many people who die while infected with SARS-CoV-2 are never tested for it, and do not enter the official totals. Conversely, some people whose deaths have been attributed to covid-19 had other ailments that might have ended their lives on a similar timeframe anyway. And what about people who died of preventable causes during the pandemic, because hospitals full of covid-19 patients could not treat them? If such cases count, they must be offset by deaths that did not occur but would have in normal times, such as those caused by flu or air pollution.”
“Although the official number of deaths caused by covid-19 is now 6.2m, our single best estimate is that the actual toll is 21.3m people. We find that there is a 95% chance that the true value lies between 14.7m and 25m additional deaths.”

Compliance Bricks and Mortar for April 29

Postings have been few and far between. Work remains busy. Compliance requirements only increase. My non-work activities have kept me from writing. Of course I’ve been doing a lot of bicycle riding, mostly in preparation for the Pan Mass Challenge. I’m serving on my city’s Historical Commission. I joined the board of directors of MassBike, the state-wide cycling advocacy and education non-profit.

Here are a few stories that recently caught my attention.

Top 5 SEC Enforcement Developments
by Michael D. Birnbaum, Jina Choi, and Haimavatha V. Marlier, of Morrison & Foerster LLP

Proposed Rules Changes on Cybersecurity
Proposed Rules Changes on Climate-Related Disclosures
Proposed Rule Changes for SPACs
Guidance for Lawyers and CCOs Acting as Gatekeepers
Ripple Executives Must Face Charges, but Key Defense Still in Play

Archegos founder Bill Hwang indicted for fraud; chief risk officer pleads guilty
By Jaclyn Jaeger

One example specifically cited was Archegos’s position in ViacomCBS stock. At one point, Hwang effectively controlled more than 50 percent of the freely trading shares of ViacomCBS, which nobody outside Archegos knew about, according to the Department of Justice. How much the ViacomCBS position constituted Archegos’s capital was often misrepresented on calls with risk personnel from counterparties, according to the SEC, which noted the figure at more than 60 percent as of January 2021.

Elon Musk’s Early Twitter Purchase Under FTC Scrutiny
By Josh Sisco and Jessica Toonkel

The Federal Trade Commission recently opened an inquiry into whether Musk failed to comply with an antitrust reporting requirement as he amassed his initial 9.1% stake in Twitter between the end of January and the beginning of April, The Information has learned. At the heart of the inquiry is whether Musk was initially buying as someone who wanted to influence Twitter management or whether he saw himself as more of a passive shareholder. Notably, Musk’s initial filing with the Securities and Exchange Commission categorized his purchase as a passive stake—which immediately raised questions given his public comments about how Twitter is run.

“The Name’s Bond:” Remarks at City Week
by Chair Gary Gensler

The fixed income markets may not, on the surface, seem like the most cinematic part of the financial system. There are no “meme” bonds (at least, not yet). The nightly news is more likely to focus on stocks.
And yet, bonds are far from the “dullest” market in the world. They’re incredibly important — to individuals, companies, and governments in the U.S. and around the world. Fixed income markets, particularly government securities, money markets, and repurchase agreements (“repos”), are integral to how central banks around the globe administer monetary policy. As individual investors start to approach retirement, they often turn to fixed income as a lower-risk investment.

And some cycling content:
Homestretch
The Homestretch Foundation seeks to close the gender pay gap for women endurance athletes and provide them with training, mentorship, and a community in which they can excel.

Compliance Bricks and Mortar for September 17

Back blogging on a regular basis for the week. Hoping to keep it up. These are some other compliance-related stories that recently caught my attention.

The Scammer Threat to Your Hotline
By Ted Banks
SCCE’s The Compliance & Ethics Blog

Several of the companies that originally received the fake report have now received a message from one Ofir Gefen, who purports to be a Ph.D. candidate at the National University of Singapore. The messages were, according to Gefen’s email, part of a study to test response times of public companies based on whether the hotline call related to conduct that might benefit the company (e.g., bribery) or the language in the report. Gefen said “Once the claim was made, we’ve only recorded your initial response and did not pursue the matter any further. Thereby interfering with your day-to-day business as little as possible.” He admitted that this study involved a deception, and that there were no real people involved. He tracked response times, and then said (to reassure the companies that received the message) that all identifiable information would be scrubbed, and then the data would be uploaded to Amazon Mechanical Turk (MTurk), which I had never heard of before.
https://complianceandethics.org/the-scammer-threat-to-your-hotline-updated/

