The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
July 23, 2018
UPDATE:Non-Attorney Representatives Involved In FINRA Arbitration Blight (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4090/finra-arbitration-blight/
http://www.brokeandbroker.com/4090/finra-arbitration-blight/
No . . . the issue of non-attorney representatives is not amenable to a simple or quick solution. Corporations may often find it cost-effective and expedient to send a non-lawyer officer to represent the entity during many non-judicial events such as mediation or arbitration. Similarly, competent non-lawyer representatives may offer an affordable and effective alternative for many customers and associated person. And what are we to do about pro se parties and those represented by non-profit organizations such a public interest advocates or law school clinics? On the other hand, how much more discussion and debate is needed about those issues? At some point you fish or cut bait. Just like you enter an order to buy or not . . . or to sell or not. No one ever said making a decision was easy.
https://www.sec.gov/investment/fund-innovation-cryptocurrency-related-holdings
Staff Letter: Dalia Blass, Director, Division of Investment Management, January 18, 2018https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm[W]e appreciate that proponents of cryptocurrencies and related products have identified a range of potential benefits. We are also aware that critics of cryptocurrencies have raised various concerns regarding transparency of information, trading, valuation and other matters related to the nature of the underlying assets. In addition, the innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts. In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the 1940 Act and its rules. To facilitate the start of our dialogue, we have identified below a number of these questions, and we invite you and any interested sponsors to engage with us in detail on these. While we have identified the questions below, we note that the cryptocurrency markets are developing swiftly. Additional questions may arise from these developments.. . .Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. . .
Responses to Staff Letter from:https://www.sec.gov/divisions/investment/van-eck-associates-innovation-cryptocurrency.pdf (excerpt below)Thank you for inviting us to respond to the Staff Letter. In August and December 2017, registration statements for the VanEck Vectors Bitcoin Strategy ETF, a futures-based bitcoin ETF, were filed. While both filings were withdrawn at the Staffs request,2 we remain interested in bringing a futures-based bitcoin ETF to market. In the Staff Letter, you raise a number ofwrn;erns for cryptocurrency and cryptocurrency related investment funds concerning valuation, liquidity, custody, arbitrage, potential manipulation, and other risks. We believe these concerns have appropriate answers which we review below. Moreover, by offering investors exposure to bitcoin through a regulated investment product, we believe the proposed ETF will be consistent with the Securities and Exchange Commission's (the "Commission") mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.https://www.sec.gov/divisions/investment/sifma-amg-innovation-cryptocurrency.pdf (excerpt below)Our membership recognizes the desire of certain registered investment fund sponsors to incorporate blockchain-related digital assets into their portfolios, potentially including certain cryptocurrency assets. Our membership also acknowledges the Division's prudential concerns about investor protection and the concerns recently expressed by the SEC Divisions of Enforcement and Trading and Markets regarding cryptocurrency exchanges.3 As a threshold matter, AMG perceives that many of the questions posed in your letter touch upon the viability of cryptocurrency trading venues as reliable price discovery mechanisms. Although many venues can have the "look and feel" of conventional stock exchanges, they may be opaque in functionality, underlying technology, operations and compliance with applicable laws. Particular concerns have been identified as to regular trading hours, circuit-breaker protections to curb panic-selling and excessive volatility and lack of counterparty risk mechanisms via a central clearing house. Such opacity and other issues also undermine some venues' ability to serve as reliable price discovery mechanisms and present a challenge to registered products trading substantially in cryptocurrencies.https://www.sec.gov/divisions/investment/cboe-global-markets-innovation-cryptocurrency.pdf (extract below):[W]hile cryptocurrency-related holdings do raise a number of unique issues, Cboe firmly believes that such holdings do not require significant revision to the well-established frameworks for evaluation related to valuation, liquidity, custody, arbitrage, and manipulation. Rather, each Cryptocurrency Fund and underlying cryptocurrency-related holdings should be evaluated on a case by case basis in a manner very similar to previous funds and their underlying holdings.
