Coindawg Founder Arrested For Laundering Proceeds Of Fraudulently Obtained Small Business Administration Loans / Law Enforcement Officers Seized 18 Cryptocurrency ATMs in Texas and Oklahoma that Charles Constant Purchased to Start a Cryptocurrency ATM Business Using Fraudulently Obtained SBA Loans (DOJ Release)
https://www.justice.gov/usao-sdny/pr/coindawg-founder-arrested-laundering-proceeds-fraudulently-obtained-small-business
In the United States District Court for the Southern District of New York, a Complaint was filed charging Charles Riley Constant a/k/a "Chuck Constant with one count of conspiracy to commit money laundering, one count of theft of public money, and one count of interstate receipt of stolen money.https://www.justice.gov/usao-sdny/press-release/file/1575946/download. As alleged in part in the DOJ Release:

CHARLES RILEY CONSTANT, a/k/a “Chuck Constant,” knowingly assisted others involved in a scheme to fraudulently obtain over $1 million in loans from the SBA, which CONSTANT and his co-conspirators laundered through Bitcoin transactions.  The perpetrators of the fraud against the SBA used false identities and non-existent companies to obtain seven Economic Injury Disaster Loans from the SBA — funds that were intended to help small businesses financially harmed by the COVID-19 pandemic.  The loan proceeds were transferred directly from the SBA to a bank account held by C2 LLC, an entity that CONSTANT owned and registered with the U.S. Treasury Department as a money services business.  CONSTANT then used approximately $700,000 of the crime proceeds — a portion of which he routed through a second bank account held by C2 LLC — to purchase Bitcoin from a cryptocurrency exchange headquartered in New York City.  CONSTANT directed the New York-based exchange to distribute the Bitcoin to his co-conspirators.

CONSTANT then stole the remaining $300,000 of fraud proceeds.  CONSTANT transferred $53,000 of the $300,000 to a third bank account held by C2 LLC and an additional $98,300 to an account in CONSTANT’s name at a cryptocurrency exchange headquartered in California.  Beginning in the fall of 2020, CONSTANT used a portion of these fraud proceeds to purchase, among other things, seven cryptocurrency ATMs (“Crypto ATMs”), cryptocurrency, and promotional services to start a cryptocurrency ATM business named “Coindawg LLC.”  CONSTANT used revenue generated by the seven Crypto ATMs to acquire additional Crypto ATMs and more cryptocurrency to expand Coindawg’s operations.  To date, Coindawg has exchanged over $3,000,000 worth of cryptocurrency and charged 15% in transaction fees.  Below is a photograph of one of the Coindawg Crypto ATMs seized by law enforcement in connection with CONSTANT’s arrest:

SEC Charges Three Sales Agents at StraightPath Venture Partners With Fraud and Unregistered Broker Activity
https://www.sec.gov/news/press-release/2023-61
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging charges Scott Hollender, Gabriel Migliano, Jr., and Frank Vecchio with violating antifraud and other provisions of the federal securities laws.

https://www.sec.gov/litigation/complaints/2023/comp-pr2023-61.pdf The Complaint names Relief Defendants GSH Empire Inc. and 21st Century Gold & Silver Inc. As alleged in part in the SEC Release:

[B]etween November 2017 and November 2021, Hollender, Migliano, and Vecchio actively solicited investments for interests in funds that were set up as series LLCs, each of which purported to acquire shares of a single pre-IPO company. The defendants allegedly provided investors with marketing materials, advised investors on the supposed merits of the investments, and received transaction-based compensation, all hallmarks of a broker, despite not being registered as brokers. As alleged in the complaint, defendants collectively solicited at least $13 million in investments from at least 115 investors, and, even though each of the defendants received upfront commissions of approximately 10 percent on investments they successfully solicited, the defendants falsely told investors that there were no upfront fees associated with their investments. According to the complaint, the defendants collectively received at least approximately $3.7 million in transaction-based compensation.

SEC Obtains Final Judgment Against IIG Co-Founder for Engaging in Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25673.htm
In the United States District Court for the Southern District of New York, a Final Consent Judgment was entered against co-founder of International Investment Group ("IIG) / Martin Silver enjoining him from violating the antifraud provisions of the federal securities laws. As alleged in part in the SEC Release:

[F]rom October 2013 to at least July 2018, Silver, defrauded IIG's investment advisory clients by, among other things, grossly overvaluing the assets in IIG's flagship hedge fund. As alleged, the overvaluation of these assets resulted in the fund paying inflated fees to IIG, some of which went to Silver.  The complaint further alleges that Silver falsely reported to investors that certain fake and overvalued loan assets, which IIG sold between funds it advised, were legitimate assets and fairly valued.

The complaint, filed in the U.S. District Court for the Southern District of New York, charges Silver with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Silver, who cooperated with the SEC, consented to a bifurcated settlement, agreeing to be permanently enjoined from violations of the charged provisions, with monetary relief to be determined by the court at a later date upon motion of the Commission.

The final judgment orders disgorgement of $2,306,856, representing Silver's ill-gotten gains, and prejudgment interest of $243,403.98, and that disgorgement shall be deemed satisfied by the restitution order entered against him in the parallel criminal proceeding, United States v. Hu, et al., 20 Cr. 360 (S.D.N.Y.) (AKH). In that proceeding, Silver pleaded guilty and has been sentenced and ordered to pay restitution and forfeit assets.

