US CFTC Takes Action Against Unregistered Crypto and Binary Options Platforms
On 3 September 2024, the U.S. Commodity Futures Trading Commission (US CFTC) filed complaint against four online trading platforms, cryptoiminerstrade.com, FalconForexBot, Expert Stocks Zone, and swiftminingexpert.com, for allegedly operating as unregistered futures commission merchants (FCMs) and misleading the public about their regulatory status. The platforms allegedly falsely claimed to be regulated by the US CFTC, deceiving investors into believing that their funds were protected under U.S. financial laws.
- The US CFTC is seeking cease-and-desist orders against all four platforms to halt their operations and prevent further violations of the US CEA. These platforms used misleading tactics to solicit customer funds and execute trades without the necessary legal protections in place, giving investors a false sense of security by falsely claiming regulatory oversight.
- The US CFTC’s Division of Enforcement conducted investigations into these platforms, uncovering significant violations of the US CEA. The US CFTC remains committed to protecting investors and maintaining the integrity of U.S. financial markets by taking action against unregistered and fraudulent entities.
- In a dissenting statement issued on 24 September 2024, Commissioner Summer K. Mersinger expressed concerns about the US CFTC’s approach in charging these platforms as unregistered FCMs as there was insufficient evidence to demonstrate that the companies acted as FCMs by accepting customer funds to margin, guarantee, or secure trades and called for more rigorous analysis before pursuing such charges, particularly in light of the U.S. Supreme Court decision in SEC v. Jarkesy, which sets standards for administrative enforcement actions.
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Latvijas Banka Invites Innovative Start-ups to Apply for “Fintech Factor 2024” Competition
On 19 September 2024, Latvijas Banka announced the date of the Latvian FinTech Forum which is scheduled for 5 November 2024, at the Small Guild in Riga inviting players from the FinTech ecosystem to discuss current industry issues and trends.
- The Latvian FinTech Forum will take place on 5 November 2024, bringing together entities from the FinTech industry, including FinTech companies, investors, financial institutions, and policymakers from across Europe. The forum will serve as a platform for discussing the latest trends and challenges in the industry, with a special focus on supporting innovation through the “Fintech Factor 2024” competition.
- Early-stage FinTech companies will have the chance to win various prizes designed to aid their business growth. This includes ten hours of legal advice from renowned law firms Sorainen and Wallace, ten hours of growth mentoring provided by Tenity, a 2,500-euro cash prize, and tickets to major industry events such as Latitude59, sTARTUpDay, Helsinki Fintech Farm, and Fintech Day 2024. There is an opportunity to secure up to 150,000 euros in investment from LatBAN and Tenity.
- Start-ups interested in competing must apply by 30 September 2024 via the competition’s official website. From the pool of applicants, eight start-ups will be selected to pitch their business ideas at the Latvian FinTech Forum.
- Before the forum, a community day will be organised to provide additional support for the selected start-ups to help participants develop fundraising strategies, refine their self-presentation skills, and connect with early-stage investors
- The forum will feature discussions on topics such as artificial intelligence, crypto-assets, and regulatory developments in the FinTech sector.
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US CFTC Extends No-Action Relief for EU and UK Nonbank Swap Dealers
On 20 September 2024, the U.S. Commodity Futures Trading Commission (US CFTC) issued an extension of its no-action relief for nonbank swap dealers domiciled in the European Union (EU) and the United Kingdom (UK).
- This relief, initially provided under US CFTC Letter No. 21-20 and extended through Letter No. 22-10, allows these entities to comply with their home country’s capital and financial reporting requirements instead of U.S. CFTC regulations.
- The no-action relief allows nonbank SDs in the EU and UK to operate under their local regulatory frameworks, provided they meet specific conditions, including submitting financial reports to the US CFTC and notifying the regulator if their capital drops below the required minimum.
- The relief is based on the principle of substituted compliance, which lets foreign-domiciled financial entities follow local regulations as long as they are deemed comparable to US standards. This approach prevents duplication and conflicts between U.S. and local regulations.
- By August 2022, the CFTC had extended the relief to allow time for assessing the comparability of foreign regulations. In July 2024, formal comparability determinations were issued for countries like Japan, Mexico, France, Germany, and the UK, allowing SDs in these jurisdictions to fully rely on local regulations.
- Certain Swap Dealers, particularly in France and under the UK’s Financial Conduct Authority (FCA) Investment Firms Prudential Regime (IFPR), were still under review.
