Annie Kong’s Post

The U.S. Securities and Exchange Commission ordered $8.2 billion in financial remedies in fiscal year 2024, the most in the agency’s history, the SEC announced Friday. The $8.2 billion figure includes $6.1 billion in disgorgement and prejudgment interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record, the SEC stated in its report for the fiscal year, which ended Sept. 30. The commission’s 583 enforcement actions marked a 26% drop from fiscal year 2023, the agency added. “The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable,” SEC Chair Gary Gensler in a statement. “As demonstrated by this year’s results, the division helps promote the integrity of our capital markets to benefit investors and issuers alike.” More than $4.5 billion in remedies were ordered after a jury in the U.S. District Court for the Southern District of New York jury found cryptocurrency company Terraform Labs and its founder Do Kwon liable for civil fraud in April. That was the most money ever obtained by the SEC following a trial, the commission said. As part of Terraform’s bankruptcy agreement, the SEC will be paid only after Terraform covers losses claimed by its investors. An SEC spokesperson said the agency does not know how much of the $4.5 billion the agency will recover but “expect it to be substantial.” 𝗙𝘂𝗹𝗹 𝘀𝘁𝗼𝗿𝘆: https://lnkd.in/gPKHPhcn

The U.S. Securities and Exchange Commission ordered $8.2 billion in financial remedies in fiscal year 2024, the most in the agency’s history, the SEC announced Friday. The $8.2 billion figure includes $6.1 billion in disgorgement and prejudgment interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record, the SEC stated in its report for the fiscal year, which ended Sept. 30. The commission’s 583 enforcement actions marked a 26% drop from fiscal year 2023, the agency added. More than $4.5 billion in remedies were ordered after a jury in the U.S. District Court for the Southern District of New York jury found cryptocurrency company Terraform Labs and its founder Do Kwon liable for civil fraud in April. That was the most money ever obtained by the SEC following a trial, the commission said. As part of Terraform’s bankruptcy agreement, the SEC will be paid only after Terraform covers losses claimed by its investors. An SEC spokesperson said the agency does not know how much of the $4.5 billion the agency will recover but “expect it to be substantial.” The SEC also said it distributed $345 million to harmed investors in fiscal year 2024 and obtained orders barring 124 people from serving as officers and directors of public companies, the second-highest amount in a decade. The highest was 133 people in fiscal year 2023. 𝗙𝘂𝗹𝗹 𝘀𝘁𝗼𝗿𝘆: https://lnkd.in/e-DmjK3f

Today, the US House of Representatives voted 228-182 to pass a measure aimed at overturning a controversial Securities and Exchange Commission bulletin that establishes certain accounting standards for firms that custody crypto. The SEC bulletin requires firms that custody crypto to record customer crypto holdings as liabilities on their balance sheets potentially making it cost prohibitive for banks to safeguard digital assets. In other words, SAB 121 created capital requirements that force banks to carry cash 1:1 w/ client crypto held in custody. Even as the measure passed, President Biden issued a statement of administration policy supporting the SEC measure and promising a veto if the bill made it to his desk. The White House said that "limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto-assets would introduce substantial financial instability and market uncertainty." Rep. Mike Flood, R-Neb., who introduced the resolution alongside Rep. Wiley Nickel, D-N.C. earlier this year, said the bulletin "upends custodial practice for banks" and keeps banks out of the market." There is even more nuance at play here than usual as when an agency rule is reversed under the Congressional Review Act, it's not only erased, but anything similar is forever blocked from future implementation. The White House pointed out this nuance in its statement. The bill now heads to the Senate.

☢️ SEC Seeks to Dismiss Kraken’s Three Key Defenses in U.S. Lawsuit -- The Securities and Exchange Commission (SEC) has called Kraken’s defenses “legally untenable” and asked for them to be dismissed. -- The lawsuit against the exchange was filed in November 2023. The U.S. Securities and Exchange Commission (SEC) has asked the Northern District Court of California to dismiss three defenses raised by Kraken in response to allegations that the crypto exchange is engaging in illegal activity. In a motion filed on November 5, the regulator rejected Kraken’s claims regarding a lack of clarity about securities laws and how they apply to virtual assets, as well as allegations that the exchange was not properly notified that its actions constituted a violation of securities law. It also asks the court to reject Kraken’s “fundamental questions doctrine” defense. The doctrine is a legal principle established by the Supreme Court that states that agencies should not expand their regulatory powers without explicit authorization from Congress. The SEC sued Kraken in November 2023 for operating the platform as an unregistered securities exchange, broker, dealer, and clearing agency. The SEC said it believed that since at least September 2018, Kraken had illegally earned hundreds of millions of dollars by facilitating the purchase and sale of crypto securities. Kraken filed a motion to dismiss, which was denied in August. “In denying Kraken’s motion to dismiss, the court rejected Kraken’s contention that the fundamental questions doctrine precludes this claim from proceeding and also held that the definition of an ‘investment contract’ under the Exchange Act of 1934 is well-established law,” the SEC said in its motion. According to the filing, Kraken “has now filed multiple requests for Histories, seeking voluminous sets of documents and lengthy admissions related to these legally unsound defenses.” “The court should reject these defenses in order to preserve the proper scope of the Histories, narrow the scope of summary judgment, conserve judicial and party resources, and prevent Kraken from attempting to re-litigate the same issues at every possible stage of this case.”