The SEC previously charged IIG with fraud on November 21, 2019, and revoked IIG's registration as an investment adviser on November 26, 2019. On March 30, 2020, the SEC obtained a final judgment on consent enjoining IIG from violating the antifraud provisions of the federal securities laws and requiring IIG to pay more than $35 million in disgorgement and prejudgment interest. 

Financial Advisor, Financial Planner, NBA Agent, And Previously Convicted Fraudster Charged With Schemes To Defraud Professional Basketball Players / Four Professional Basketball Players Defrauded of Over $13 Million (DOJ Release)
https://www.justice.gov/usao-sdny/pr/financial-advisor-financial-planner-nba-agent-and-previously-convicted-fraudster
-and-
SEC Charges Financial Adviser for Misappropriating More Than $1 Million From Current, Former NBA Players (SEC Release)
https://www.sec.gov/news/press-release/2023-60

In the United States District Court for the Southern District of New York, an Indictment was filed charging Darryl Cohen, Brian Gilder, Charles Briscoe, and Calvin Darden, Jr. with one count of conspiracy to commit wire fraud and one count of wire fraud. Further, Cohen was charged with one count of investment advisor fraud; and Briscoe with one count of aggravated identity theft.
https://www.justice.gov/usao-sdny/press-release/file/1575996/download
As alleged in part in the DOJ Release:

COHEN and GILDER

From at least in or about 2017 through in or about 2020, COHEN, a registered investment adviser, orchestrated a scheme to defraud three different professional basketball player clients (“Athlete-1,” “Athlete-2,” and “Athlete-3,” respectively) of a total of over $5 million by taking advantage of his advisory and fiduciary relationships with those clients.  COHEN conspired with BRIAN GILDER, an independent financial planner whom COHEN encouraged his clients to work with and who assisted in tax preparation for Athletes-1, -2, and -3.

First, COHEN and GILDER fraudulently induced Athletes-1, -2, and -3 to purchase viatical life insurance policies at massive markups. COHEN and GILDER did not disclose that GILDER had arranged for a purported law firm (“Law Firm-1”) that he controlled to purchase the polices and then to sell them to the athletes at markups of 222%, 310%, and 244%, respectively.  Indeed, Law Firm-1 made approximately $4.5 million in profit from the sale of the policies to COHEN and GILDER’s athlete clients.  COHEN and GILDER used a substantial portion of these illicit proceeds to pay their own personal expenses.  In particular: (i) GILDER used approximately $257,479 of the funds to pay off a mortgage he owed; (ii) COHEN used approximately $178,462 of the funds to renovate his home and to perform work on his pool; (iii) COHEN used approximately $67,500 of the funds to pay off his personal credit card bill; and (iv) COHEN transferred approximately $200,000 of the funds to an individual with whom he was in a romantic relationship.

Second, COHEN directed that $500,000 be transferred from the accounts of Athletes-2 and -3 as purported donations to a non-profit organization.  COHEN then used approximately $238,000 of the funds purportedly donated to the non-profit to build athletic training facilities in the backyard of his home.  Athletes-2 and -3 never, in fact, authorized any transfers of their funds to the non-profit organization.  When Athlete-2 confronted COHEN about the donations, COHEN told Athlete-2 in a text message, in substance and in part, that Athlete-2’s money had “[h]elped a lot of future prospects and a lot of underprivileged kids.”  COHEN did not disclose to Athlete-2 that a substantial portion of Athlete-2’s donations had, in fact, been used to build an athletic training facility in COHEN’s backyard.

Third, COHEN and GILDER used a sports agency and another law firm to channel approximately $328,125 of Athlete-2’s money to repay a former professional baseball player (“Athlete-4”), who was a disgruntled client of COHEN’s.  Athlete-4 had expressed concern to COHEN about investments and loans that COHEN made on Athlete‑4’s behalf and demanded to be repaid.  On or about February 19, 2020, in the midst of making the payments of Athlete-2’s money to Athlete-4, COHEN messaged GILDER, “We gotta send [Athlete-4] more to get rid of him.”  Athlete-2 did not authorize the use of funds from his account to repay debts owed by COHEN to Athlete-4. 

BRISCOE and DARDEN, JR.

BRISCOE and DARDEN, JR. also defrauded professional basketball players. BRISCOE was an NBA agent, and DARDEN, JR. had previously pled guilty to wire fraud in the Southern District of New York.

BRISCOE served as the sports agent of a professional basketball player (“Athlete-5”).  Athlete-5 began discussing the possibility of purchasing a professional women’s basketball team (“Team-1”), and BRISCOE introduced Athlete-5 to DARDEN, JR.  Because Athlete-5 was not permitted to purchase Team-1 as an active professional basketball league player, BRISCOE, DARDEN, JR., and a relative of DARDEN, JR., who serves or has served on the boards of multiple public companies (“Relative-1”), discussed with Athlete-5 an arrangement in which Athlete-5 would indirectly purchase Team-1 through a company (“Company-1”) purportedly controlled by Relative-1.  BRISCOE provided Athlete-5 with a slide deck outlining a “vision plan” for the purchase of Team-1 by Company-1.  The “vision plan” claimed, among other things, that Company-1 was led by Relative-1 and was advised by a board including several prominent individuals in sports, entertainment, and corporate America. In truth and in fact, and as BRISCOE and DARDEN, JR. well knew, at least two of those individuals never served as advisors to Company-1.