- The latest extension is valid until 31 December 2026 or until the CFTC finalizes a decision on the comparability of foreign regulations to U.S. standards.
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US Federal Court Orders Koo Ichioka to Pay Over US $36 Million for Forex and Digital Asset Fraud
On 20 September 2024, the U.S. Commodity Futures Trading Commission (US CFTC) announced that William Koo Ichioka, a New York resident formerly of San Francisco, was ordered by Judge Vince Chhabria of the U.S. District Court for the Northern District of California to pay over US $36 million. This ruling includes US $31 million in restitution to defrauded investors and a US $5 million civil monetary penalty for his involvement in a fraudulent foreign currency and digital asset trading scheme.
- Ichioka’s scheme, which began in 2018, involved soliciting investments under false promises of guaranteed returns of 10% every 30 business days. He attracted investors by claiming their funds would be invested in forex and digital asset commodities, including Bitcoin and Ether, while presenting himself as a successful investor.
- Ichioka Ventures lured participants into the fraudulent scheme wherein some funds were indeed invested, a big portion of the fund was misappropriated for personal luxury expenses, including rent for a high-end residence, luxury jewelry, and vehicles.
- Ichioka falsified financial documents, exaggerated his asset holdings, and provided false account statements to investors, falsely assuring them of profitability. By 2019, he privately admitted that no profits had been generated since the start of his operations, yet he continued to operate what was effectively a Ponzi scheme, using funds from new investors to pay earlier participants.
- On 14 August 2023, a consent order of permanent injunction was issued against him. This injunction prohibited him from further violations of the United States’ Commodity Exchange Act and barred him from trading in CFTC-regulated markets or registering with the US CFTC.
- Parallel criminal proceedings were initiated by the U.S. Department of Justice, leading to Ichioka’s indictment on charges of wire fraud, tax fraud, and commodities fraud. He pled guilty to all charges on 22 June 2023 and was sentenced to 48 months in prison, followed by five years of supervised release and pay US $31 million in restitution and a US $5 million fine.
- The court, led by Judge Vince Chhabria, held Ichioka liable for multiple fraudulent activities, including misrepresentation and misuse of investor funds. The court relied on evidence such as falsified financial records and testimony from defrauded investors, which revealed discrepancies between the real values and the inflated figures presented by Ichioka.
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Atom Investors Charged with Recordkeeping Violations, Avoids Civil Penalty Due to Cooperation and Prompt Remediation
On 23 September 2024, the U.S. Securities and Exchange Commission (US SEC) issued a settlement order and announced that it had settled charges against Atom Investors LP, a Texas-based registered investment adviser, for violations of federal securities laws related to the firm’s failure to maintain and preserve critical off-channel communications. Despite these violations, the US SEC did not impose any civil penalties, citing the firm’s self-reporting, substantial cooperation, and swift remedial actions.
- Atom Investors violated recordkeeping provisions under the U.S. Investment Advisers Act of 1940 by failing to preserve essential communications, including those from senior personnel, which were subject to federal retention requirements.
- Without admitting or denying the findings, Atom Investors consented to a cease-and-desist order and received a formal censure. However, due to its immediate self-reporting and extensive cooperation during the investigation, the firm avoided any monetary penalties.
- The violations came to light in 2021, when Atom Investors, responding to an US SEC subpoena regarding a third-party investigation, discovered that it had failed to maintain required records for more than three years.
- Atom Investors’ failure to preserve these off-channel communications hampered the SEC’s ability to conduct its investigation. The firm’s lapse in maintaining these records occurred over a significant period, involving senior-level personnel, and violated Section 204(a) of the Investment Advisers Act of 1940 and Rule 204-2, which require registered investment advisers to retain and produce certain records upon request.
- After discovering the issue, Atom Investors self-reported the violations and immediately implemented remedial measures by updating internal compliance systems and procedures to ensure full adherence to federal recordkeeping regulations moving forward.
- The US SEC acknowledged Atom Investors’ cooperation and prompt remediation, concluding that these actions mitigated the severity of the violations. As a result, the US SEC chose not to impose any civil monetary penalties, recognizing the firm’s proactive efforts and transparency during the investigation.