Update on Jailed Compliance Officer
By Matt Kelly
Radical Compliance

We have an update on Samuel Bickett, the corporate compliance officer jailed in Hong Kong on trumped-up charges that he assaulted a police officer. He is currently appealing his 18-week prison sentence, and spending the rest of his time helping other inmates he met during an early stint in Hong Kong’s maximum-security prison.
Bickett, you might recall, was sentenced in July on charges that he assaulted a plainclothes police officer in December 2019 while walking through a Hong Kong subway station. One problem with that case, however: the police officer was beating a teen-aged boy participating in pro-democracy protests, and never identified himself as a police officer despite others repeatedly asking whether he was.
https://www.radicalcompliance.com/2021/09/14/update-on-jailed-compliance-officer/

The Economics of Crypto Funds
By Paul P. Momtaz
The CLS Blue Sky Blog

The most striking finding is that crypto funds underperform the market, no matter the benchmark (equally-, value-, and liquidity-weighted crypto market benchmarks). For example, relative to the equally-weighted market benchmark, crypto funds underperform by 21 percent per year. This means that investors are on average better off if they invest in either Bitcoin, Ether, or both.The result is striking because crypto funds underperform the market even before fees. Considering that most of the funds charge investors substantial fees (a performance fee of 20 percent on the profits and a management fee of 2 percent on the assets under management are typical), the underperformance is even more pronounced.
https://clsbluesky.law.columbia.edu/2021/09/15/the-economics-of-crypto-funds/

Del. Court Substantially Denies Boeing Duty of Oversight Claim Dismissal Motion
By Kevin LaCroix
The D&O Diary

Of particular interest is Vice Chancellor Zurn’s conclusion that the plaintiffs had sufficiently alleged scienter — that is, not only that the directors acted inconsistently with their fiduciary duties, but they also “knew of their shortcomings.” Zurn noted that in Marchand the Delaware Supreme Court inferred scienter from the numerous oversight shortcomings alleged; Zurn said that “those allegations support an inference of scienter [in this case] as well.” Zurn added further that no inference is needed in this case, in light of the board’s own words showing that “directors knew the Board should have had structures in place to receive and consider safety information.” Zurn quoted from emails sent after the Ethiopian Air crash, in which the need for Board reporting on safety issues; she also referred to numerous public statements in which the Board was “crowing” about “taking specific actions to monitor safety that it did not actually perform.” These statements “evidence that at the least [the company’s new CEO and board chair] knew what the Company should have been doing all along.”
https://www.dandodiary.com/2021/09/articles/shareholders-derivative-litigation/del-court-substantially-denies-boeing-duty-of-oversight-claim-dismissal-motion/

Must A Corporation Have A Physical Location?
By Keith Paul Bishop
California Corporate & Securities Law

When it comes to corporations, California rejects the possibility of a corporation without a “there”. All California corporations and foreign corporations registering to transact intrastate business in California must annually file a Statement of Information (Form SI-550). Item 3a of the Statement requires disclosure of the corporation’s “complete street address, city, state and zip code of the corporation’s principal executive office”. Lest there be any doubt, the Secretary of State’s instructions state that the address must be a “physical address” and prohibit a P.O. Box address or an “in care of” address.
https://www.calcorporatelaw.com/must-a-corporation-have-a-physical-location

Former employer of ‘Roaring Kitty,’ who pumped up GameStop, fined for lack of oversight.
by Matt Phillips
The New York Times

The insurer MassMutual will pay a $4 million fine to Massachusetts securities regulators as part of a settlement involving the conduct of Keith Gill, a former employee and online trader known as “Roaring Kitty” whose relentless cheerleading for shares of GameStop was at the heart of the meme stock mania earlier this year.
https://www.nytimes.com/2021/09/16/business/roaring-kitty-gamestop-massmutual-settlement.html

Compliance Bricks and Mortar for September 10

Return Time.
Back to the office.
Back to school for the kids.
And back to blogging more regularly.

These are some of the compliance-related stories that recently caught my attention.