Between in or about November 2020 and in or about December 2020, Athlete‑5 caused $7 million to be transferred to a bank account controlled by DARDEN, JR.  Athlete-5 understood that these payments were in order for Athlete-5 to purchase and become full owner of Team-1.  In truth and in fact, none of the money Athlete-5 sent went toward the purchase of Team-1, and Athete-5 did not become an owner of Team-1.  Instead, from approximately November 2020 until approximately December 2021, DARDEN, JR. transferred more than $1 million of the funds to BRISCOE.  In addition, DARDEN, JR. retained a substantial portion of the funds for himself and his relatives, sending more than $500,000 to a relative and more than $400,000 to a cryptocurrency exchange for his benefit.  DARDEN, JR. also used some of the funds to pay for luxury goods for himself, including approximately $880,000 to luxury car companies, more than $300,000 to art galleries, and more than $100,000 to purchase a piano, among other things.  DARDEN, JR. also spent in excess of approximately $1 million in connection with purchasing and making improvements to a residence, including, among other things, the addition of a koi pond.

BRISCOE and DARDEN, JR. also worked together to defraud Athlete-2.  BRISCOE, in consultation with COHEN and GILDER, was purportedly building a new sports agency (“Agency-1”) funded by Athlete-2.  BRISCOE convinced Athlete-2 that BRISCOE had signed, through Agency-1, a highly touted athlete preparing for a professional basketball draft (“Athlete-6”).  In fact, Athlete-6 had not signed with BRISCOE or Agency-1.  Rather, BRISCOE forged the signature of Athlete-6 and Athlete-6’s mother on a player-agent contract and sent that forged contract to Athlete-2.  BRISCOE then directed Athlete-2 to transfer $1 million to BRISCOE as a “loan” to Athlete-6 while Athlete-6 prepared for the draft.  In fact, Athlete-6 never had any conversations with BRISCOE or DARDEN, JR. about signing with BRISCOE or about receiving a $1 million loan, and Athlete-6 never received any part of the $1 million loan. Instead, BRISCOE used approximately $306,642 of the funds transferred by Athlete-2 to pay off a debt that BRISCOE had personally incurred and also transferred approximately $544,000 to a bank account controlled by DARDEN, JR.

In the United States District Court for the Southern District of New York, an Indictment was filed charging Darryl Cohen with violating Sections 206(1) and (2) of the Investment Advisers Act of 1940. 
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-60.pdf As alleged in part in the SEC Release:

[F]rom October 2017 through April 2020, Cohen used client funds, without their understanding or authorization, for personal expenditures including to support his son's amateur basketball program, for a home gym, and to pay back another client whose funds Cohen had misappropriated. Cohen also allegedly sold life insurance settlements to the clients for kickbacks to fund his home improvements.

FINRA Arbitration Panel Awards Estate About $782,000 Against Morgan Stanley
In the Matter of the Arbitration Between The Estate of Joan Ellard, by and through its Personal Representative, Stephanie (née Ellard) Epstein, Claimant, v. Morgan Stanley, Respondent (FINRA Arbitration Award 21-02264)
https://www.finra.org/sites/default/files/aao_documents/21-02264.pdf
In a FINRA Arbitration Statement of Claim filed in September 2021, Claimant asserted:

breach of fiduciary duty and associated misrepresentations; breach of fiduciary; fraud in connection of breach of fiduciary duty; negligent misrepresentation associated with breach of fiduciary duty; breach of suitability rules; breach of diligence rules; breach of know your customer rules; breach of commercial honor and just and equitable principles of trade; fraud in connection with breach of
FINRA rules; negligent misrepresentation in connection with FINRA rules; negligence; breach of contract; and breach of convenant [sic] of good faith and fair dealing.

The FINRA Arbitration Award asserts that the causes of action related to

[C]laimant’s allegations that, at the time when Respondent had actual knowledge of the limits on a limited conservator’s authority, it transferred large sums of money from Joan Ellard’s account through unauthorized transactions at the behest of the limited conservator, even though these transactions exceeded the clear limits set forth in a court order.

At the hearing, Claimants requested:

total compensatory damages of $1,238,518.30 ($547,082.63 in disbursements and $691,435.67 in pre-judgment interest per NMSA§56-8-3); punitive damages of $2,477,036.60 (2x compensatory damages) (total award of $3,715,554.90); and
post-judgment interest of 15% (per NMSA§56-8-4). 

Respondent Morgan Stanley generally denied the allegations, asserted affirmative defenses, and sought the expungement of the matter from an unnamed party's Central Registration Depository record.. At the hearing, Respondent stated that it was responsible for $154,740.00 in damages

The FINRA Arbitration Panel found Respondent Morgan Stanley liable and ordered it to pay to Claimant $554,834.70 in compensatory damages plus $227,438.11 in interest.

