Commissioner Uyeda Remarks at MFA Global Summit 
https://www.sec.gov/news/speech/uyeda-mfa-global-summit-20230516

Thank you for the introduction, Jillien [Flores]. It is a privilege to start off the first Global Summit for the Managed Funds Association (“MFA”) in the European Union. The sub-header describes the Summit as “The Intersection of Capital Markets and Global Policy,” which is quite appropriate and timely. From my perspective in Washington, D.C., the U.S. Securities and Exchange Commission (“SEC”) is possibly charting a new course in how foreign financial regulatory regimes are treated. Should the SEC continue on this course, foreign entities may no longer receive deference or recognition in the United States for their home country regulatory regimes. Hence, query whether such a change in approach, moving away from concepts of equivalence and convergence, will ultimately help, or hurt, global investors. This morning, I would like to share remarks that reflect my views as an individual Commissioner of the SEC and do not necessarily reflect the views of the full Commission or my fellow Commissioners.

U.S. Investments in Foreign Issuers
Let’s start with the idea that a diversified portfolio is fundamental to a long-term investment strategy.[1] One aspect is the allocation of investments across multiple issuers and asset classes. Another aspect is the diversification among various countries and global regions.[2] Markets outside of the United States represent nearly 60% of global equity market capitalization.[3] Given these opportunities, U.S. investors have sought exposure to foreign investments. One article estimates that U.S. investors increased their average international holdings from 5% in the 1990s to nearly 15% by 2017.[4]

To achieve this, U.S. investors have choices, including: (1) investing in U.S. mutual funds and exchange-traded funds (“ETFs”) that hold foreign securities, (2) purchasing American depositary receipts (ADRs) of foreign stocks, including some that may also be U.S.-listed, and (3) trading stocks directly on foreign markets.[5] Investors may turn to either U.S.-based investment advisers or advisers located abroad. The SEC has differing levels of jurisdiction over foreign entities. For example, while the Investment Advisers Act of 1940 (“Advisers Act”) generally requires a foreign investment adviser to register with the SEC if it provides advice to U.S. clients, the statute exempts foreign advisers that have minimal contacts with U.S. investors.[6]

Given the increase in U.S. interest in international investments, the SEC should be respectful of the differing regulatory regimes developed by foreign jurisdictions. The mere fact that U.S. investors seek opportunities across the globe does not mean that the SEC should impose its regulations and enforcement authority around the world. Since U.S. investors benefit from investing in – or receiving investment advice and financial services from – foreign entities, any effort to extend U.S. laws and regulations to these entities must be appropriately calibrated. Otherwise, foreigners and foreign firms may be tempted to exclude or prohibit U.S. investors, so as to avoid any entanglements with U.S. jurisdiction.

With this in mind, my remarks today will focus on three key areas: (1) the SEC’s historical approach to foreign entities, (2) recent deviations from this historical approach, and (3) the consequences of continuing down this path.

The SEC’S Historical Approach to the Regulation of Foreign Entities
In 1988, then-Commissioner Charles Cox – not to be confused with former Chairman Christopher Cox – delivered remarks to the Conference on Internationalization in Seoul, South Korea.[7] Commissioner Cox, who may have been the first Ph.D. economist to serve as Commissioner, recognized the benefits of a system in which capital can move freely between and among markets. He identified the “securities regulators’ challenge…to ensure that artificial and inefficient impediments to the flow of capital, the lifeblood of growth and development, are eradicated.”[8] Importantly, the “[SEC] recognizes the different goals and policies of different nations or markets and understands that our disclosure, accounting and legal standards may not be appropriate in all, or even most, cases.”[9]

In Commissioner Cox’s view, the harmonization of various regulatory approaches – rather than the forced imposition of the SEC’s own standards – best serves the goal of efficient capital formation. Harmonization means “the ability of distinct structures to work well together” rather than forcing all structures into a single framework.[10]

Nearly thirty years later – in 2016 – then-Chair Mary Jo White delivered a speech to the International Bar Association Annual Conference.[11] Chair White spoke on the importance of global cooperation and coordination but recognized that “we do not operate in a one-size-fits-all world and…there are, for good reason, significant differences in our domestic markets, as well as our regulatory regimes.”[12]

Thus, the SEC historically has been careful not to apply its rules to foreign entities that have minimal contact with U.S. markets. For example, SEC rules permit “foreign private issuers” to largely satisfy certain reporting obligations set forth in the Securities Exchange Act of 1934 (the “Exchange Act”) by following the disclosure standards of their home jurisdictions.[13] Additionally, SEC rules exempt “foreign private advisers” from registering under the Advisers Act.[14] These exemptions recognize that – absent significant contacts with U.S. investors – the costs of imposing duplicate and sometimes conflicting regulatory regimes on foreign entities outweigh the potential benefits.

In considering rules, the SEC has previously avoided rules based on mere theoretical concerns. One illustrative example can be found in the 1998 amendments[15] to Regulation S, which provides a safe harbor from the registration requirements of the Securities Act of 1933 (“Securities Act”) for the offer and sale of securities outside of the United States.[16]

After adopting Regulation S in 1990,[17] the SEC identified certain abuses by U.S. issuers. The SEC observed that Regulation S was being used purportedly for distributing securities offshore, but instead those securities were being funneled back into the U.S. markets.[18] Thus, the SEC proposed amendments to place additional restrictions on Regulation S offerings.[19] Although the SEC had only observed abusive practices by U.S. issuers using Regulation S, the proposal sought to extend these additional restrictions to offerings made by non-U.S. issuers if the principal market for those securities was within the United States.[20]

One proposed restriction would have made it so that securities issued in Regulation S offerings were deemed restricted securities.[21] Commenters noted that if non-U.S. issuers were scoped into the amendments, these issuers would be forced to apply many of the standard practices used in U.S. private placements to offshore offerings. Accordingly, the restriction “could create a strong disincentive for foreign companies to list their securities on U.S. markets.”[22] When the SEC ultimately adopted amendments to Regulation S in 1998, it determined that “absent a showing of abuse, imposing significant new restrictions on the offshore offering practices of foreign companies is not warranted.”[23] In modifying the proposal to exclude additional restrictions on foreign issuers, the SEC sought to “avoid undue interference with offshore offering practices of foreign companies.”[24]

The Regulation S amendments are emblematic of the SEC’s historical approach, which avoids needlessly imposing U.S. regulations abroad. This approach is consistent with the principles expressed by Commissioner Cox and Chair White, which has allowed the SEC to carry out its investor protection mandate without chilling cross-border investment opportunities that benefit U.S. companies and investors alike. Since that time, foreign regulators have made significant revisions of their regimes to provide even better investor protection today.

Recent Shifts in Regulatory Approach
However, recent SEC actions affecting foreign entities have made one thing clear: times are changing. The SEC’s deference to foreign regulatory regimes is slowly being replaced with an approach that favors the primacy of U.S. regulations. This apparent shift has not been carried out through public debate and consideration. Instead, the change is subtly embedded in rulemaking and enforcement actions.

