Weekly Roundup

Grayscale Ruling: In a landmark victory for the crypto ETF industry, the U.S. Court of Appeals for the D.C. circuit stated that the SEC must reconsider its denial of Grayscale’s application for a spot bitcoin ETF. The court ruled the SEC’s denial of the Bitcoin ETF application was “arbitrary and capricious” due to the agency’s inconsistent treatment toward similar applications in the futures ETF context. The unanimous court decision, including two judges appointed by Democratic presidents, represents a challenge to SEC Chair Gary Gensler’s decision-making process, with further litigation anticipated to come on other topics.

Gensler’s ESG Regulations: On top of losing the Grayscale decision, SEC Chair Gary Gensler’s approach to issuing regulations has some sector watchdogs concerned that climate disclosure rules and other ESG reporting priorities might not come to fruition. An analysis by Bloomberg Law this week highlighted that Gensler has adopted only 22 rules since assuming office, a figure that is lower than any previous SEC chair at this point in their tenure. With less than a year and a half until the 2024 election, certain consumer groups plan to increase the pressure on Gensler to pick up the pace.

Unregistered Securities Sales: The SEC this week issued its first ever NFT-related enforcement action when it charged Impact Theory, a Los Angeles-based media and entertainment company, with conducting unregistered securities sales. According to the agency, the company illegally raised $30 million in 2021 by marketing their NFT purchases as an “investment into the business,” thus classifying them as securities. Impact Theory has been ordered to return all funds to investors that were collected as part of this effort and to pay more than $6.1 million in disgorgement, prejudgment interest, and civil penalty fines.

Citigroup Settlement: As part of a settlement with the SEC, Citigroup Global Markets has agreed to pay a civil penalty of $2.9 million due to their willful violation of record-keeping requirements regarding expenses tied to underwriting activities between 2009 and 2019. The SEC stated that during this ten-year period, the company used an unverified method to calculate and document indirect expenses related to its underwriting work. In addition to the aforementioned civil penalty, the settlement also includes a cease-and-desist order and a censure.

X’s Currency Transmitter License: X, the social media company formerly known as Twitter, took an essential step toward expanding into the financial services space after Rhode Island regulators this week granted them a currency transmitter license. This permit will allow X to engage in financial activities involving money transmission of both traditional and digital currency assets, which has increasingly become central to CEO Elon Musk’s goal of turning the platform into an “everything app” that users will integrate into more aspects of their daily lives.

In the Mix: This Week’s Top FinTech Thought Leader

  • SEC Commissioner Hester Peirce shared her dissenting opinion on the newly passed private fund reforms during this week’s SEC meeting. Since the rules were adopted, a number of industry observers have supported Peirce’s view that the new policy, which is intended to promote transparency amongst hedge funds and private equity firms, is not needed and will unnecessarily harm the industry. “The rulemaking is a historical, unjustified, unlawful, impractical, confusing and harmful . . . In the name of fostering competition, we are squelching it,” said Peirce.

  • John Kim, chief product officer at PayPal, spoke with The Associated Press regarding how the company plans to deploy AI as part of their efforts to streamline payments and prevent fraud. Over the next few months, PayPal is planning on launching three new AI-related products that will bolster these key efforts to improve user experience and safeguard key customer data. “I think AI has captured a lot of people’s imaginations this year. It’s made its way to boardrooms, into stores, every product conversation. Some people have been skeptical, and I think some skepticism is healthy. For example, we want to use AI to increase our chatbots’ capability to engage with customers,” said Kim.

  • Cathie Wood, CEO of Ark Investment Management, continued to invest in the AI sector, estimating that AI could add $200 trillion in output to the global workforce by 2030, with software a key driver.