Former Lumentum Executive Pleads Guilty To Insider Trading / Amit Bhardwaj Misappropriated Information About Impending Corporate Transactions to Trade on that Information and Tip His Associates (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-lumentum-executive-pleads-guilty-insider-trading
In the United States District Court for the Southern District of New York, Lumentum Holdings Inc's former Chief Information Security Officer (“CISO”) Amit Bhardwaj pled guilty to seven counts of securities fraud; two counts of wire fraud; and four counts of conspiracy to commit securities fraud and wire fraud. As alleged in part in the DOJ Release:

In approximately December 2020, BHARDWAJ learned that Lumentum was considering acquiring Coherent, Inc (“Coherent”). Based on this information, BHARDWAJ himself purchased Coherent stock and call options, and BHARDWAJ tipped three associates –– his friend Dhirenkumar Patel, another friend, and one of BHARDWAJ’s close family relatives ––and these individuals all traded in Coherent securities as a result.  BHARDWAJ and Patel agreed that Patel would pay BHARDWAJ 50% of the profits that Patel earned by trading in Coherent based on the MNPI provided by BHARDWAJ.  When Coherent’s stock price increased substantially following the announcement of the Lumentum acquisition, BHARDWAJ, his close family member, his friend Patel, and another friend closed their positions in Coherent securities and collectively profited by nearly $900,000.

In or about October 2021, BHARDWAJ learned that Lumentum was engaged in confidential discussions with Neophotonics Corporation (“Neophotonics”) about a potential acquisition. BHARDWAJ provided this information to SRINIVASA KAKKERA, ABBAS SAEEDI, and Ramesh Chitor, and these individuals all traded in Neophotonics securities as a result.  In connection with Chitor’s trading, BHARDWAJ and Chitor agreed that Chitor and BHARDWAJ would split the profits equally.  When Neophotonics’ stock price increased substantially following the announcement of the Lumentum acquisition in November 2021, KAKKERA, SAEEDI, and Chitor closed their positions in Neophotonics securities and made collectively approximately $4.3 million in realized and unrealized profits.

After they were interviewed by the Federal Bureau of Investigation (“FBI”) voluntarily and served with federal grand jury subpoenas on approximately March 29, 2022, BHARDWAJ took steps to obstruct the federal investigation of their conduct.  On the day of the March 29, 2022, FBI interviews, BHARDWAJ drove to the homes of certain of his co-conspirators to encourage them not to tell the federal authorities the truth about their insider trading scheme. BHARDWAJ and his associates subsequently met in person on multiple occasions and discussed, among other things, potential false stories that would conceal their insider trading scheme as well as creating false documents to buttress lies regarding payments that were, in reality, related to the insider trading scheme.

SEC Charges Crypto Entrepreneur Justin Sun and his Companies for Fraud and Other Securities Law Violations / Eight celebrities also charged for illegal touting of Sun’s crypto asset securities (SEC Release)
https://www.sec.gov/news/press-release/2023-59
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent)
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-59.pdf, for

• the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT); and
• fraudulently manipulating the secondary market for TRX through extensive wash trading; and
• orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.

Also charged for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation were these celebrities:

• Lindsay Lohan
• Jake Paul
• DeAndre Cortez Way (Soulja Boy)
• Austin Mahone
• Michele Mason (Kendra Lust)
• Miles Parks McCollum (Lil Yachty)
• Shaffer Smith (Ne-Yo)
• Aliaune Thiam (Akon)

Without admitting or denying the findings in SEC Orders, five of the above celebrities agreed to pay a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges; the non-settling celebrities were Cortez Way (Soulja Boy) and Mahone.

As alleged in part in the SEC Release:

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that Sun and his companies offered and sold TRX and BTT as investments through multiple unregistered “bounty programs,” which directed interested parties to promote the tokens on social media, join and recruit others to Tron-affiliated Telegram and Discord channels, and create BitTorrent accounts in exchange for TRX and BTT distributions. The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms. According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act.

The Commission also alleges that Sun violated the antifraud and market manipulation provisions of the federal securities laws by orchestrating a scheme to artificially inflate the apparent trading volume of TRX in the secondary market. From at least April 2018 through February 2019, Sun allegedly directed his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, with between 4.5 million and 7.4 million TRX wash traded daily. This scheme required a significant supply of TRX, which Sun allegedly provided. As alleged, Sun also sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token.

READ the SEC Orders:

• Lohan
• Mason
• McCollum
• Paul
• Smith
• Thiam

SEC Proposes to Modernize the Submission of Certain Forms, Filings, and Materials Under the Securities Exchange Act of 1934 (SEC Release)
https://www.sec.gov/news/press-release/2023-58
The SEC proposed amendments to modernize its information collection and analysis methods by via electronically submitted filings on EDGAR using structured data where appropriate.As alleged in part in the SEC Release:

Specifically, the proposed amendments would require the electronic filing, submission, or posting of certain forms, filings, and other submissions that national securities exchanges, national securities associations, clearing agencies, broker-dealers, security-based swap dealers, and major security-based swap participants make with the Commission. The proposed amendments would also make certain amendments regarding the Financial and Operational Combined Uniform Single (“FOCUS”) Report to harmonize it with other rules, make technical corrections, and provide clarifications. In addition, the proposed amendments would require withdrawal of notices filed in connection with an exception to counting certain dealing transactions toward determining whether a person is a security-based swap dealer in specified circumstances.  

