Weekly Roundup

Short Sellers x SEC Team-up: Numerous industry experts have expressed their surprise that a few notable Wall Street short sellers are teaming up with the SEC to expose misconduct. Several prominent short sellers, including Nate Anderson, Kyle Bass, and Carson Block, are sharing their research highlighting questionable accounting practices with the agency’s whistleblower office. While this unexpected collaboration offers the SEC potential head starts on investigations, several sector observers have called the ethics surrounding this unexpected alliance into question.

Proprietary Trading Data: According to Acuiti Proprietary Trading Management’s latest Insight Report, investment firm budgets are widely expected to increase in 2024. Specifically, 63% of trading houses believe that spending throughout their portfolios will be higher than their average annual figures. The report points to the usage of algorithmic trading tools and connectivity to new markets as the reasons behind this expected increase.

DOJ’s Uphill Battle vs. Financial Fraud: While the recent conviction of FTX founder and former CEO Sam Bankman-Fried served as a bright spot for the Justice Department’s campaign against financial crimes, various watchdog groups have noted that numerous distressing figures point to a lack of prosecutorial success in this key area. These organizations note that the stark decrease in the government’s conviction rate within these kinds of cases coincides with fiscal losses attributable to online fraud surging to $10.3 billion in 2022 (a 50% increase from 2021).

IRS Crypto Tax Proposal: The IRS is facing significant pushback from the crypto sector as it considers a tax proposal for digital assets. The open comment period for this potential rule has garnered a staggering 124,000 replies, which industry experts note reflects the vast concern about the potential threat this increased regulation would pose to investor privacy and decentralized crypto projects. Specifically, crypto advocates argue that the proposal, particularly its definition of a “broker,” is overly broad and could ensnarl various unrelated participants throughout the blockchain ecosystem.

SEC’s 2023 Enforcement Report: In fiscal year 2023, the SEC reported that the agency initiated a record-breaking 784 enforcement actions. Noteworthy cases included fines for unauthorized communications channel usage, enforcement actions under the Marketing Rule targeting investment advisors, and a crackdown on crypto-related activities. This report reflects SEC Chairman Gary Gensler’s views on crypto offerings attempting to register with the commission, online stock promotion, and ESG investing.

New York’s Strict Crypto Rules: New York state is tightening its grip on crypto regulation with new rules requiring cryptocurrency exchanges and entities to halt the certification of new coins and tokens until they submit updated policies to the New York Department of Financial Services. These updated guidelines define the department’s new criteria for evaluating tokens, governance approval processes, record-keeping standards, and conflict of interest safeguards. 

SEC Finalizes Rules to Improve Agency Clearing Governance: The SEC adopted rules to improve clearing agency governance and mitigate conflicts of interest. The rules, which are effective a year from now, received bipartisan support in setting forth governance standards for registered clearing agencies.

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

  • Navin Gupta, managing director of South Asia and MENA at Ripple, spoke to Cointelegraph about the need for a technology-neutral approach to crypto regulations. “We don’t want people to think about regulating the technology… We want regulators, or anybody for that matter, to be technology-neutral. It doesn’t matter if the [activity] is happening in blockchain or traditionally,” said Gupta.

  • Solicitor General Elizabeth Prelogar filed a brief to the U.S. Supreme Court urging the justices to reverse a Fifth Circuit Court decision that limited the SEC’s use of in-house administrative law judges on matters pertaining to public rights. “The SEC actions at issue here fall within the heartland of the public-rights doctrine,” Prelogar said in her brief.