In Silicon Valley, Criminal Prosecutors See No Evil
by David Stretifeld
The New York Times

Federal prosecutors in Northern California took on only 57 white-collar crime cases in the 2020 fiscal year, down from 94 in 2019, according to researchers. Although 2021 is likely to show a rebound, the total will still be far below the heyday of prosecutorial action in 1995, when 350 cases were brought.
https://www.nytimes.com/2021/09/07/technology/in-silicon-valley-criminal-prosecutors-see-no-evil.html

Debevoise & Plimpton on the Latest Round of SEC Cybersecurity Enforcement Actions
By Avi Gesser, James Pastore and Mengyi Xu
The CLS Blue Sky Blog

On August 30, 2021, the SEC filed settled enforcement actions against three groups of broker-dealers and investment advisers for failing to protect confidential customer information in violation of Rule 30(a) of Regulation S-P (the “Safeguards Rule” or “Rule”). One group of the entities was also found to have violated Section 206(4) of the Advisers Act and Rule 206(4)-7, by allegedly providing misleading information in its breach notification to customers. These actions, which were announced just two weeks after the SEC imposed a $1 million civil penalty for an issuer’s allegedly misleading data breach disclosures in connection with a public company’s filings, demonstrate the agency’s increased efforts to enforce its cyber priorities, as we noted in July 2021 with the First American settlement.
https://clsbluesky.law.columbia.edu/2021/09/07/debevoise-plimpton-on-the-latest-round-of-sec-cybersecurity-enforcement-actions

Madoff Victims Get Second Crack at Citigroup’s $343 Million
By Bob Van Voris
Bloomberg

The U.S. Court of Appeals in New York on Monday reinstated a suit against Citi by Irving Picard, the trustee charged with recovering money for Madoff’s victims, over funds transferred to the bank. Picard claimed Citi failed to act on red flags concerning Madoff, but a bankruptcy court dismissed the suit, finding the trustee had not shown the bank acted with “willful blindness” to possible fraud.
The appeals court said “willful blindness” was the wrong standard to apply and the burden of proof shouldn’t have been on Picard. The ruling revived similar claims for $213 million from Legacy Capital Ltd., a British Virgin Islands corporation that invested solely with Madoff, and a $6.6 million claim against Khronos LLC, which provided accounting services to Legacy.
https://www.bloomberg.com/news/articles/2021-08-30/madoff-victims-get-second-crack-at-citigroup-s-343-million?

Bitcoin Uses More Electricity Than Many Countries. How Is That Possible?
By Jon Huang, Claire O’Neill and Hiroko Tabuchi
Illustrations by Eliana Rodgers
The New York Times

[C]onsider this: The process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million.
That usage, which is close to half-a-percent of all the electricity consumed in the world, has increased about tenfold in just the past five years.
https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html

Compliance Bricks and Mortar for April 30

These are some of the compliance-related stories that recently caught my attention.

The Bizarre Case of Snowden and a Get-Rich-Quick Real Estate Investing Conference
Jack Poulson
Vice.com

Edward Snowden joined an online “elite real estate investment club” Saturday afternoon, spoke for several minutes about whistleblowing, called out one of the hosts for allegedly running a Ponzi scheme, then logged out in one of the more bizarre online conferences in recent memory.
https://www.vice.com/en/article/epndnz/the-bizarre-case-of-snowden-and-a-get-rich-quick-real-estate-investing-conference

Bitcoin, We Have a Problem
Matt Kelly
Radical Compliance

To be clear, Tesla made no inaccurate financial statements with this maneuver. But it did play fast and loose with a highly volatile asset (bitcoin) that gave the company a nice boost to the bottom line. Cynics would say Tesla came close to earnings management: it could see the value of bitcoin appreciating, and knew how much the company could sell to make up for any shortfalls that might exist on the operating side.