Most recently, the SEC adopted amendments to the disclosure requirements for share repurchases.[25] These amendments will apply to foreign private issuers and domestic issuers alike. For the first time, foreign private issuers will be mandated to make quarterly filings with the SEC. The imposition of mandatory quarterly reporting by foreign private issuers fundamentally upends the Commission’s long-standing deference to home-country reporting requirements.[26] The approach does not even offer a convincing rationale, especially since daily share repurchase information may be useful only if accompanied by other types of disclosures. For example, an issuer’s quarterly financial results currently are not required to be reported by foreign private issuers. Is this the start of changes designed to bring the reporting requirements of foreign private issuers in line with those of domestic issuers? The costs are obvious: foreign entities could be required to comply with the technical provisions of two similar – but not identical – regimes.

In addition, the SEC has proposed a rule to impose prescriptive requirements on private fund advisers.[27] The proposal would prohibit private fund advisers from engaging in certain sales practices, conflicts of interest, and compensation arrangements. The proposal also would require private fund advisers to obtain annual financial statement audits. Remarkably, the rules would apply to foreign private advisers. A “foreign private adviser” is any investment adviser who: (1) has no place of business in the United States, (2) has fewer than fifteen total U.S. clients and investors in its private funds, (3) has aggregate assets under management attributable to these U.S. investors of less than $25 million, and (4) does not hold itself out to the U.S. public as an investment adviser.[28]

Congress exempted these foreign private advisers from registering with the SEC, with a restrictive condition of having less than $25 million in assets under management attributable to U.S. investors. Yet the current SEC proposal would circumvent this Congressional intent by imposing prescriptive requirements on foreign private advisers. They would be treated indistinguishably from domestic private fund advisers for purposes of applying the highly-prescriptive and costly burdens imposed by the proposed rules. And to what end? Foreign private advisers are exempted from the provisions of the Advisers Act for a reason: they have minimal contacts with U.S. investors. Faced with the choice between upending their businesses to comply with these new rules and simply exiting the U.S. market, it is not hard to imagine that foreign private advisers might choose the latter, thus denying U.S. investors access to investment advisers with expertise in particular countries or regions.

Beyond rulemaking, the SEC has used its enforcement authority in a manner that could make foreign companies liable under the U.S. federal securities laws for conduct that is more properly regulated by home jurisdictions. For example, in April 2022, the SEC charged a Brazilian mining company for violations of the U.S. federal securities laws after one of its dams collapsed and killed 270 people.[29] The collapse of the dam and the resulting deaths were tragic and devastating. For this reason, Brazilian authorities charged 16 people – including the company’s CEO – with murder. Brazilian federal and state authorities also brought a multi-billion dollar civil action against the company. Instead of satisfying itself that Brazilian authorities were appropriately taking the company and its executives to task, the SEC touted its initiative to “identify material gaps or misstatements in issuers’ ESG disclosures, like the false and misleading claims made by [the company.]”[30] The company ultimately agreed to settle the SEC’s charges for $55.9 million.[31]

The SEC has antifraud authority to take actions against companies and persons abroad for making materially false and misleading statements if there is conduct outside of the United States that has a foreseeable substantial effect within the United States.[32] The SEC’s press release regarding this particular action suggests that – when a foreign company makes statements under a home-country ESG disclosure framework – those same violations could also impose liability under the U.S. federal securities laws, even if never filed with the SEC. I am concerned that the SEC may attempt to be the global police and exercise its authority in a manner that enforces other country’s ESG frameworks, whether or not those frameworks relate to financial materiality and without regard to civil and criminal enforcement for the same misconduct by the other country.

Consequences of the SEC Extending its Authority to Foreign Entities
The trend is clear – both through rulemaking and enforcement – that foreign entities are top of mind for the SEC. The historical approach that largely respected foreign regulatory regimes appears to be yielding to an approach that asserts the primacy of U.S. regulation. If this shift in policy had been carefully considered and subject to public comment, I might have fewer concerns. However, much like the SEC’s current rulemaking agenda, the charge into the unknown is happening in a rushed and piecemeal fashion with little acknowledgment or consideration of what the overall end result might be.

One possibility is that foreign entities that find themselves increasingly subject to U.S. jurisdiction retreat from the U.S. market entirely. Or even worse, foreign entities may ban U.S. investors from investing at all. This would be a bad result because U.S. investors rely on access to foreign investment opportunities to construct diversified portfolios. In my view, the SEC should not, under the guise of investor protection, take steps that might cause foreign entities not to list their shares on U.S. exchanges or foreign advisers to limit or restrict services to U.S. investors. A change that restricts these opportunities should – at the very least – be accompanied by a clear articulation as to what problem the SEC is trying to solve.

Another potential result is that foreign jurisdictions choose to reciprocate by subjecting U.S. entities to foreign regulations to a greater extent. This also would be unfortunate. Any additional burdens imposed on U.S. companies that seek to raise capital abroad – or U.S. investment advisers that seek to provide investment advice to foreign investors – will reduce that flow of foreign capital into the United States. In this way, not only could U.S. citizens lose investment opportunities abroad, but U.S. operating companies could lose access to foreign capital.

The exemptions from the U.S. federal securities laws that foreign entities rely on are premised on the understanding that there is a threshold below which the U.S. should defer to foreign regulators under the notions of equivalence and convergence. Unlike the legislative debates or notice and comment rulemakings that led to these exemptions, the SEC’s recent actions do not sufficiently consider the impacts of this change in posture. Even worse, the SEC has barely acknowledged that a change is underway.

Access to capital formation and investment opportunity are important for the U.S. and foreign jurisdictions alike. I hope that – before we continue down the current course – we pause to reflect on what we are doing and where it will lead.

Thank you.

[1] See, e.g., This chart perfectly sums up why it’s important to have a diverse investment portfolio, CNBC (Jun. 18, 2020), available at https://www.cnbc.com/2020/06/18/chart-shows-why-its-important-to-diversify-investments.html.

[2] See, e.g., Invest Globally With International Stocks, Forbes (Mar. 28, 2023), available at https://www.forbes.com/advisor/investing/international-stocks/.

[3] See Quarterly Report: US Equity & Related, 1Q23, Securities Industry and Financial Markets Association (“SIFMA”) (Apr. 27, 2023), available at https://www.sifma.org/wp-content/uploads/2023/04/US-Research-Quarterly-Equity-2023-04-27-SIFMA.pdf .

[4] See How Most Investors Get Their International Stock Exposure Wrong, Forbes (Aug. 5, 2018), available at https://www.forbes.com/sites/simonmoore/2018/08/05/how-most-investors-get-their-international-stock-exposure-wrong/.

[5] See, e.g., International Investing, Office of Investor Education and Advocacy, U.S. Securities and Exchange Commission (Dec. 8, 2016), available at https://www.sec.gov/reportspubs/investor-publications/investorpubsininvest.

[6] See 15 U.S.C. 80b–3(m) and 17 CFR 275.203(m)-1 (private fund adviser exemption); 15 U.S.C. 80b–3(b)(3) (foreign private adviser exemption).

