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SEC temporarily allows municipalities to sell securities to banks
On June 16, the SEC released a temporary exemptive order, which provides a temporary conditional exemption for registered municipal advisors to sell municipal securities to banks, their wholly-owned subsidiaries engaged in commercial lending and financing activities, and credit unions. Specifically, the order, which is intended to “address disruption in the municipal securities market” due to Covid-19, provides municipal advisors a temporary exemption from broker registration under Section 15 of the Securities Exchange Act of 1934. The order notes that most municipal issuers facing “significant budget shortfalls” do not meet the eligibility criteria for the Federal Reserve Board’s Municipal Liquidity Facility, and therefore, the temporary exemption will help to “facilitate more timely and efficient access to bank financing alternatives by municipal issuers.” The order details the permitted activities allowed under the temporary exemption, along with written representations the municipal advisor must obtain. Additionally, the order restricts the aggregate principal amount of a municipal security to $20 million. The temporary exemption expires on December 31.
CFTC awards $6 million to whistleblower for CEA action
On June 9, the Commodity Futures Trading Commission (CFTC) announced a more than $6 million whistleblower award to a claimant who reported “specific, credible and timely” information that led to a successful Commodity Exchange Act (CEA) enforcement action. The associated order notes that the claimant voluntarily provided original information leading to the opening of an investigation and the enforcement action, and was under no “legal obligation” to provide the information. The CFTC notes that while five claimants submitted whistleblower award applications to the CFTC in response to the covered action, the CFTC provided the award only to claimant one, as three of the other claimants failed to contest a preliminary determination in favor of the award to the successful whistleblower, constituting a failure to exhaust administrative remedies. The order provides limited details on the fifth claimant’s objections to the denial, but notes the CFTC determined that the claimant’s “arguments are baseless.” The order does not provide any other significant details about the information provided or the related enforcement action. The CFTC has awarded over $110 million to whistleblowers since the enactment of the Whistleblower Program under the Dodd-Frank Act, and their information has led to nearly $900 million in monetary relief.
Texas securities regulator halts cryptocurrency investment business
On June 5, the Texas State Securities Board (TSSB) issued an emergency cease and desist order against a New York-based cryptocurrency investment business for allegedly violating the state Securities Act by soliciting investments in Texas without obtaining the required state licenses and engaging in fraud connected to the offer of the sale of securities. Among other things, the TSSB alleged that the business’s website advertised false information, including fake photos of its “expert team” and testimonials from purportedly “satisfied clients,” and failed to disclose material facts related to how profits are generated through its purported cryptocurrency mining operation, important security information, and risks associated with cryptocurrency investments. According to the order, the business claimed investors could generate returns between 20 and 75 percent within 24 hours depending on how much is invested in the company’s mining operation. The TSSB also alleged that while the business claimed to possess the appropriate licensure to engage in cryptocurrency mining investments, the business did not have the required registrations or licenses and the investment plans “have not been registered by qualification, notification or coordination at any time material hereto, and no permit has been granted for their sale in Texas at any time material hereto.”
Federal Reserve Bank of New York updates FAQs and forms relating to loan facility program
On June 8, the Federal Reserve Bank of New York updated its frequently asked questions (previously covered here and here) regarding the Term Asset-Backed Securities Loan Facility (TALF). Among other things, the changes clarify (i) who qualifies as a “material investor,” (ii) when asset-backed securities (ABS) are eligible to secure a TALF loan, (iii) the documentation required for ABS issued during a specific period in order for the ABS to be eligible collateral for a TALF loan, and (iv) for newly-issued ABS to be considered for a subscription date, when the issuer must price such ABS. The Federal Reserve Bank of New York also updated several TALF-related forms.
SEC issues $50 million, whistleblower award, highest ever to one individual
On June 4, the SEC announced a nearly $50 million award to a whistleblower in an enforcement action, the largest amount ever awarded to one individual under the SEC’s whistleblower program. According to the SEC’s order, in applying the reward criteria, the SEC determined that the whistleblower (i) provided information that was “highly significant” and contained first-hand observations of misconduct that was previously unknown; (ii) laid out “in detail substantial aspects” of the misconduct and provided a roadmap for the SEC’s investigation; and (iii) provided information that helped the SEC return a significant amount of money to those harmed by the misconduct. The agency’s next largest awards were given in 2018 when the SEC awarded $50 million to two joint whistleblowers in March and $39 million to a single whistleblower in September, covered by InfoBytes here and here.
As of June 4, the SEC has awarded 83 individuals a total of over $500 million in whistleblower awards since its first award in 2012.
SEC settles with blockchain company over unregistered ICO
On May 28, the SEC announced a settlement with a California-based blockchain services company resolving allegations that the company conducted an unregistered initial coin offering (ICO) of digital asset securities. According to the order, the company raised over $25 million by selling “Consumer Activity Tokens” to nearly 9,500 investors, including U.S. investors, to raise capital to “develop, administer, and market a blockchain-based search platform for targeted consumer advertising.” The company allegedly told investors that the tokens would increase in value and made the tokens available on third-party digital asset trading platforms after the ICO. However, the SEC found that the tokens constituted securities, and that the company allegedly violated Sections 5(a) and 5(c) of the Securities Act by distributing the tokens without having the required registration filed or in effect, nor did it qualify for an exemption to the registration requirements.
The order, which the company consented to without admitting or denying the findings, imposes a $400,000 penalty, and requires the company to disgorge $25.5 million and pay approximately $3.4 million in prejudgment interest. Additionally, the company is required to surrender all its remaining tokens to the fund administrator so they can be permanently disabled, publish notice of the order, and request the removal of the distributed tokens from all digital asset trading platforms.
Federal Reserve Bank of New York updates FAQs regarding loan facility program
On May 26, the Federal Reserve Bank of New York updated its frequently asked questions), previously covered here, regarding the Term Asset-Backed Securities Loan Facility (TALF). The changes clarify (i) requirements regarding certification of a TALF borrower’s inability to secure adequate credit accommodations, (ii) which nationally recognized statistical rating organizations are eligible rating agencies under the TALF, and (iii) how unsolicited credit ratings are treated.
California Department of Business Oversight highlights risks of exempt securities offerings
On May 26, the California Department of Business Oversight issued an investor alert on exempt securities offerings, aka “private placements,” during Covid-19. The alert outlines the reasons why such offerings carry a higher risk of fraud and offers suggestions for potential investors to protect themselves.
Arkansas Securities Department extends work from home guidance for mortgage loan officers
On May 22, the Arkansas Securities Department extended interim regulatory guidance previously issued to licensed mortgage companies, mortgage loan officers, and branch managers. The original interim regulatory guidance, previously covered here, permits mortgage loan officers to conduct activities requiring a license from home, provided certain data security provisions are met. This guidance is extended through September 1, 2020.
Federal Reserve Bank of New York announces first subscription date of loan facility program
On May 20, the Federal Reserve Bank of New York announced the first loan subscription date for the Term Asset-Based Securities Loan Facility (TALF) and released an expanded set of Frequently Asked Questions and other documents relating to the facility’s operations. The first subscription date will be June 17, 2020, and the first closing date will be June 25, 2020. The FAQs contain information on why the TALF was established, how the TALF will work, borrower eligibility, eligible collateral, eligible underlying assets, master trust requirements, credit ratings, collateral review, interest rates, and loan subscription and closing, among other things.