Even if the price of bitcoin fell, Tesla still could have dumped the asset, and then booked the loss for a credit on tax liability. Heads it wins one way; tails it wins another.
https://www.radicalcompliance.com/2021/04/27/bitcoin-we-have-a-problem/

FinCEN Commences Rulemaking Process for Implementation of Corporate Transparency Act Requiring Disclosure of Beneficial Ownership Information
Schulte Roth & Zabel LLP

On April 5, 2021, the Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury (“FinCEN” and “Treasury,” respectively) issued an advance notice of proposed rulemaking (“ANPRM”) beginning the process of implementing regulations under the Corporate Transparency Act (“CTA”). Enacted by Congress on Dec. 31, 2020, as part of the National Defense Authorization Act, the CTA requires certain companies created or registered to do business in the United States (each, a “Reporting Company”) to report certain identifying information, such as beneficial owners of 25% or more and certain control persons, directly to FinCEN. That information is to be held in a non-public database maintained by FinCEN and will be shared with law enforcement and federal regulators, among others. The reporting obligations discussed herein will only take effect upon the promulgation of final regulations by FinCEN, which FinCEN is required to issue by Jan. 1, 2022. The ANPRM is the first step in this rulemaking process and requests public comment on numerous questions relevant to the implementation of the CTA. Comments are due May 5, 2021.
https://www.srz.com/resources/fincen-commences-rulemaking-process-for-implementation-of.html

A rising actor, fake HBO deals and one of Hollywood’s most audacious Ponzi schemes
Michael Finnegan
Los Angeles Times

“This is the goose that lays the golden egg guys, lets just hope they keep coming month after month,” Yeghnazary wrote, suggesting they “ride this baby out as long as we can.” He brushed off Russell’s annoyance at Horwitz for refusing to let them see his business records.
https://www.latimes.com/california/story/2021-04-23/zachary-horwitz-hollywood-film-ponzi-scheme

New SEC Enforcement Director Alex Oh Resigns, Agency Says
Dave Michaels
Wall Street Journal

The new enforcement chief for the Securities and Exchange Commission resigned after just a few days on the job, the agency said Wednesday, following a judge’s questioning of her conduct in a lawsuit involving Exxon Mobil Corp.
https://www.wsj.com/articles/new-sec-enforcement-director-alex-oh-resigns-agency-says-11619644474

Compliance Bricks and Mortar for April 23

These are some of the compliance-related stories that recently caught my attention.

Alex Oh Named SEC Director of Enforcement

Washington D.C., April 22, 2021 — The Securities and Exchange Commission today announced that Alex Oh has been appointed Director of the Division of Enforcement. Oh was most recently a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP and co-chair of the law firm’s Anti-Corruption & FCPA Practice Group. She was previously an Assistant U.S. Attorney in the Criminal Division of the U.S. Attorney’s Office for the Southern District of New York, where she was a member of the Securities & Commodities Fraud Task Force and the Major Crimes Unit.

Wirecard employees removed millions in cash using shopping bags
Olaf Storbeck
Financial Times

The practice started as early as 2012, and six-digit amounts of banknotes were often moved in Aldi and Lidl plastic bags, former employees told the police. The total amount, the current whereabouts of the cash and the purpose of removing it from the building are unclear. Wirecard, whose main business was processing payments for merchants, owned its own bank but did not have branches. As demand for cash grew over time, Wirecard Bank bought a safe which was located in the group’s headquarters in a Munich suburb.
https://www.ft.com/content/31a8ed93-f602-47f0-9120-4b4f152ec7bc

Former Goldman Analyst Barred by Finra for Insider Trading
Bloomberg Law

Maguire bought shares in two companies through undisclosed accounts after seeing internal emails that showed the analyst covering the stocks was raising his ratings from “neutral” to “buy,” according to a Tuesday statement from the Financial Industry Regulatory Authority. Maguire made the purchases in April and June 2020, after the upgrades were approved internally but before research reports announcing the changes were published.
https://news.bloomberglaw.com/securities-law/ex-goldman-research-analyst-barred-by-finra-for-insider-trading

Petitioner asks SEC to clarify when NFTs are securities, recommends NFT rulemaking
John Filar Atwood
Jim Hamilton’s World of Securities Regulation

Like initial coin offerings (ICOs) before them, non-fungible tokens (NFTs) have grown in popularity very quickly, and Arkonis Capital believes it is now time for the SEC to step in and provide guidance on whether NFTs are securities. In a rulemaking petition, Arkonis said that a concept release on how to regulate NFTs is a meaningful first step in providing guidance, but that it would only prove beneficial if it is followed by an SEC rulemaking on the regulation of NFTs.
https://jimhamiltonblog.blogspot.com/2021/04/petitioner-asks-sec-to-clarify-when.html

The Flu Vanished During Covid. What Will Its Return Look Like?
Keith Collins
New York Times