[7] See Charles C. Cox, Remarks to the Conference on Internationalization – Public Offerings in the United States Capital Market (Jun. 8, 1988), available at https://www.sechistorical.org/collection/papers/1980/1988_0608_CoxHarmonization.pdf.

[8] Id., at 1.

[9] Id., at 2.

[10] Id.

[11] See Mary Jo White, Securities Regulation in the Interconnected, Global Marketplace, International Bar Association Annual Conference (Sept. 21, 2016), available at https://www.sec.gov/news/speech/securities-regulation-interconnected-global-marketplace.

[12] Id.

[13] See, e.g., Adoption of Rules Relating to Foreign Securities, Release No. 34-8066 (Apr. 28, 1967).

[14] See 15 U.S.C. 80b–3(b)(3) (foreign private adviser exemption).

[15] See Offshore Offers and Sales, Release No. 33-7505 (Feb. 17, 1998) [63 FR 9632 (Feb. 25, 1998)], available at https://www.sec.gov/rules/final/33-7505.htm.

[16] See 17 CFR 230.903.

[17] See Offshore Offers and Sales, Release No. 33-6863 (Apr. 24, 1990) [55 FR 18306 (May 2, 1990), available at https://archives.federalregister.gov/issue_slice/1990/5/2/18305-18330.pdf#page=2.

[18] See Offshore Offers and Sales, supra note 13.

[19] See Offshore Offers and Sales, Release No. 33-7392 (Feb. 20, 1997) [62 FR 9258 (Feb. 28, 1997)], available at https://www.sec.gov/rules/proposed/33-7392.txt.

[20] Id.

[21] Id.

[22] See Offshore Offers and Sales, supra note 13.

[23] Id.

[24] Id.

[25] See Share Repurchase Modernization Disclosure, Release No. 34-97424 (May 3, 2023), available at https://www.sec.gov/rules/final/2023/34-97424.pdf.

[26] See Mark T. Uyeda, Statement on the Final Rule: Share Repurchase Disclosure Modernization (May 3, 2023), available at https://www.sec.gov/news/statement/uyeda-statement-share-repurchase-disclosure-modernization-050323.

[27] See Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Release No. IA-5955 (Feb 9, 2022) [86 FR 16886 (Mar. 24, 2022), available at https://www.sec.gov/rules/proposed/2022/ia-5955.pdf.

[28] See 15 U.S.C. 80b–3(b)(3) (foreign private adviser definition).

[29] See SEC vs. Vale S.A., Case No. 1:22-cv-02405 (E.D.N.Y Apr. 28, 2022), available at https://www.sec.gov/litigation/complaints/2022/comp-pr2022-72.pdf.

[30] See SEC Charges Brazilian Mining Company with Misleading Investors about Safety Prior to Deadly Dam Collapse, Press Release No. 2022-72 (Apr. 28, 2022), available at https://www.sec.gov/news/press-release/2022-72.

[31] See Brazilian Mining Company to Pay $55.9 Million to Settle Charges Related to Misleading Disclosures Prior to Deadly Dam Collapse, Press Release No. 2023-63 (Mar. 28, 2023), available at https://www.sec.gov/news/press-release/2023-63.

[32] See 15 U.S.C. 77v(c)(2) (Securities Act), 78aa(b)(2) (Exchange Act).

FINRA Censures and Fines MML Investors Services, LLC For Untimely Forms U4/U5
In the Matter of MML Investors Services, LLC, Respondent (FINRA AWC 2020065534802)
https://www.finra.org/sites/default/files/fda_documents/2020065534802
%20MML%20Investors%20Services%2C%20LLC%20CRD%2010409%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, MML Investors Services, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that MML Investors Services, LLC has been a FINRA member firm since 1982 with 7,300 registered persons at 1,409 branches. The AWC asserts in part under the "Background" section that [Ed: footnote omitted]:

In November 2011, FINRA issued an AWC against MML in which the firm was censured and fined $300,000 for failing to timely file Uniform Termination Notices for Securities Industry Registration ("Forms U5") and amendments to Uniform Applications for Securities Industry Registration or Transfer ("Forms U4") and Forms U5 and for failing to establish and maintain a supervisory system and establish, maintain, and enforce written supervisory procedures reasonably designed to ensure the timely filing of Form U4 and Form US amendments. 

In accordance with the terms of the AWC, FINRA imposed upon Respondent a Censure and $250,000 fine. As alleged in the "Overview" of the AWC:

From December 2018 through February 2021, MML failed to timely amend its associated persons' Forms U4 and Forms U5 to report 39 customer complaints and dispositions, criminal charges, regulatory actions, and other disclosable events and failed to establish and maintain a supervisory system reasonably designed to ensure the timely reporting of disclosable events during that time. By reason of the foregoing, MML violated Article V, Sections 2 and 3 of FINRA's By-Laws and FlNRA Rules 1122, 3110, and 2010. 

FINRA Censure and Fines Crews & Associates, Inc, Over Municipal Bonds Markups and Supervision
In the Matter of Crews & Associates, Inc, Respondent (FINRA AWC 2021072487002)
https://www.finra.org/sites/default/files/fda_documents/2021072487002
%20Crews%20%2620Associates%2C%20Inc.%20%20CRD%208052%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Crews & Associates, Inc submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Crews & Associates, Inc, has been a FINRA member firm since 1979 with over 132 registered representatives at 23 branches. As asserted in part in the "Background" portion of the AWC [Ed: footnotes omitted]:

In August 2021, Crews was sanctioned by the Securities and Exchange Commission for willfully violating MSRB Rule G-17 by recommending, at the direction of the firm's then-CEO, that a customer buy bonds through a tender offer without disclosing to the customer a conflict of interest arising from a Crews affiliate holding the same securities. Crews was also sanctioned for willfully violating MSRB Rule G-27 by failing to maintain a reasonably designed system to supervise the municipal securities activities of its associated persons, and willfully violating Section 15B(c)(l) of the Securities Exchange Act of 1934, which prohibits broker-dealers from effecting transactions in municipal securities in contravention of MSRB rules. The SEC censured the firm, ordered it to cease and desist from future violations of Section I 5B(c)(l), and ordered it to pay a total of $244,072 in disgorgement, prejudgment interest, and civil monetary penalties.

In accordance with the terms of the AWC, FINRA imposed upon Crews & Associates, Inc. a Censure, $50,000 fine, and an undertaking to certify compliance with the cited issues. As alleged in part in the AWC:

From August 2015 through the present, Crews has sold municipal bonds to a bank affiliate. The affiliate's banking regulators prohibited the affiliate from paying a markup when buying secondary market bonds from Crews. As a result, Crews agreed with its affiliate to not sell it secondary market bonds with a markup. Crews therefore created two trading accounts for traders involved in sourcing bonds for the affiliate: (i) an account for bonds Crews intended to sell to its affiliate, in which markups were not added, and (ii) a general inventory account, in which the firm added markups, intended for use when selling to other customers.

