Another month of extraordinary developments. We hope you find these summaries helpful for setting priorities & educating your colleagues about risks.
This recent SEC Release gives a sense of the SEC’s concerns about digital assets as an underlying asset in securities products such as ETFs/ ETPs. The SEC asks for comment about whether the trading market for bitcoin (and therefore the price) is adequately protected from manipulation and fraud.
For anyone looking to understand NFTs and information for a risk assessment.
Recent fraud amid help for Ukraine with WORLD.
SEC and Other Enforcement Actions
BlockFi to pay $100M in fines to SEC and state regulators for an allegedly illegal offering of a high interest product. BlockFi’s interest account (known as BIA) allows users to lend out their crypto for up to 9.25% in annual percentage yield.
Developments in SEC case against Terraform Labs. The SEC accused Terraform Labs (TFL) and Kwon of participating in “the creation, promotion and offer to sell assets and MIR tokens to U.S. investors.” The regulatory process did not go well. TFL was interviewed and didn’t expect to be served at a US conference. TFL then sued the SEC last October in the US. In the latest development, the SEC prevailed on their jurisdictional argument, and the Court ordered TFL to comply with the SEC’s subpoena.
It is important to remember marketing can be a key to liability. BitMEX founders plead guilty to Bank Secrecy Violations. In part, the Hayes and Delo were held liable due to their marketing/influencer activities. Despite repeatedly stating that BitMEX did not serve U.S. customers, the SEC claimed they knowingly designed BitMEX as a platform to contravene U.S. Anti-Money Laundering Rules. The SEC also alleged they knew that BitMEX’s withdrawal from the US market and the controls put in place to prevent U.S. trading were ineffective. In other words, BitMEX knew U.S. customers continued to trade and as a result they derived substantial profits. The SEC also alleged the founders actively sought out U.S. customers by using U.S.-based cryptocurrency “influencers” to market to new customers, conducted U.S. television appearances and marketing campaigns that promoted BitMEX’s products.
YOUR COMPLIANCE & RISK PROGRAM
Compliance officers should focus on networking and benchmarking. The pace is fast and expectations for regulatory change are increasing. Confirm you have a helpful record retention policy and code of conduct. It is also important to be vigilant in considering jurisdiction for soliciting business – the BitMEX and Terraform cases are good examples of the expectation for business development.