Bill Singer's Comment: Sigh . . . at this point, what can I say? Either SEC Chair Gensler can't stop himself or he doesn't want to. The dump truck of new SEC rule proposals has emptied yet another pile of garbage upon an already towering heap. The SEC is now little more than landfill. See: "A Form Of Lunacy Has Overtaken The SEC" (BrokeAndBroker.com Blog /  March 16, 2023)
https://www.brokeandbroker.com/6926/sec-lunacy-rulemaking/

A form of lunacy has overtaken the Securities and Exchange Commission. Those in charge seem to have lost any concept of how to rationally manage a finite amount of resources -- both human and otherwise. Unwilling or incapable of stopping, the SEC continues its excessive resort to rulemaking and rule-amending.

Statement on Electronic Filing by SEC Chair Gary Gensler
https://www.sec.gov/news/statement/gensler-statement-electronic-filing-032223

Today, the Commission is considering a proposal under the Exchange Act to require broker-dealers and other registrants to submit forms electronically. I am pleased to support this proposal because, if adopted, it would advance the Commission's efforts to modernize filing for a wide range of registrants.

We live in a digital age—paper certificates for U.S. treasuries have long been a thing of the past. Our markets and business models have been transformed by electronic trading, the cloud, artificial intelligence, and predictive data analytics. In 2023, one might think that all filings to the Commission already could be made electronically. That’s not yet true.

Today’s proposal builds on a long line of Commission actions. It was in February 1983—40 years ago last month—that Chairman Shad formed the first task force to explore the feasibility of an electronic disclosure system.[1] In April 1993, the Commission started to require electronic filings through the Electronic Data Gathering, Analysis, and Retrieval system, commonly known as EDGAR.[2] In the decades since, we have made numerous other changes to facilitate or require electronic filing and recordkeeping.[3] It was only in 2015, however, that brokers began electronically to file their annual audits with the Commission.[4]

Today, we have the important opportunity to require electronic filing for nearly all of the remaining paper filings required under the Exchange Act.

As proposed, the amendments would require entities under the Exchange Act to file electronically a range of annual and quarterly forms currently filed in paper. For example, brokers and other filers would need to submit electronically their annual audit filings and risk assessment reports. Streamlining the Commission’s filing and processing, this also would help us more quickly analyze filings to ensure compliance with Congress’s laws and our rules.

I believe the proposal, if adopted, would save both registrants and the Commission time and resources. We oversee more than 3,500 broker-dealers, the vast majority of which submit annual audit reports. While many filers voluntarily submit these audits electronically, nearly half submitted them on paper last year. These filings may run as long as 100 pages.

If adopted, the proposal would modernize how the Commission processes these important filings from brokers and other registrants.

I’d like to thank the members of the SEC staff who worked on this proposal, including:

• Haoxiang Zhu, Raymond Lombardo, Valentina Deng, Patrick Bloomstine, Edward Cho, David Dimitrious, Deborah Flynn, Lourdes Gonzalez, John Guidroz, Haley Holliday, Molly Kim, Matthew Lee, Katherine Lesker, Russell Mancuso, Cristie March, Carol McGee, David Michehl, Catherine Moore, Michou Nguyen, Claire Noakes, Susan Petersen, Justin Pica, David Remus, Kelly Shoop, Rose Wells, David Saltiel, Andrea Orr, Laura Compton, Roni Bergoffen, and Jennifer Colihan in the Division of Trading and Markets;
• Jessica Wachter, Charles Lin, Parhaum Hamidi, Juan Echeverri, Julie Marlowe, Rebecca Orban, Gregory Scopino, Mike Willis, Lauren Moore, and Jill Henderson in the Division of Economic and Risk Analysis;
• Megan Barbero, Meridith Mitchell, Malou Huth, Robert Teply, Leila Bham, Maureen Johansen, Melinda Hardy, and Mark Tallarico in the Office of the General Counsel;
• Todd Canali, Paul Gross, Jane Patterson, and Sylvia Pilkerton in the EDGAR Business Office;
• Ryan Ames, Juanita Bishop Hamlett, and Carrie O’Brien in the Division of Examinations; and
• Melissa Robertson in the Division of Enforcement.
  
  [1] See Securities and Exchange Commission, “EDGAR: A Status Report” (Dec. 31, 1985), available at https://theexchange.sec.gov/media/4231/download. E.g., “In February 1983, the Chairman formed a staff task force to explore the feasibility of an electronic disclosure system. The task force sought information from the public regarding the availability, cost, structure and feasibility of such a system. - 1/ A series of meetings were held with interested parties, and the MITRE Corporation - 2/ was hired to provide technical assistance.”

[2] See Securities and Exchange Commission, “EDGAR Status Report” (Dec. 31, 1993), available at https://theexchange.sec.gov/media/4181/download. E.g., “Three groups of mandated filers were phased onto the EDGAR system. … These three groups, along with phase-in group 1, which consisted of former Pilot system filers who began live filing on a mandatory basis on April 26, 1993 (plus a few volunteers), make up the significant test group mandated by Congress.”