From August 2015 through the present, Crews failed to implement a reasonable supervisory system, including written supervisory procedures, to address the conflict of interest in the selling arrangement between Crews and its affiliate and, thus, to monitor for potential violations of MSRB Rules G-18 and G-17 in connection with charging markups to the bank affiliate. The firm did not discover, and therefore did not review for, potential indirect sales of bonds in general inventory to its affiliate through third-party intermediaries until August 2021. In addition, the firm's written supervisory procedures to date do not address the conflict presented when placing bonds in the affiliate-related account (precluding a markup) versus general inventory (entailing a markup).

From January 2017 through June 2021, the firm, through its former head trader, failed to abide by the arrangement with the affiliate bank and third-party broker-dealers were interposed in 94 transactions. Specifically, bonds were allocated to general inventory, a markup was added, and then the bonds were indirectly sold to Crews' affiliate bank using third-party broker-dealers as intermediaries.

Therefore, Crews violated MSRB Rule G-27. 

FINRA Fines and Suspends Crews & Associates, Inc Co-Founder, Over Municipal Bonds Markups and Supervision
In the Matter of Rush F. Harding III, Respondent (FINRA AWC 2021072487001)
https://www.finra.org/sites/default/files/fda_documents/2021072487001
%20Rush%20F.%20Harding%20III%20%20CRD%20501131%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Rush F. Harding III submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Rush F. Harding III entered the industry in 1976, and in 1979, he co-founded Crews & Associates, Inc., where he served as the firm's Head Trader and, from 2000 through 2019, as Chief Executive Officer. As asserted in part in the "Background" portion of the AWC [Ed: footnotes omitted]:

According to the Uniform Termination Notice for Securities Industry Registration (Form U5) filed by Crews on September 7, 2021, the firm permitted Harding to resign while he was "under heightened supervision and internal review." In a Form U5 Amendment, Crews disclosed that it had completed its internal review, concluding that, for "numerous transactions with an institutional client . . . [ o ]ver a four-year period, Mr. Harding inserted additional trading activity with other broker dealer(s)," that his "actions concealed that he was receiving brokerage commissions beyond his agreed upon compensation" and that "the trades were conducted in contravention of his arrangement with the client." Harding is not currently associated with any FINRA member but remains subject to FINRA's jurisdiction under Article V, Section 4 of FINRA's By-Laws.

In August 2021, Harding was sanctioned by the Securities and Exchange Commission for willfully violating MSRB Rule G-17 by directing Crews to recommend a customer buy bonds through a tender offer without disclosing to the customer a conflict of interest arising from a Crews affiliate holding the same securities. Harding was also sanctioned for willfully violating MSRB Rule G-27 by failing to maintain a reasonably designed system to supervise for municipal securities activities at Crews, and for causing Crews to violate Section 15B (c)(1) of the Securities Exchange Act of 1934, which prohibits broker-dealers from effecting transactions in municipal securities in contravention of MSRB rules. The SEC censured Harding, ordered him to cease and desist from future violations of Section 15B(c)(1), prohibited him from participating in a new issue or tender offer of municipal securities for a year, and imposed a total of $146,481 in disgorgement, prejudgment interest, and civil penalties.

In accordance with the terms of the AWC, FINRA imposed upon Harding a $30,000 fine, and a one-year suspension from associating with any FINRA member in all capacities. The AWC includes this admonition:

Respondent understands that this settlement includes a finding that he willfully violated MSRB Rules G-18(b) and G-17 and that under Article III, Section 4 of FINRA's By-Laws, this makes him subject to a statutory disqualification with respect to association with a member. 

As alleged in part in the AWC:

Since August 2015, Crews made over 1,000 secondary-market municipal bonds sales to an affiliated bank. The affiliate's banking regulators prohibited the affiliate from paying a markup when buying secondary market bonds from Crews. As a result, Crews agreed with its affiliate to not sell it secondary market bonds with a markup. Crews therefore created two trading accounts for Harding, who was responsible for sourcing bonds for the affiliate between August 2015 and September 2021: (i) an account for bonds Crews intended to sell to its affiliate, in which markups were not added, and (ii) a general inventory account, in which the firm added markups, intended for use when selling to other customers. Harding had discretion over where to place bonds Crews had purchased. After acquiring bonds, Harding determined whether to place the bonds in the firm's affiliate-related account or general inventory. Because bonds placed in the Crews general inventory account included a markup, Harding was prohibited from selling those bonds directly to the bank affiliate. 

Harding contravened Crews' arrangement with its bank affiliate and circumvented his firm's prohibitions against markups to the affiliate in connection with 94 municipal securities transactions between January 2017 and June 2021. For each such transaction, Harding indirectly sold bonds he had allocated to general inventory, and thus contained a markup, to Crews' affiliate using third-party broker-dealers as intermediaries. Specifically, Harding offered the marked-up bonds anonymously through a broker's broker. He then informed another broker-dealer that the bonds were available through the broker's broker and of potential interest to Crews' affiliate. The other broker-dealer then purchased the bonds and sold them, with another markup, to Crews' affiliate. On the 94 transactions, Crews' affiliate paid $918,476 in aggregate markups and other fees to Crews and third-party broker-dealers that it would not have paid had Harding placed the bonds in the affiliate-related account and sold them directly to the affiliate in the agreed upon manner. After discovering the 94 transactions in the summer of 2021, Crews permitted Harding to resign and reimbursed its affiliate $918,476, obtaining contribution from Harding for a portion of that amount. 

By interjecting third-party broker-dealers and effecting the 94 transactions such that Crews' affiliate paid additional and unnecessary markups and fees, Harding caused a customer to pay prices for the securities that were not as favorable as possible under prevailing market conditions. In addition, by charging a markup on the transactions in contravention of the firm's arrangement with the affiliate and in circumvention of his firm's prohibition against such markups, Harding engaged in deceptive, dishonest, or unfair conduct. As a result, he willfully violated MSRB Rules G-18(b) and G-17. 

Enforcement and Economics: Driving Better Case Outcomes Through Collaboration (FINRA Unscripted)
Chris Kelly (Acting Head of Enforcement) and Lori Walsh (Vice President of the Office of the Chief Economist) discuss how FINRA's Enforcement team has been partnering up with the Office of Regulatory Economics and Market Analysis to ensure better case outcomes.

Jury Convicts Insurance Agent Of Defrauding Elderly Investors (DOJ Release)
https://www.justice.gov/usao-mdfl/pr/jury-convicts-insurance-agent-defrauding-elderly-investors
After a six-week jury trial in the United States District Court for the Middle District of Florida, Phillip Roy Wasserman, 66, was found guilty of conspiracy to commit wire fraud and mail fraud and substantive counts of wire fraud and mail fraud. Prior to trial, the tax counts in the superseding indictment were ordered to be tried separately at the request of Wasserman. Previously, Wasserman’s codefendant, Kenneth Rossman, pled guilty to conspiracy to commit wire fraud and mail fraud as well as aiding and abetting the preparation of a false and fraudulent income tax return; and he awaits sentencing. As alleged in part in the DOJ Release:

[W]asserman, a former lawyer and licensed insurance agent, and Rossman, a Florida certified public accountant and licensed insurance agent, made false and fraudulent misrepresentations and concealed material information to convince elderly victim-investors to put their money into Wasserman’s new insurance venture – “FastLife.” Some victim-investors were persuaded to liquidate traditional investments such as annuities and/or to borrow funds against existing life insurance policies to generate cash to invest in the venture. These victim-investors were not told about surrender fees and other costs associated with said liquidations, or about negative personal tax consequences resulting from liquidations. Wasserman paid Rossman a percentage of the victim-investors’ money as compensation for his role in the conspiracy. Wasserman also used victim-investors’ money to make payments to earlier victim-investors in the FastLife venture, as well to as other earlier creditors.

