On January 8, 2021, Judge Richard Seeborg of the United States District Court for the Northern District of California issued an Order denying a motion to dismiss in S.E.C. v. NAC Foundation, LLC, et al. The U.S. Securities & Exchange Commission (SEC) had previously filed a civil complaint against blockchain development company NAC Foundation, LLC (NAC) and NAC’s CEO, Marcus Rowland, alleging that NAC’s and Rowland’s sale of “stand-in” digital tokens constituted a fraudulent and unregistered sale of digital securities. The Department of Justice (DOJ) brought a parallel criminal proceeding, alleging violations of federal wire fraud and money laundering statutes. DOJ also filed a separate criminal case against former high-profile lobbyist Jack Abramoff in connection with his role in the promotion of NAC’s digital assets.
Earlier this year, the U.S. Department of Justice (“DOJ”) released its highly anticipated Cryptocurrency Enforcement Framework (the “Framework”). The Framework was developed as part of the Attorney General’s Cyber-Digital Task Force, and contains three sections: (1) Threat Overview; (2) Law and Regulations; and (3) Ongoing Challenges and Future Strategies.
On December 1, 2020, the U.S. Commodity Futures Trading Commission (“CFTC”) Division of Enforcement released its Annual Report, which details a “record-breaking” fiscal year 2020 (“FY 2020”), despite the challenges presented by the COVID-19 pandemic.
Notably, the CFTC filed a historic 113 enforcement actions—up from 69 filed in FY 2019, 83 filed in FY 2018, and an increase over the previous high of 102 filed in FY 2012. The chart below shows the breakdown of enforcement actions by category, and Appendix B of the Annual Report provides individual case citations.
Weeks after touting its record-breaking enforcement haul, the Commodity Futures Trading Commission (“CFTC”) Enforcement Division issued a memorandum providing guidance for enforcement staff to use when recommending the recognition of cooperation, self-reporting and remediation during the enforcement process. The historic enforcement performance demonstrated that the CFTC can wield a large stick, but the latest guidance is aimed at recognizing efforts in resolving violations.
In an October 12 speech, the Director of Market Oversight for the Financial Conduct Authority (FCA) emphasized the need to adapt insider trading controls to account for changes in working conditions due to COVID-19 restrictions.
The Director’s speech started by discussing that global economic conditions have heightened the need for companies to raise capital, and that the UK has seen a significant portion of this activity, with the FCA citing the fact that “the UK saw a greater volume of follow-on equity issuance than the next 7 major European bourses combined.” At the same time, working conditions of financial professionals has changed dramatically since March 2020 with many now working from home in response to the COVID-19 pandemic. While this situation presents novel issues for firms and professionals, the FCA emphasized the need for firms to adapt and implement effective insider trading controls. The Director emphasized, “[a]t a time where capital raising activity is vital to fuel much needed economic activity, we must be crystal clear that behaviours that risk disrupting that activity will not be tolerated.”
On October 6, 2020, the Commodity Futures Trading Commission (“CFTC”) issued a release describing its record-breaking enforcement year. The release noted that in fiscal year 2020 (“FY2020”), the CFTC filed more enforcement actions than any other year in the history of the agency. CFTC Chairman Heath P. Tarbert stated “[w]e are tough on those who break the rules, and this historic year only further underscores this point.”
The most recent headlines emphasize the CFTC’s enthusiasm in pursuing spoofing-related actions. Of note, the CFTC ordered a registrant and affiliates associated with one of the largest bank holding companies to pay a record $920 million for spoofing and manipulation that spanned over eight years. This penalty comes as the largest monetary relief in the agency’s history. In September alone, the CFTC announced three other spoofing settlements with fines totaling nearly $1.8 million, and brought charges against a trading firm and two of their traders.
On September 10, 2020, the CFTC announced the issuance of new, public, guidance to its enforcement staff on evaluating the adequacy of corporate compliance programs. The new guidance provides enforcement staff a framework with which to assess participants’ compliance programs, and is intended to ensure consistency and transparency in such reviews.
The latest publication continues the Commission’s efforts to increase transparency in the enforcement process. In May, the CFTC formally issued guidance regarding Enforcement’s decisions to recommend the imposition of civil monetary penalties, and last year the Division issued its first public Enforcement Manual. More details on these previous issuances from the CFTC can be found here and here.
A Spoofing Record Breaker
On August 19, 2020, the Commodity Futures Trading Commission (“CFTC”) issued three orders filing and settling charges against a bank with a provisionally registered swap dealer (the “Firm”) requiring the Firm to pay $127.4 million for spoofing and making false statements, as well as for swap dealer compliance and supervision violations.