[3] In 1997, for example, the Commission began allowing brokers to use electronic recordkeeping for books and records, a rule the Commission later amended and modernized in 2022. See Gary Gensler, “Statement on Final Rule Amendments to Electronic Recordkeeping Requirements” (Oct. 12, 2022), available at https://www.sec.gov/news/statement/gensler-statement-electronic-recordkeeping-requirements-101222. As another example, in 2004, the Commission implemented electronic filing requirements for self-regulatory organizations’ proposed rule changes through the Electronic Form 19b-4 Filing System (EFFS). See Securities and Exchange Commission, “Proposed Rule Changes of Self-Regulatory Organizations” (Oct. 4, 2004), available at https://www.sec.gov/rules/final/34-50486.htm.

[4] See Staff of the Division of Trading and Markets, Securities and Exchange Commission, “Re: Simplified Process for Electronic Filing of Broker-Dealer Annual Report with the Securities and Exchange Commission” (Jan. 17, 2017), available at https://www.sec.gov/divisions/marketreg/mr-noaction/2017/finra-012717-electronic-filing-annual-reports.pdf. As indicated within the linked document, this letter replaces a similar staff no-action letter sent on December 21, 2015.

Bill Singer's Comment: Sigh . . . at this point, what can I say? Either SEC Chair Gensler can't stop himself or he doesn't want to. The dump truck of new SEC rule proposals has emptied yet another pile of garbage upon an already towering heap. The SEC is now little more than landfill. If you were wondering, 56 Staff were enlisted in this idiocy of a rule proposal! See: "A Form Of Lunacy Has Overtaken The SEC" (BrokeAndBroker.com Blog /  March 16, 2023)
https://www.brokeandbroker.com/6926/sec-lunacy-rulemaking/

A form of lunacy has overtaken the Securities and Exchange Commission. Those in charge seem to have lost any concept of how to rationally manage a finite amount of resources -- both human and otherwise. Unwilling or incapable of stopping, the SEC continues its excessive resort to rulemaking and rule-amending. 

Statement on the Proposed Expansion of Electronic Filing by SEC Commissioner Caroline A. Crenshaw
https://www.sec.gov/news/statement/crenshaw-statement-electronic-filing-032223

Thank you, Chair Gensler. The proposal we are considering today consists of common-sense updates to the filing procedures for certain Commission forms. Specifically, as you’ve heard from my colleagues, certain forms currently required to be filed or submitted on paper would instead be filed or submitted electronically.[1]

These changes would build upon the success of electronic filing during the COVID-19 pandemic. During the early weeks of the pandemic, staff in the Division of Trading and Markets acted quickly to provide no-action relief to registrants who could not meet certain regulatory obligations.[2] This included relief with respect to paper filings and manual signatures.[3] As explained in the release, electronic filing has proven to be practical and efficient for staff, and has been well-received by registrants.[4]

The forms would be filed on EDGAR, using structured data formats where appropriate. The release takes a thoughtful approach to structuring the data, using Inline XBRL where it is likely to be most helpful – for example, the financial statement information and longer narrative descriptions for which Inline XBRL was designed – while also using XML and PDF formats. This should help minimize the costs to filers while still preserving the benefits of Inline XBRL for the SEC, investors, and the public.[5]

The changes would not result in any individuals losing access to paper delivery of documents, because the forms in question are forms filed or submitted on paper to the SEC, not sent to investors or other members of the public. While I am among those who still prefer the look and feel of a real book to an e-reader, if the proposed rule is adopted, I don’t expect that SEC staff will miss curling up with a paper version of a newly-filed FOCUS report or Form CA-1.

Thank you to the staff of the Division of Trading and Markets, the Division of Economic and Risk Analysis, the Office of the General Counsel, and the EDGAR Business Office for all of your hard work on this proposal. I am pleased to support this much-needed modernization of our filing procedures, and I look forward to reviewing the comments.

[1] In some cases, the proposal would require certain information to be provided via an entity’s website. The proposal also includes certain technical amendments to the FOCUS report. See Electronic Submission of Certain Materials Under the Securities Exchange Act of 1934; Amendments Regarding the FOCUS Report, Release Nos. 33-11176, 34-97182, IC-34864 (Mar. 22, 2023) (“Proposal”).

[2] For a full list of actions the SEC took in response to the COVID-19 pandemic, see Securities and Exchange Commission, SEC Coronavirus (COVID-19) Response.

[3] Securities and Exchange Commission, Updated Division of Trading and Markets Staff Statement Regarding Requirements for Certain Paper Submissions in Light of COVID-19 Concerns (Jun. 18, 2020).

[4] Proposal at 10.

[5] For a summary of the benefits of Inline XBRL to investors, the SEC, and the public, see, e.g. Commissioner Caroline Crenshaw, The Lessons of Structured Data (Nov. 10, 2021).