Wasserman spent a significant amount of the victim-investors’ money to finance a lavish lifestyle that included a luxury personal residence, a beach house on Casey Key, Tampa Bay Lightning season and playoff tickets, concerts and other shows, vehicles, jet skis, jewelry, personal celebrity entertainment, gambling, retail shopping, home improvements, personal insurance, and a host of other expenses for his personal benefit and the benefit of family members.

The evidence also established that Wasserman took numerous affirmative steps to evade payment of more than $900,000 in taxes due and owed. Wasserman also failed to disclose a multitude of civil judgments and other debts pending against him at the time he solicited victim-investors to put their money into FastLife. In addition, Wasserman took steps to conceal FastLife’s mounting business debts to various business vendors and service providers, employees and independent contractors, and victim-investors. The investigation revealed that Wasserman had created a second set of books and fabricated a compensation agreement in an effort to convince investigators that he had not made improper personal use of victim-investors’ funds.

Moreover, Wasserman urged one witness to lie to investigators, attempted to dissuade several victim-investors from cooperating with law enforcement, and requested that one victim-investor make a baseless complaint against an investigator. In a further effort to thwart the investigation, Wasserman falsely and fraudulently represented that he had an audit from a highly regarded financial services firm that would show neither he nor FastLife had committed any wrongdoing. In fact, Wasserman had never even engaged the firm to perform an audit and never received any final work product of any kind from the firm.

From at least in or about 2013 through in or about 2019, MONTRAGE was a member of a criminal enterprise (the “Enterprise”) based in West Africa that committed a series of frauds against individuals and businesses in the United States, including romance scams. 

Many of the Enterprise’s romance scam victims were vulnerable, older men and women who lived alone.  The Enterprise frequently conducted the romance scams by sending the victims emails, text messages, and social media messages that deceived the victims into believing that they were in romantic relationships with a person who had, in fact, a fake identity assumed by members of the Enterprise.  Once members of the Enterprise had successfully convinced victims that they were in a romantic relationship and had gained their trust, they convinced the victims, under false pretenses, to transfer money to bank accounts the victims believed were controlled by their romantic interests, when, in fact, the bank accounts were controlled by members of the Enterprise.

MONTRAGE is a Ghanaian public figure who rose to fame as an influencer through her Instagram profile, under the username “Hajia4Reall,” which at one point had approximately 3.4 million Instagram followers and was among the top 10 profiles with the most followers in Ghana.

MONTRAGE received money from several victims of romance frauds whom members of the Enterprise tricked into sending money.  Among the false pretenses used to induce victims to send money to MONTRAGE were (i) payments to transport gold to the United States from overseas; (ii) payments to resolve a fake FBI unemployment investigation; and (iii) payments to assist a fake United States army officer in receiving funds from Afghanistan.

As to one victim, MONTRAGE used her real name and spoke to the victim several times by phone.  MONTRAGE sent the victim a tribal marriage certificate purporting to show that MONTRAGE and the victim had been married in Ghana.  The victim sent MONTRAGE approximately 82 wire transfers totaling approximately $89,000 to purportedly help with costs associated with MONTRAGE’s father’s farm in Ghana.

In total, MONTRAGE controlled bank accounts that received over $2 million in fraudulent funds from the Enterprise.

SEC Charges Red Rock Secured, Three Executives in Fraud Scheme Targeting Retirement Accounts (SEC Release)
https://www.sec.gov/news/press-release/2023-93
-and-
The CFTC and State Regulators in California and Hawaii Charge Los Angeles Area Precious Metals Dealer in Ongoing $61 Million Fraud Targeting the Elderly (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8704-23

In the United States District Court for the Central District of California, the SEC filed a Complaint charging Red Rock Secured LLC, the company's Chief Executive Officer Sean Kelly, and former Senior Account Executives Anthony Spencer, and Jeffrey Ward with violating the antifraud provisions of the federal securities laws
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-93.pdf. As alleged in part in the SEC Release:

[S]ince at least 2017, the defendants repeatedly solicited investors through false and misleading statements, telling them to “protect” their retirement savings by selling securities held in their federal employee Thrift Savings Plan accounts, 401(k) plans, and Individual Retirement Accounts to invest in gold or silver coins at only a 1 to 5 percent markup. In reality, Red Rock charged as much as 130 percent in markups, which allowed them to pocket more than $30 million of the more than $50 million they received from investors.

In the United States District Court for the Central District of California, the CFTC filed a Complaint charging Red Rock Secured LLC, the company's Chief Executive Officer Shade-Johnson Kelley a/k/a Sean Kelly, and Senior Account Executive Anthony Spencer,with executing an ongoing nationwide fraud that solicited and received over $61 million in customer funds to purchase silver and gold coins.  
https://www.cftc.gov/media/8601/enfredrockcomplaint051523/download As alleged in part in the CFTC Release:

[F]rom at least November 2019 and continuing through at least February 2022, the defendants made knowing or reckless misrepresentations and omissions to prospective and existing customers to induce them to purchase precious metals from Red Rock, in particular silver and gold Canadian Red-Tailed Hawk (RTH) coins.

As alleged in the complaint, the defendants convinced hundreds of customers to transfer funds in their tax-deferred retirement accounts, including individual retirement accounts (IRAs), 401(k) plans, and the U.S. Government Thrift Savings Plan, and use those funds to purchase the RTH coins from Red Rock through self-directed IRAs. The defendants also solicited and accepted funds from hundreds of customers to purchase precious metals from Red Rock using non-retirement funds.

The complaint further alleges the defendants knowingly or recklessly misled these customers into believing that Red Rock’s mark-up on these coins—i.e., the difference between what Red Rock paid to acquire the RTH coins and the price Red Rock charged its customers for those coins—would fall between either 4% to 29% or, in some instances, 1% to 5%.  In reality, Red Rock routinely and repeatedly charged mark-ups ranging from approximately 100% to 130% on the RTH coins, and did not tell customers the actual mark-ups charged. In addition, the complaint alleges the defendants made other misrepresentations and omissions about, among other things, Red Rock’s relationship with various mints, in particular the mint which produced the RTH coins; pricing and mintage of the RTH coins; “bonuses” and “discounts” purportedly offered to Red Rock’s customers; and the purported “retail/market value” of the customers’ RTH coins.