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CFTC Orders Piper Sandler Hedging Services to Pay $2 Million for Recordkeeping and Supervision Violations
On 23 September 2024, the U.S. Commodity Futures Trading Commission (US CFTC) issued an enforcement order against Piper Sandler Hedging Services LLC, following an investigation that revealed significant violations of the United States Commodity Exchange Act (US CEA) and CFTC regulations. Piper Sandler was fined $2 million for failing to maintain and preserve essential business records, including communications made by senior employees through unapproved methods such as personal text messages. The violations occurred between 2019 and 2024 and pertained to the firm’s failure to comply with the recordkeeping requirements under Section 4g of the US CEA and related CFTC regulations.
- Piper Sandler’s violations stemmed from the use of personal devices and unapproved communication channels by employees, including senior staff, to conduct business-related discussions. Despite internal policies that prohibited such practices, the firm’s supervisory systems failed to detect or prevent these unauthorized communications, leading to significant breaches of federal recordkeeping laws.
- The firm violated Section 4g of the Commodity Exchange Act, which mandates the preservation of all relevant business communications related to quotes, bids, trades, and other key business matters. Additionally, Piper Sandler failed to diligently supervise its employees, violating CFTC Regulation 166.3, which requires registered entities to enforce compliance with recordkeeping protocols.
- Piper Sandler’s supervisory lapses resulted in the loss of hundreds, if not thousands, of critical business-related communications. The firm’s management was aware that employees were using personal devices to conduct business but did not take sufficient steps to correct the situation, exacerbating its non-compliance with CFTC regulations.
- As part of the settlement, Piper Sandler consented to the findings and agreed to pay a $2 million civil penalty. The firm is also required to implement extensive remedial actions, including a review and overhaul of its supervisory systems, enhanced employee training, and the adoption of technological measures to prevent future violations. The firm must ensure that relevant business records are preserved for at least six years, with the first two years being in an easily accessible format.
- In addition to the financial penalty, Piper Sandler is required to certify compliance with CFTC regulations regularly. This includes quarterly certifications from employees confirming adherence to communication preservation protocols and periodic reports to the CFTC outlining the firm’s progress in addressing its recordkeeping failures. The firm must also provide details of any disciplinary actions taken against employees who violate these protocols.
- US CFTC Commissioner Caroline D. Pham in her statement dissented from the order, stating that the US CFTC lacked sufficient evidence to prove violations of its recordkeeping rules specific to introducing brokers (IBs). She argued that the case encroached on the jurisdiction of the United States’ Securities and Exchange Commission and involved records related to securities, which should fall outside the US CFTC’s scope.
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Latvijas Banka to Issue Energy-Themed Collector Coin Highlighting Nuclear Fusion and Scientific Innovation
On 23 September 2024, Latvijas Banka announced the launch of the “Energy Coin,” a collector coin set to be issued on 26 September 2024. The coin highlights nuclear fusion as a promising scientific innovation with the potential to address future global energy challenges. It symbolizes the quest for a sustainable energy source that balances the demands of the present while safeguarding natural resources for future generations.
- The Energy Coin was designed by the internationally renowned artist Germans Ermičs in collaboration with scientists. Its design features gold-plated beads representing protons and silver hollows symbolizing neutrons, the fundamental particles involved in nuclear fusion.
- To celebrate the issuance of the Energy Coin, Latvijas Banka and the University of Latvia will host an event titled “How to Tame the Energy of the Future” on 26 September 2024.
- The Energy Coin will be available for purchase on the e-monetas.lv website starting at 12:00 PM on 26 September 2024. Priced at 77.00 euros, the coin has a limited mintage of 3,000 units, with a maximum purchase limit of three coins per buyer.
- The coin was minted by the Koninklijke Nederlandse Munt in the Netherlands.
- This collector coin serves as a tribute to scientific advancement and a symbol of Latvia’s contribution to the global effort to harness fusion energy.
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US SEC Settles Charges with TrueCoin and TrustToken Over Fraud and Unregistered Sale of Securities
On 24 September 2024, the U.S. Securities and Exchange Commission (SEC) filed a complaint against TrueCoin LLC and TrustToken Inc., for their alleged fraudulent practices and the unregistered sale of securities related to the issuance and promotion of TrueUSD (TUSD), a stablecoin, and their TrueFi lending protocol.
- TrueCoin and TrustToken marketed TUSD as a stablecoin that was fully backed by U.S. dollars on a 1:1 basis, but the US SEC’s investigation revealed that by March 2022, over US $500 million of TUSD’s reserves were invested in a high-risk offshore fund.
- By September 2024, 99% of the assets backing TUSD were tied to this speculative fund. TrueCoin and TrustToken failed to disclose these risks to investors.