The U.S. House Financial Services Committee has advanced a resolution that rejects SEC Staff Accounting Bulletin (SAB) 121, which was issued to help account for crypto assets in SEC custody. The guidance instructs registered entities responsible for safeguarding crypto assets to include a liability and corresponding asset on their balance sheets. But many legislators and banking industry leaders have objected to such rules, saying they would affect custodians’ other regulatory obligations. The House resolution would enable Congress to invoke the Congressional Review Act to overturn SAB 121 through a simple majority vote in the House and Senate (subject to veto by President Biden). Our resource directory offers valuable links to assist in managing various financial and legal aspects of a business or individual: https://bit.ly/3SMrnzb #SEC #CryptoAssets #Congress #Regulations

The U.S. House Financial Services Committee has advanced a resolution that rejects SEC Staff Accounting Bulletin (SAB) 121, which was issued to help account for crypto assets in SEC custody. The guidance instructs registered entities responsible for safeguarding crypto assets to include a liability and corresponding asset on their balance sheets. But many legislators and banking industry leaders have objected to such rules, saying they would affect custodians’ other regulatory obligations. The House resolution would enable Congress to invoke the Congressional Review Act to overturn SAB 121 through a simple majority vote in the House and Senate (subject to veto by President Biden). Our resource directory offers valuable links to assist in managing various financial and legal aspects of a business or individual: https://bit.ly/3SMrnzb #SEC #CryptoAssets #Congress #Regulations

On Tuesday, the SEC brought forth charges against an RIA and its president for failure to disclose loss of control over client crypto assets and multiple breaches of RIA regulatory requirements, resulting in a hefty $425,000 price tag in civil penalties. This recent enforcement action not only underscores the difficulties of digital asset compliance, but most importantly, that the SEC cares about what firms and its employees are doing within the crypto space. Indeed, as the digital asset landscape evolves, so too does regulatory oversight. The SEC is actively policing the intersection of crypto and RIA operations, and it expects RIAs to proactively align their compliance programs within both traditional RIA frameworks and the emerging digital asset space. The alternative, as this case demonstrates, can be costly. Read the Litigation Release here: https://lnkd.in/es6eUV5K #RIACompliance #CryptoRegulation #SECEnforcement

WSJ: "The Securities and Exchange Commission said it collected $8.2 billion in monetary penalties for the fiscal year 2024, the highest amount for the fines in the regulator’s history. The record amount imposed in financial penalties—two-thirds more than the $4.9 billion collected in fiscal year 2023—caps the tenure of agency Chair Gary Gensler, who said he plans to step down in January once President-elect Donald Trump takes office. Just over half of the 2024 total came from a monetary judgment following the SEC’s jury trial win against cryptocurrency company Terraform Labs and its former Chief Executive Do Kwon, after being charged with one of the largest securities frauds in U.S. history.  As the agency’s head, Gensler took a tough stance toward crypto companies. The burgeoning industry has largely celebrated his expected departure from the agency once Trump takes office. The record penalty collection comes despite a decline in the number of cases by the SEC. The regulator took 583 enforcement actions during the year, a 26% decline from the previous year. The SEC also barred 124 individuals from serving as officers and directors of public companies, the second-highest number in a decade. The agency focused on record-keeping violations stemming from off-channel communications, bringing cases that netted more than $600 million in civil penalties against roughly 70 firms.  Another significant financial penalty came from a settlement with Morgan Stanley, which paid $249 million to resolve SEC charges involving the disclosure of confidential information about the sale of large quantities of stock." 

SAB121 is still in effect, but banks and brokerage firms may be able to bypass balance sheet reporting. SAB 121, issued by the SEC, mandates that banks and brokers holding crypto assets for clients must record these assets on their balance sheets as both an asset and a liability. This significantly increases the capital and liquidity requirements for these institutions, making it economically challenging for them to offer crypto custody services. Despite lobbying efforts and a House attempt to overturn it, Staff Accounting Bulletin 121 remains in effect following a presidential veto. But it may not matter. Several large banks have been consulting with the SEC since 2023 and got the go-ahead to bypass balance sheet reporting requirements by implementing robust safeguards. These include ensuring customer assets are protected in case of bankruptcy and establishing internal controls to mitigate legal risks associated with digital assets. The SEC has begun approving these arrangements, allowing banks to offer crypto services without triggering increased capital requirements. In short, we may see more financial institutions getting in the game. For a full Bloomberg Tax article on the topic (with a contribution from yours truly), check the link below!