In total, according to the complaint, the defendants fraudulently solicited approximately $61.8 million from more than 950 customers to purchase RTH coins. Red Rock charged its customers approximately $34.4 million in mark-ups on those purchases, as part of the defendants’ fraudulent scheme.

SEC Charges Microcap Company and Its Executives with Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25726.htm
Read the SEC Complaint as filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2023/comp25726.pdf
As alleged in part in the SEC Release:

According to the SEC's complaint, in a July 23, 2021 press release, Quanta and Arthur Mikaelian misrepresented the FDA staff's response to the company's proposed clinical trial of Escozine as a Covid-19 treatment. As the complaint alleges, the press release misrepresented that the FDA staff's response validated the clinical study conducted in the Dominican Republic and that the FDA's staff had recognized the potential therapeutic benefits of Escozine. The complaint further alleges that these, and additional false and misleading statements in the press release, gave investors the impression that the FDA's staff was positive about the proposed clinical trial and the results of its clinical trials in the Dominican Republic. However, as alleged in the complaint, the FDA staff's response stated that the Dominican Republic clinical trial "cannot be directly leveraged to support your proposed clinical trial" and that antiviral activity "has not been demonstrated with your specific product, [E]scozine."

In addition, the SEC's complaint alleges that Quanta included $198,000 of improperly recognized revenue in its Form 10-Q for the first quarter of 2021, causing Quanta to overstate its total revenue by 61% in that quarter. The SEC's complaint alleges that Quanta based its improper revenue recognition on a backdated purchase order created by Grant Mikaelian for its Escozine immunapens, which it also provided to Quanta's auditors as support for its revenues. The SEC's complaint further alleges that Arthur Mikaelian falsely represented in a management representation letter to Quanta's auditor that the quarterly financials were prepared in accordance with generally accepted accounting principles (GAAP), and he certified Quanta's first quarter Form 10-Q, which included the $198,000 in revenue.

Quanta, without admitting or denying the allegations in the SEC's complaint, consented, pre-filing, to the entry of a final judgment which permanently enjoins it from violating the antifraud, reporting, books and records, and internal controls provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.

Arthur and Grant Mikaelian, without admitting or denying the allegations in the SEC's complaint, consented, pre-filing, to the entry of final judgments permanently enjoining each of them from violating Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b5, 13a-14, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a1, and 13a-13 thereunder and Rules 12b-20 and 13a-13 thereunder, respectively. In addition, Arthur and Grant Mikaelian each consented, pre-filing, to five-year officer and director bars and five-year penny stock bars, and civil penalties of $150,000 and $75,000, respectively.

“Lessons from Mrs. O’Leary’s Cow:” Remarks before the Atlanta Federal Reserve Financial Markets Conference by SEC Chair Gary Gensler
https://www.sec.gov/news/speech/gensler-remarks-atlanta-federal-reserve-financial-markets-conference-051523

Thank you, Tom. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

Mrs. O’Leary’s Cow

So the story goes, in 1871, Mrs. O’Leary’s cow kicked over a lantern. Her barn was enflamed. The fire spread quickly through the wooden buildings of Chicago, and 2,100 acres burned.[1]

In the following years, Chicago rebuilt itself with new rules and an upgraded fire department to limit the risk of flames raging across the city.[2] Those Chicagoans understood this wasn’t just a simple accident of a cow and a lantern. It was about building materials and incentives related to the city’s infrastructure. It was about fire prevention and firefighting equipment.[3] Building codes and fire departments, though they come at a cost and need for updates, have made the community more resilient for 150 years.

Finance, too, has seen fires starting in one barn that go on to engulf entire communities.

Finance

Finance is about the pricing and allocation of money and risk throughout the economy. There are those who have money who want to invest it. Others need money to fund good ideas, buy a house, or help get through life’s inevitable challenges. There are those who have risk but don’t want to bear it, and others willing to take on that risk.

Finance sits in the middle, like the neck of an hourglass whose grains of sand are money and risk. Finance is a network that relies on trust.

Since antiquity, finance has tended toward centralization, concentration, and economic rents—whether the Medici family back in the 15th century or J.P. Morgan a century ago. That’s because financial intermediaries benefit from scale, network effects, and access to valuable data.

Such intermediaries don’t just sit passively passing the sand through the hourglass. They become important market participants themselves. They retain and transform money and risk. They seek profits from arbitraging differences in pricing of money and risk. They create forms of money, whether it be deposits, money market funds, or funding in the repurchase (repo) markets. They retain risks related to valuations, rates, credit, funding, liquidity, maturity transformation, leverage, correlations, operations, and many others. Such intermediaries also tap the capital markets, and in times of stress, may lose funding if counterparties and investors question their market-based solvency.

This is the nature of finance. Just as we can’t repeal the laws of physics and nature, risk in finance always will be there. As Treasury Secretary Bob Rubin used to say, “Markets go up, markets go down.”[4]

Financial Fires through Time

History is replete with times when fires in one corner of the financial system or at one financial institution spread to the broader economy. When this happens, the American public—bystanders, like the Chicagoans who saw their homes burn—inevitably gets hurt.

Such fires, though too many to name, have started from both the banking and nonbanking sectors.

It is said that the Chicago fire along with another in Boston helped fuel a bank run, possibly contributing to the Panic of 1873.[5]

Decades later, the Panic of 1907 ultimately led to President Wilson’s reforms to establish the Federal Reserve with authorities both as a building code regulator and as a form of a fire department.[6]

The 1929 Crash and ensuing Great Depression led President Roosevelt and Congress to set up the Federal Deposit Insurance Corporation[7] and Securities and Exchange Commission.[8]

In the early 1930s, in the town of Bedford Falls, NY, there was a run on Bailey Bros. Building and Loan. George Bailey explained to the panicked crowd, “The money’s not here. Your money's in Joe's house... and a hundred others.” Fortunately, Jimmy Stewart saved the day, as told in It’s a Wonderful Life.[9]

The financial fires of 2008 led to more than eight million Americans losing their jobs, millions of families losing their homes, and small businesses across the country folding. This led to updates in building codes and fire departments for finance in the Dodd-Frank Act.

Fires and Resiliency

Economists have written extensively on the causes and contagion of financial fires. Such financial stability literature highlights herding, network interconnectedness, and regulatory gaps.[10]

Herding is when multiple individual actors make similar decisions. In times of stress, otherwise uncorrelated actors can suddenly become correlated, like those cows stampeding in City Slickers.[11] Given that greed and fear both are basic emotions in markets, herding occurs for both bulls and bears. Whether it be breakdowns in risk management, such as in the subprime mortgage market prior to the 2008 crisis, or breakdowns in confidence, such as in bank runs, herding has contributed to many a financial fire.

Finance is a complex, interconnected, global network, with many transmission channels by which financial fires might spread. During the financial crisis, Andy Haldane, then the head of financial stability at the Bank of England, compared the financial network to tropical rainforests, at the same time robust and fragile.[12]

The Great Chicago fire of 1871 also exposed regulatory gaps, both in building codes and fire preparedness.