- The US SEC charged the companies with violating Sections 5(a) and 5(c) of the United States Securities Act of 1933, which require issuers to register securities offerings unless exempt. The US SEC also charged them with violating Sections 17(a)(2) and 17(a)(3) of United States Securities Act of 1933, which prohibit fraudulent misstatements and omissions in the offer and sale of securities.
- The SEC’s investigation revealed that TrueCoin and TrustToken had continued to promote TUSD as fully backed by U.S. dollars, even after they became aware of the liquidity issues with the offshore fund.
- Although TrueCoin and TrustToken are legally separate entities, they operated in concert during the period in question, sharing ownership and management. TrueCoin remained involved in TUSD’s operations even after the stablecoin was sold to an offshore entity in December 2020.
- The US SEC’s investigation was led by its Crypto Assets and Cyber Unit, uncovering the companies’ failure to register their securities offerings and fraudulent misrepresentations about TUSD’s backing.
- The US SEC’s investigation into TrueCoin and TrustToken is ongoing, as the agency continues its scrutiny of the digital asset industry.
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MAS Establishes International Advisory Panel to Strengthen Cyber and Technology Resilience
On 25 September 2024, the Monetary Authority of Singapore (MAS) announced the formation of the Cyber and Technology Resilience Experts (CTREX) Panel, replacing its former Cyber Security Advisory Panel. This newly established panel expands its focus to encompass both cybersecurity and technology resilience, recognizing the crucial need for operational resilience in Singapore’s financial sector as institutions become increasingly reliant on technology for service delivery.
- The SG CTREX Panel will provide advice on emerging technology risks and cyber threats and recommend strategies to bolster cybersecurity and technology resilience.
- The CTREX Panel consists of 13 globally recognized experts in cybersecurity and technology resilience. Members include Ann Barron-DiCamillo (Citigroup), Ann Johnson (Microsoft), Assaf Keren (Qualtrics), Bradley Peterson (Nasdaq), and David Koh (Cyber Security Agency of Singapore), bringing deep expertise across various sectors critical to the financial industry.
- The panel will convene its first meeting in mid-2025, providing global insights and recommendations to MAS and the financial sector for enhancing the industry’s ability to manage technological advancements and protect against increasing cyber threats.
- The formation of the CTREX Panel comes as financial institutions face heightened risks from technological advancements. The panel’s work will be vital to maintaining Singapore’s reputation as a secure financial hub, aligning with MAS’s goals of strengthening operational resilience amid growing global digitalization.
- Mr. Chia Der Jiun, Managing Director of MAS, stated, “As financial institutions become increasingly reliant on technology to deliver services, it is critical for them to maintain technology resilience and manage cyber risks effectively. We look forward to the CTREX Panel’s global perspectives to guide MAS and the industry on building these critical capabilities.”
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UK FCA Proposes Consultation Paper to Safeguard Customer Funds in Payments and E-Money Firms
On 26 September 2024, the United Kingdom’s Financial Conduct Authority (FCA) published a consultation paper (CP24/20) to address gaps in consumer protection, particularly in the event of firm failure. The consultation paper introduces a two-phase regime aimed at improving compliance and safeguarding customer funds in payments and e-money firms.
- The proposed Two-Phase Safeguarding Regime feature an interim phase designed to enhance compliance with current safeguarding regulations. This will be followed by an end-state regime modeled on the Client Assets Sourcebook (CASS) framework. In the end-state, all consumer funds will be placed under statutory trusts, providing legal protections and expediting fund returns during insolvency proceedings.
- Existing regulations under the Payment Services Regulations (PSRs) and Electronic Money Regulations (EMRs) have proven insufficient, with recurring issues leading to consumer harm when firms fail.
- The interim rules propose daily reconciliations of funds, improved record-keeping, and monthly regulatory returns. Firms will also undergo an annual audit of safeguarding practices and be required to maintain a resolution pack to help insolvency practitioners distribute funds more quickly.
- The final phase of the regime will see consumer funds held under statutory trusts, providing stronger legal safeguards to enhance governance, ensuring funds are adequately protected and returned to consumers efficiently during insolvency.
- Firms to submit detailed monthly reports on their safeguarding arrangements and undergo regular independent audits.
- By imposing statutory trusts over safeguarded funds, the FCA intends to provide greater legal certainty about ownership, particularly in insolvency situations.
- The consultation invites feedback on the proposals until 17 December 2024, with an implementation timeline beginning in mid-2025.
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