Modernizing the Filing Process for Market Participants by SEC Commissioner Jaime Lizárraga
https://www.sec.gov/news/statement/lizarraga-statement-electronic-filing-032223

As part of its ongoing efforts to modernize and update its rules, the Commission is taking another step today to keep up with technological change in our capital markets. The Commission is amending the process used by market entities, such as stock exchanges and broker-dealers, to submit certain materials electronically through EDGAR, rather than in paper or via email. These amendments also allow electronic signatures in certain broker-dealer filings.

In response to the COVID-19 pandemic, the Commission took prompt actions to balance the needs of market participants, the health and safety of employees, and our mission to ensure fair, orderly and efficient markets. In 2020, the Division of Trading and Markets issued two separate statements regarding paper submissions, manual signatures, and notarization requirements. The statements provided temporary relief from paper-based filings by market entities as they confronted pandemic-related challenges to their business operations. This relief generally worked well and increased efficiency of Commission processing of these filings.

Today’s proposal builds on this relief by requiring these materials to be filed electronically through EDGAR. This will facilitate more efficient analysis and dissemination of information, which benefits investors and other market participants. Moreover, as part of our ongoing modernization efforts, the proposal would require certain information to be submitted as structured data, which will further strengthen the Commission’s information collection and analysis.

Finally, the proposal should facilitate more efficient review and analysis of these forms by investors. For example, the proposed structured data requirements will make it easier for them to retrieve and analyze key data. Investors could leverage these features to automatically flag unusual activity in a registrant’s financial statements or identify significant operational changes.

I support today’s proposed amendments and would like to thank the staff in the Division of Trading and Markets, Division of Economic and Risk Analysis, the Office of the General Counsel, and others across the Commission, for their thoughtful work on the proposal. I encourage the public to participate in the comment process for this rule and look forward to reviewing the comment letters.

Statement on Trading and Markets Proposal to Move from Paper to Electronic Filing Under Various Rules by SEC Commissioner Hester M. Peirce

Thank you, Mr. Chair. Today’s proposal represents an important step in the Commission’s welcome transition from paper to electronic filing requirements, and I support it. Digital technologies have transformed our world over the past several decades, and our markets are no exception: From internal and external communications, to books and records, to the routing and matching of orders, these technologies have contributed to making the markets more efficient, faster moving, and more accessible to investors.

Because our rules have not always kept pace with these developments, regulated entities have had to rely on antiquated methods to meet various regulatory obligations.[1] Paper filings, even if scanned and submitted by email, can be cumbersome for firms to prepare and for investors and regulators to use. Making data reported on paper forms available for investors to conduct cross-firm or market-wide analyses can require substantial, often intensive, manual effort, which can result in significant delays and the inadvertent introduction of errors into the data. Today’s proposal would move a number of forms to electronic formats, which should reduce compliance burdens for, and increase information availability, usability, and reliability in connection with, a broad range of Commission registrants. I welcome these changes.

I am concerned about registrants’ ability to devote the necessary attention to this highly technical release. Registrants overseen by the Division of Trading and Markets have been flooded with proposals over the past two years, and today’s proposal addresses a wide swathe of the Commission’s regulations. We want to get these changes right, and we need commenters’ help, but commenters are overwhelmed at the moment.

I hope to get comment on several specific issues. First, this proposal contains some substantive changes, including with respect to where certain information is to be published and what information is to be included in certain filings.[2] Registrants should not simply assume that this release represents nothing more than a transition from paper to electronic filing. The Commission needs your input on changes to the filings that you are required to make under these rules, and I hope you will provide us with that input, even as I recognize that you have precious little time to do so.

Second, we are proposing a significant increase in the use of structured data. Market participants increasingly rely on structured data to facilitate financial and market analysis, but I have concerns about overly prescriptive Commission-mandated standards in this area, which could become obsolete faster than the Commission can update its requirements.[3] The proposed amendments that would require the submission of structured data generally specify that registrants use either custom XML or Inline XBRL. Although these choices appear reasonable given current technology and practices in the financial markets, is it prudent or necessary to embed this level of specificity in our rule text? We at the Commission may not be able to envision future technological developments that would render these standards obsolete, but history suggests that those advances will eventually appear, whether in the form of a more advanced tagging system or, perhaps, of an AI capable of extracting any data an analyst requests. Indeed, the Commission has seen unexpected technological developments render its rules out-of-date in the past and no doubt will do so again in the future.[4] For example, a more general standard—such as one specifying only that the information be filed in a format that is both machine- and human-readable[5]—might be appropriate for certain filings. If further specificity is warranted, the rules could provide that the Commission or its staff may specify, from time to time, standards as appropriate for particular types of filings. Either approach would have the advantage of permitting greater flexibility for market participants and the Commission to respond to future developments in the way analysts and others use financial data.

I also hope that commenters will tell us whether this proposal gets the balance between costs and benefits right. Does the proposal appropriately draw the line between where structured data is appropriate and beneficial and where it would provide little benefit? In several cases, the proposal would require filers to use structured data for non-public filings, meaning that the public will not benefit directly from those requirements. Do commenters believe that convenience to the Commission in its internal use of the data warrants the expense that filers may bear in structuring the information they are required to report? Finally, have we made the right decisions in prescribing what markup language should be used for particular types of data?

Thank you, David, Ray, and Jessica for your presentations, and thank you to staff of the Division of Trading and Markets, the Division of Economic and Risk Analysis, and throughout the Commission for your work on this release.