Finance, time and again, also has seen regulatory gaps lead to fires. Such gaps can occur when financial regulations don’t treat like activities alike. Market participants may then arbitrage such differences here in the United States and between countries. Gaps also emerge when technologies provide new ways of intermediating, transforming, or creating risk and money. In these instances, regulators often fail to keep pace.

The SEC’s Role in Financial Stability

The SEC was established as a direct result of a financial fire. Congress gave us a mandate to protect investors and promote the public interest. In so doing, they understood we also had to oversee those intermediaries at the neck of the hourglass, such as stock exchanges, clearinghouses, broker-dealers, investment advisers, and transfer agents.

Congress enhanced our authorities in the wake of subsequent financial market fires, from government securities,[13] clearinghouses,[14] advisers to private funds,[15] auditing,[16] security-based swaps,[17] and credit rating agencies.[18]

Promoting financial resiliency goes to the core of the SEC’s three-part mission. It’s the essence of fair, orderly, and efficient markets. In normal times, it helps promote trust in capital markets. In times of stress, it protects investors and issuers alike.

Thus, given ever-changing technology and business models, I’m proud that the SEC has taken up a number of projects to enhance the resiliency of our capital markets.

Treasury Markets

First, in the spirit of building codes, let me start with the foundation of our entire capital markets—the $24 trillion Treasury markets. Over the decades, we’ve seen jitters in these markets, from the failures of a dozen government securities firms in the early 1980s to challenges in the 1990s to repo problems in 2019 and the dash for cash in 2020. Just this March, we saw the Treasury markets experience the greatest volatility in 35 years.[19]

Such jitters matter, as the Treasury markets are interconnected to the entire market. They are embedded in money market funds and the short-term funding markets and are integral to the implementation of monetary policy. They are how we as a people fund our government.

Further, many hedge funds are receiving the vast majority of their repo financing in the non-centrally cleared market.[20] This might create greater risk in times of stress, particularly when large, interconnected hedge funds achieve high leverage from banks and prime brokers in the Treasury markets.

Thus, working with the Department of the Treasury and the Federal Reserve System, the SEC has put forth a number of reforms in these markets. These projects include broadening central clearing, registering dealers, regulating trading platforms, and promoting greater transparency.[21]

Clearing

Second, speaking of central clearing, clearinghouses have helped lower risk in our markets since the 19th century. Given that they sit in the middle of the capital markets, though, it’s imperative that we continually look to update rules regarding clearing and clearinghouses themselves.

Thus, earlier this year, we finalized rules to cut in half the settlement cycle in securities markets.[22] We’ve proposed rules to strengthen clearinghouse governance and use of service providers.[23] This Wednesday, we’re considering proposals regarding the contents of a covered clearing agency’s recovery and wind-down plan.[24]

Private Funds

Third, given the fire of 2008 and earlier sparks at Long-Term Capital Management, Congress understood the importance of shining a brighter light of transparency on a significant and growing part of the nonbank market.[25] Private funds, now $25 trillion in gross assets,[26] surpass the $23 trillion U.S. banking sector.[27] Private funds participate in nearly every sector of our capital markets and are connected through the use of leverage provided by banks and broker-dealers.

Thus, we recently adopted rules requiring, for the first time, private fund advisers to make current reports of events that may indicate significant stress or otherwise signal for systemic risk and investor harm.[28] In addition, working with the Commodity Futures Trading Commission, we proposed enhanced periodic reporting for large hedge funds.[29]

Money Market Funds and Open-end Funds

Fourth, in times of stress, we’ve also seen financial stability sparks emanating from money market funds and open-end bond funds. In 2008, one money market fund “broke the buck.” If it weren’t for extraordinary fire department action—I mean federal government intervention—things could have gotten a lot worse. We saw related issues during the onset of the Covid-19 pandemic.

Money market funds and open-end bond funds, by their design, have a potential liquidity mismatch—between investors’ ability to redeem daily on the one hand, and funds’ securities that may have lower liquidity.[30] Thus, we’ve put out proposals intended to address these structural issues and enhance liquidity risk management for both money market and open-end funds.

Cyber

Fifth, nearly 40 years before that cow and the lantern, it may not surprise any of you that the first known cyber hack related to finance.[31]

Almost two hundred years later, the financial sector increasingly relies on complex, interconnected, and ever-evolving information systems. Those who seek to harm these systems have become more sophisticated as well: in their tactics, techniques, and procedures.

Thus, the Commission has made a number of proposals to enhance cybersecurity practices and incident reporting of financial sector market participants.[32]

Risks on the Horizon

Before I close, I want to address risk on the horizon, some in the near term, some possibly further out in the distance.

The economy is adjusting to a rise in interest rates more significant than in decades and ongoing geopolitical risk. With such a transition of inflation and rates, it’s appropriate to stay alert to financial stability issues. As the Federal Reserve’s recent Financial Stability Report noted, areas of concern include “vulnerabilities related to valuation pressures, borrowing by businesses and households, financial-sector leverage, and funding risks.” It also noted that “hedge fund leverage remained elevated.”[33]

Further, it might go without saying, but there would be quite a raging fire if the U.S. Treasury were to default on the debt.

Looking further out on the horizon, I would briefly note three things: moral hazard, the digital economy, and artificial intelligence.

There are tradeoffs of governmental interventions in the markets to forestall the spread of a financial fire. Moral hazard arises when official sector support in times of stress potentially incentivizes greater risk taking by individual actors in the private sector. Further, generally not all the costs to the economy of any individual market participant’s failure are borne by that particular participant. Thus, risk appetites and management may change in a way that’s adverse to financial stability.

As it relates to the rise of the digital economy—and I’m not talking about the generally noncompliant crypto markets—we’ve already seen the effects of fintech and social media on significant parts of consumer finance and investing. It’s possible, particularly in light of the higher rate environment, that we might see consequential changes to the deposit and banking landscape.

Looking further out, the use of predictive data analytics and artificial intelligence might be the most transformative technology of our time. This transformation is happening throughout our economy, and finance is no exception.

AI already is being used for call centers, account openings, compliance programs, trading algorithms, sentiment analysis, robo-advisers, and brokerage apps. Such applications can bring benefits in market access, efficiency, and returns.

It also has the potential to heighten financial fragility as it could increase herding, interconnectedness, and expose regulatory gaps.[34]

Existing financial sector regulatory regimes—built in an earlier era of data analytics technology—are likely to fall short in addressing the systemic risks posed by broad adoption of deep learning and generative AI in finance.[35]

Conclusion

Financial history tells us sparks will fly from time to time. One never knows when a cow may kick over a lantern or go rogue—or risk in one financial institution may burn through the system.

The SEC has an important role to help protect for financial stability and promote markets that are more resilient to fires.

This is why the SEC’s resiliency projects are so important. We are focused on strengthening the building codes of finance to better protect our clients, the American public.

[1] See Chicago Architecture Center, “The Great Chicago Fire of 1871,” available at https://www.architecture.org/learn/resources/architecture-dictionary/entry/the-great-chicago-fire-of-1871/.

[2] See National Geographic, “The Chicago Fire of 1871 and the ‘Great Rebuilding,’” available at https://education.nationalgeographic.org/resource/chicago-fire-1871-and-great-rebuilding/.

