SEC Publishes Annual Staff Report on Nationally Recognized Statistical Rating Organizations

The Securities and Exchange Commission today published a staff report that provides a summary of the staff’s examinations of nationally recognized statistical rating organizations (NRSROs) and discusses the state of competition, transparency, and…

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Small Business Advisory Committee to Host Meeting to Discuss Alternatives to Traditional Private Company Financing, Private Fund Reforms, and Public Company Investment Research

The Securities and Exchange Commission’s Small Business Capital Formation Advisory Committee today released the agenda for its meeting on Tuesday, Feb. 7. The Committee will discuss alternative approaches to private company financing, the Commission’s…

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SEC Tightens Cryptocurrency Enforcement

The SEC continues to make cryptocurrency-related enforcement a top priority under Chair Gary Gensler, bringing 30 enforcement actions against digital-asset market participants in 2022, up 50% from the 20 actions brought in 2021 and the highest number since 2013, according to a Cornerstone Research report released today.

The report, SEC Cryptocurrency Enforcement: 2022 Update, found that the SEC brought 24 litigation actions in U.S. federal courts and six administrative proceedings in 2022. The number of litigations particularly increased from 14 the previous year. According to the report, which is based on data from Cornerstone Research’s Cryptocurrency Enforcement Database, in 2022 the SEC also issued two delinquent filing orders, two follow-on actions, and one stop order pursuant to Section 8(d) of the Securities Act.

“Under Chair Gensler, the SEC has sharpened its focus on cryptocurrency lending and trading platforms and decentralized finance platforms,” said Simona Mola, the report’s author and a principal at Cornerstone Research. “As Chair Gensler has noted, the ‘runway is getting shorter’ for crypto intermediaries to register with the SEC. This could lead to more enforcement actions coming from the SEC’s Crypto Assets and Cyber Unit, which recently expanded its workforce to investigate securities law violations in the crypto markets.”

In 2022, the SEC charged 79 defendants or respondents in cryptocurrency enforcement actions, of which 56 (71%) were individuals and 23 (29%) were firms. The proportion of enforcement actions charging only individuals has grown under the Gensler administration from nearly 20%, on average, in the 2013‒2020 period to 35% in 2021 and 50% in 2022.

Of the 30 total enforcement actions in 2022, 14 involved initial coin offerings (ICOs), and over half (57%) of these ICO-related actions included a fraud allegation. In addition, the SEC brought first-of-their-kind charges in 2022 in the cryptocurrency space related to insider trading and market manipulation.

“Based on its implementation of the U.S. Supreme Court’s Howey test, the SEC continues to pursue actions alleging that tokens issued in ICO-related unregistered securities offerings were investment contracts subject to SEC regulation and enforcement,” said Abe Chernin, a Cornerstone Research vice president and cohead of the firm’s FinTech practice. “We have observed an increase in assistance to the SEC from outside agencies and organizations during crypto-related investigations under the Gensler administration.”

Since its first cryptocurrency-related enforcement action in 2013 through the end of 2022, the SEC has brought 127 enforcement actions, including 82 litigation actions and 45 administrative proceedings against digital-asset market participants.

Over the same period, the SEC has imposed approximately $2.61 billion in total monetary penalties, of which $242 million were settlements the agency reached in 2022.

Additional Report Highlights

Of the 127 crypto enforcement actions from 2013 through 2022, 59% alleged fraud, 73% alleged an unregistered securities offering violation, and 44% alleged both. Since 2013, 70 cryptocurrency-related enforcement actions (55%) have involved ICOs.

Since 2013, the SEC has received assistance from outside agencies and organizations in 56 actions (44%). The SEC also acknowledged assistance from international authorities and organizations in 21 enforcement actions during the same period.

About 43% of the 82 cryptocurrency enforcement actions litigated in U.S. courts since 2013 occurred in New York, with 29 in the Southern District and six in the Eastern District. The SEC has, however, been increasingly litigating cryptocurrency enforcement actions in other federal courts.

Since 2013, the SEC has issued 20 cryptocurrency-related trading suspension orders and 12 delinquent filing orders, along with a number of subpoenas and follow-on administrative proceedings.

Cornerstone Research’s Cryptocurrency Enforcement Database contains cryptocurrency-related enforcement actions brought by the SEC between January 1, 2013, and December 31, 2022.

About Cornerstone Research

Cornerstone Research provides economic and financial consulting and expert testimony in all phases of litigation and regulatory matters. The firm supports clients with rigorous, objective analysis. Working with an extensive network of leading academics, former regulators, and industry specialists, Cornerstone Research identifies the most qualified experts for every case.

Founded in 1989, Cornerstone Research has always been guided by its core values: commitment to clients, experts, and staff, and to delivering consistently high-quality service. The firm has over 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.

http://www.cornerstone.com

SEC Issues $28 Million Award to Joint Whistleblowers

The Securities and Exchange Commission today announced an award of more than $28 million to joint whistleblowers who provided critical information and assistance in an SEC enforcement action. The joint whistleblowers’ detailed information prompted the…

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SEC Awards Approximately $18 Million to Three Whistleblowers

The Securities and Exchange Commission today announced three awards totaling approximately $18 million to three whistleblowers whose information and assistance led to a successful enforcement action. The first whistleblower provided the SEC with…

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SEC Seeks Candidates for Small Business Capital Formation Advisory Committee

The Securities and Exchange Commission is seeking candidates for appointment to the Small Business Capital Formation Advisory Committee to provide advice and recommendations on Commission rules, regulations, and policy matters relating to small…

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SEC Charges Genesis and Gemini for the Unregistered Offer and Sale of Crypto Asset Securities through the Gemini Earn Lending Program

The Securities and Exchange Commission today charged Genesis Global Capital, LLC and Gemini Trust Company, LLC for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program. Through this…

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SEC Charges Former BlackRock Portfolio Manager with Undisclosed Conflict of Interest

The Securities and Exchange Commission today charged Randy Robertson, a former BlackRock Advisors, LLC portfolio manager, for failing to disclose a conflict of interest arising from his relationship with a film distribution company in which the fund he…

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Non-Compete Agreements Going Away?

Over the years the courts have been limiting, if not outright striking, non-compete agreements which prohibit employees from working in their chosen profession for a period of time or in a geographic area.

Those agreements can be extremely harmful to the employee, and limit competition in the markets. The reality is that employers have an interest in protecting their intellectual property, but that protection can be provided by a carefully drafted confidentiality agreement and non-solicitation agreement, protecting trade secrets and other proprietary information. Banning an employee from working in his or her chosen profession is not necessary.

The FTC has taken up the issue, proposing a ban on non-compete agreements.

The Federal Trade Commission proposed a new rule that would ban employers from imposing noncompetes on their workers, a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.

The FTC is seeking public comment on the proposed rule, which is based on a preliminary finding that noncompetes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.

The FTC press release is online. Forbes’ commentary on the proposed rule is also worth reading.

Mark Astarita represents financial advisors across the country in all aspects of their professional careers, including drafting, and litigating non-compete agreements. Contact him at 212-509-6544 or by email at mja@sallahlaw.com, or visit The Securities Lawyer.

SEC Charges Creator of CoinDeal Crypto Scheme and Seven Others in Connection with $45 Million Fraud

The Securities and Exchange Commission today charged Neil Chandran, Garry Davidson, Michael Glaspie, Amy Mossel, Linda Knott, AEO Publishing Inc, Banner Co-Op, Inc, and BannersGo, LLC for their involvement in a fraudulent investment scheme named CoinDeal…

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