[1] See Electronic Recordkeeping Requirements for Broker-Dealers, Security-Based Swap Dealers, and Major Security-Based Swap Participants (“Electronic Recordkeeping Release”), Rel. No. 34-96034, 87 Fed. Reg. 66412 (Nov. 3, 2022) (adopting rules providing an alternative to the long-standing, technologically obsolete write-once-read-many requirement for broker-dealer records).

[2] See, e.g., Electronic Submission of Certain Materials Under the Securities Exchange Act of 1934; Amendments Regarding the FOCUS Report at 79-82 (describing proposal to rescind Form 19b-4(e) and instead requiring SROs to post information currently contained on such forms to their websites); id. at 89-94 (describing proposal to require clearing agencies to post supplementary materials to their websites rather than file with the Commission under Exchange Act Rule 17a-22); id. at 145-52 (describing various corrective, clarifying, and harmonizing amendments to FOCUS Reports). The proposal would also amend Exchange Act Rule 3a71-3 to require a firm no longer relying on the arrange, negotiate, execute (ANE) exception to the de minimis counting requirement under the security-based swap dealer definition to file a notice of withdrawal. See id. at 128-29.

[3] See Commissioner Hester M. Peirce, Worms and Dinosaurs: Statement on the Proposed Amendments to Modernize How Broker-Dealers Preserve Electronic Records (Nov. 19, 2021) (“Technology changes faster than regulations do.”).

[4] For example, Exchange Act Rule 17a-11 provided for the submission of notices and reports to the Commission by telegraphic transmission until 2019. See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, Rel. No. 34-87005, 84 FR 68550, 68590 (Dec. 16, 2019) (removing this provision “in light of the fact that telegrams are no longer widely used in the United States, and that Commission staff no longer receive 17a-11 notices by telegram”).

[5] There is precedent for such an approach. Last year, the Commission amended Exchange Act Rule 17a-4 to permit broker-dealers to dispense with the outdated write-once-read-many recordkeeping requirement and instead use a record and corresponding “audit trail (if applicable) in both a human readable format and in a reasonably useable electronic format.” See Electronic Recordkeeping Release, 87 Fed. Reg. at 66419.

Statement on Electronic Filing of Certain Forms and Other Filings Under Securities Exchange Act of 1934; Technical Amendments Regarding FOCUS Report by SEC Commissioner Mark T. Uyeda
https://www.sec.gov/news/statement/uyeda-statement-electronic-filing-032223

Thank you, Chair Gensler, and thank you to the staff for their presentations. Today the Commission proposes to require that certain filings and submissions under the Securities Exchange Act of 1934 and the rules and regulations thereunder be filed or submitted electronically or, in certain instances, for information to be posted on websites. In addition, where deemed appropriate, the proposed rule would require the use of structured data.

There can be little doubt that the Commission is on the right trajectory in transitioning a greater number of filings to electronic as well as tagging information to ensure the data is structured and more readily and economically accessible. In terms of both connectivity and processing power, the technological revolution experienced in the last forty years suggests that processes tied to paper documentation may result in both less intended benefits as well as unnecessary costs, especially when the benefits and costs associated with the efficient usage of such information is properly taken into account. Transparency is at the heart of the Commission’s regulatory model. Information about the markets and market participants that is intended to inform the public should not be trapped within the walls of the SEC; rather, it should be readily and efficiently available to the intended beneficiaries. Electronic filing with information tagged, where appropriate, can help ensure that.

The Release’s Economic Analysis correctly suggests that “the proposed structured data requirements will benefit investors and markets by increasing the accessibility and usability of the disclosures in the Proposed Structured Documents, thereby increasing transparency and insight into the operations, governance, management, financial condition, and other characteristics of the affected entities. Requiring machine-readability for the disclosures would enable significantly more efficient retrieval, sorting, filtering, comparison, aggregation, and other analysis of the disclosures across reporting entities and time periods.”[1] As the Economic Analysis also highlights, “[c]ompared to paper filing, electronic submission or posting information directly to a website can expedite the availability of public disclosures. Improving the speed of disclosure to the public improves the price efficiency of markets by improving the timeliness of information available to market participants.”[2]

Finally, as the Release notes, the Commission has recently gained further additional practical experience in making the shift to electronic documentation in the midst of the COVID pandemic, and saw that much of it worked quite well.[3] In sum, it is time to go more fully electronic and appropriate to issue this proposal to facilitate that objective. That being said, the list of rules and forms affected is long and the Commission may not have gotten this transformation exactly right. For that reason, the assistance of investors and other stakeholders in providing us with their comments will be important.

In light of the foregoing, I support issuing this rule proposal for public comment. I thank the staff in the Divisions of Trading and Markets and Economic and Risk Analysis as well as the Office of the General Counsel for their efforts.

[1] Proposing Release on Electronic Filing of Certain Forms and Other Filings Under the Securities Exchange Act of 1934; Technical Amendments Regarding the FOCUS Report, at 9-10, available at https://www.sec.gov/rules/proposed/2023/33-11176.pdf.

[2] Id. at 244.

[3] Id. at 258-59.