[3] See “History of the Chicago Fire Department” available at https://www.chicago.gov/dam/city/depts/cfd/general/PDFs/HistoryOfTheChicagoFireDepartment_1.pdf.

[4] See “Press Briefing by Dee Dee Myers” (May 17, 1994), available at https://www.presidency.ucsb.edu/documents/press-briefing-dee-dee-myers-7.

[5] See “History of Economic Turmoil in the U.S. Part 1 of 3 – The Early Years,” available at https://americandeposits.com/history-economic-turmoil-united-states-early-years/.

[6] See Jon R. Moen and Ellis W. Tallman, “The Panic of 1907,” available at https://www.federalreservehistory.org/essays/panic-of-1907.

[7] See Federal Deposit Insurance Corporation, “Historical Timeline,” available at https://www.fdic.gov/about/history/timeline/1930s.html.

[8] See Library of Congress, “National Recovery Administration (NRA) and the New Deal: A Resource Guide,” available at https://guides.loc.gov/national-recovery-administration/new-deal#:~:text=The%20crash%20led%20to%20Congress,clear%20rules%20of%20honest%20dealing.%22.

[9] See “It’s A Wonderful Life Bank Run,” available at https://www.youtube.com/watch?v=iPkJH6BT7dM.

[10] See Gary Gensler and Lily Bailey, “Deep Learning and Financial Stability” (Nov. 13, 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3723132.

[11] See “City Slickers: Cow Coffee” available at https://www.youtube.com/watch?v=MlhYPlXtrNY.

[12] See Andrew Haldane, “Rethinking the financial network” (April 28, 2009), available at https://www.bis.org/review/r090505e.pdf.

[13] Pub. L 99-571.

[14] Pub. L 94-29.

[15] Pub. L 111-203.

[16] Pub. L 107-204.

[17] Pub. L 111-203.

[18] Pub. L 109-291.

[19] See Ice Data Indices, LLC, US-ICE BofAML MOVE Index, available at https://indices.theice.com/.

[20] As a 2021 G30 report put it, “In principle, if all repos were centrally cleared, the minimum margin requirements established by FICC would apply marketwide, which would stop competitive pressures from driving haircuts down (sometimes to zero), which reportedly has been the case in recent years.” See Group of 30 Working Group on Treasury Market Liquidity, “U.S. Treasury Markets: Steps toward Increased Resilience” (2021), available at https://group30.org/publications/detail/4950. In addition, as a 2021 Federal Reserve Board report said, “Most of hedge fund repo is transacted bilaterally, with only 13.7% of the repo centrally cleared.” See Federal Reserve Board Division of Research & Statistics and Monetary Affairs, “Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis” (April 2021), available at https://www.federalreserve.gov/econres/feds/files/2021038pap.pdf.

[21] See Securities and Exchange Commission, “SEC Proposes Rules to Improve Risk Management in Clearance and Settlement and to Facilitate Additional Central Clearing for the U.S. Treasury Market” (Sept. 14, 2022), available at https://www.sec.gov/news/press-release/2022-162. See also “SEC Proposes Amendments to Include Significant Treasury Markets Platforms Within Regulation ATS” (Jan. 26, 2022), available at https://www.sec.gov/news/press-release/2022-10. See also “SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information” (April 14, 2023), available at https://www.sec.gov/news/press-release/2023-77.

[22] See Securities and Exchange Commission, “SEC Finalizes Rules to Reduce Risks in Clearance and Settlement” (Feb. 15, 2023), available at https://www.sec.gov/news/press-release/2023-29.

[23] See Securities and Exchange Commission, “SEC Proposes Rules to Improve Clearing Agency Governance and to Mitigate Conflicts of Interest” (Aug. 8, 2022), available at https://www.sec.gov/news/press-release/2022-138.

[24] See Securities and Exchange Commission, “Sunshine Act Notice” (May 10, 2023), available at https://www.sec.gov/os/sunshine-act-notices/sunshine-act-notice-open-051723.

[25] 15 U.S.C. 80b-4(b).

[26] Based on Form ADV filings through March 31, 2023. Represents sum of Registered Investment Adviser GAV and Exempt Reporting Adviser GAV, less estimated overlap.

[27] See Federal Reserve, “Assets and Liabilities of Commercial Banks in the United States” (May 12, 2023), available at https://www.federalreserve.gov/releases/h8/current/default.htm. Total assets of approximately $22.9 trillion (Table 2, Line 33).

[28] See Securities and Exchange Commission, “SEC Adopts Amendments to Enhance Private Fund Reporting” (May 3, 2023), available at https://www.sec.gov/news/press-release/2023-86.

[29] See Securities and Exchange Commission, “SEC Proposes to Enhance Private Fund Reporting” (Aug. 10, 2022), available at https://www.sec.gov/news/press-release/2022-141.

[30] See Securities and Exchange Commission, “SEC Proposes Amendments to Money Market Fund Rules” (Dec. 15, 2021), available at https://www.sec.gov/news/press-release/2021-258. See also “SEC Proposes Enhancements to Open-End Fund Liquidity Framework” (Nov. 2, 2022), available at https://www.sec.gov/news/press-release/2022-199.

[31] See Tom Standage, “The crooked timber of humanity” (Oct. 5, 2017), available at https://www.1843magazine.com/technology/rewind/the-crooked-timber-of-humanity.

[32] See Securities and Exchange Commission, “SEC Proposes New Requirements to Address Cybersecurity Risks to the U.S. Securities Markets” (March 15, 2023), available at https://www.sec.gov/news/press-release/2023-52. See also “SEC Proposes to Expand and Update Regulation SCI” (March 15, 2023), available at https://www.sec.gov/news/press-release/2023-53. See also “SEC Proposes Changes to Reg S-P to Enhance Protection of Customer Information” (March 15, 2023), available at https://www.sec.gov/news/press-release/2023-51. See also “SEC Proposes Cyber Security Risk Management Rules and Amendments for Registered Investment Advisers and Funds” (Feb. 9, 2022), available at https://www.sec.gov/news/press-release/2022-20.

[33] See Federal Reserve, “Financial Stability Report” (May 2023), available at https://www.federalreserve.gov/publications/files/financial-stability-report-20230508.pdf.

[34] See Gary Gensler and Lily Bailey, “Deep Learning and Financial Stability” (Nov. 13, 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3723132.

[35] Separately, commenters to an SEC request for comment on digital engagement practices noted the use of predictive data analytics also can lead to potential conflicts. See Securities and Exchange Commission, “SEC Requests Information and Comment on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology” (Aug. 27, 2021), available at https://www.sec.gov/news/press-release/2021-167. See also Gary Gensler, “Testimony of Chair Gary Gensler before the United States House of Representatives Committee on Financial Services” (April 18, 2023), “I’ve asked staff to make recommendations for the Commission’s consideration for rule proposals regarding how best to address any of these potential conflicts,” available at https://www.sec.gov/news/testimony/gensler-testimony-house-financial-services-041823.