In re: Pending Administrative Proceedings (Order, Securities and Exchange Commission '33 Act Rel. No. 10522; '34 Act Rel. No. 83675; Invest. Adv. Act Rel. No. 4974; Invest. Co. Act Rel. No.33164 / July 20, 2018)
https://www.sec.gov/litigation/opinions/2018/33-10522.pdf [Ed: footnotes omitted]
https://www.sec.gov/litigation/opinions/2018/33-10522.pdf [Ed: footnotes omitted]
On June 21, 2018, we stayed any pending administrative proceeding initiated by an order instituting proceedings that commenced the proceeding and set it for hearing before an administrative law judge, including any such proceeding currently pending before the Commission. Our order stated that the stay "shall remain operative for 30 days or further order of the Commission." We find it prudent to extend the stay for an additional 30 days to August 22, 2018, or further order of the Commission. In any applicable matter pending before an administrative law judge, that judge is directed to issue a notice indicating that the stay has been extended. This order does not preclude the Commission from assigning any proceeding currently pending before an administrative law judge to the Commission itself or to any member of the Commission at any time. . .
24 Defendants Sentenced in Multimillion Dollar India-Based Call Center Scam Targeting U.S. Victims (DOJ Press Release)
https://www.justice.gov/opa/pr/24-defendants-sentenced-multimillion-dollar-india-based-call-center-scam-targeting-us-victims
https://www.justice.gov/opa/pr/24-defendants-sentenced-multimillion-dollar-india-based-call-center-scam-targeting-us-victims
21 members of a massive India-based fraud and money laundering conspiracy that defrauded thousands of U.S. residents of hundreds of millions of dollars were sentenced to up to 20 years in prison pursuant to their guilty pleas. 32 India-based conspirators and five India-based call centers (not yet arraigned) were also indicted for general conspiracy, wire fraud conspiracy, and money laundering conspiracy. As set forth in part in the DOJ Press Release:
According to various admissions made in connection with the defendants' guilty pleas, between 2012 and 2016, the defendants and their conspirators perpetrated a complex fraud and money laundering scheme in which individuals from call centers located in Ahmedabad, India, frequently impersonated officials from the IRS or USCIS in a ruse designed to defraud victims located throughout the United States. Using information obtained from data brokers and other sources, call center operators targeted U.S. victims who were threatened with arrest, imprisonment, fines or deportation if they did not pay alleged monies owed to the government. Victims who agreed to pay the scammers were instructed how to provide payment, including by purchasing stored value cards or wiring money. Once a victim provided payment, the call centers turned to a network of runners based in the United States to liquidate and launder the extorted funds as quickly as possible by purchasing reloadable cards or retrieving wire transfers. In a typical scenario, call centers directed runners to purchase these stored value reloadable cards and transmit the unique card number to India-based co-conspirators who registered the cards using the misappropriated personal identifying information (PII) of U.S. citizens. The India-based co-conspirators then loaded these cards with scam funds obtained from victims. The runners used the stored value cards to purchase money orders that they deposited into the bank account of another person. For their services, the runners would earn a specific fee or a percentage of the funds. Runners also received victims' funds via wire transfers, which were retrieved under fake names and through the use of using false identification documents, direct bank deposits by victims, and Apple iTunes or other gift cards that victims purchased.
Deutsche Bank to Pay Nearly $75 Million for Improper Handling of ADRs (SEC Press Release)
https://www.sec.gov/news/press-release/2018-138
Without admitting or denying the SEC's findings. Deutsche Bank Trust Co. Americas (DBTCA), a depositary bank, and Deutsche Bank Securities Inc. (DBSI), a registered broker-dealer (both of which are U.S.-based subsidiaries of Deutsche Bank AG_ agreed to settle charges of improper handling of "pre-released" American Depositary Receipts (ADRs), which occurs when ADRs are issued without the deposit of foreign shares provided brokers in receipt have an agreement with a depository bank and the broker (or its customer) owns corresponding foreign shares. DBTCA agreed to return over $44.4 million of alleged ill-gotten gains plus $6.6 million in prejudgment interest plus in excess of a $22.2 million penalty. DBSI, agreed to pay $1.1 million in disgorgement and prejudgment interest and a nearly $500,000 penalty. READ the FULL TEXT DBTCA Order and DBSI Order
As set forth in part in the SEC Press Release:
In the order against DBTCA, the SEC found that it improperly provided thousands of pre-released ADRs over a more than five-year period when neither the broker nor its customers had the requisite shares. The order against DBSI found that its policies, procedures, and supervision failed to prevent and detect securities laws violations concerning borrowing and lending pre-released ADRs, involving approximately 850 transactions over more than three years.