The specific provisions enjoined by the judges include the sections of the EOs that direct agencies, such as the CFTC, to limit the engagement with the law firms and from granting law firm employees access to federal buildings.

And don’t think this is some bureaucratic mistake — this isn’t the first time a federal agency has thrown a middle finger in the face of the TROs. The Trump administration’s repeated disrespect for the judicial system is deeply disturbing, but entirely expected given the authoritarian bent of the Trump II reign.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker. 

Recently, she promoted her new cryptocurrency called $HAWK. Unfortunately, soon after the coin’s launch, its value plummeted to less than 5% of the original value. People online have claimed to have lost their life savings and their children’s college fund.

$HAWK has been deemed a memecoin because it originated from Welch’s “Hawk Tuah” catchphrase. Almost all memecoins fall flat and eventually become worthless. The DOGE coin is one notable exception.

Welch and her crypto partners have been accused of “rug pulling.” In rug pulling, investors hype a coin (or similar crypto product), causing its value to initially skyrocket. Soon after, a key group of investors (typically insiders who received the coins before the initial coin offering) sell their holdings at the inflated price, causing the value of the coin to plummet. The remaining investors are left holding the bag with a nearly worthless coin.

An investigation showed that 96% of the $HAWK coin was held by 10 addresses. There was also a significant selloff of the coins.

Welch claims that neither she nor anyone else on her team sold any of their $HAWK coins, implying that they did not profit from the hype. They blame “snipers” — bots that buy designated cryptocurrencies to take advantage of price discrepancies or arbitrage opportunities. But skeptics questioned the high fees and who took those fees.

Welch also claimed that she did not intend to defraud investors.

At first glance, she does not seem to be the type to know the intricacies of cryptocurrencies. She has attended several cryptocurrency conferences, but she claims to have done so to better connect with her fans.

Regardless of her knowledge, she has a team. She partnered up with people who appear to be crypto experts. She hired an attorney after becoming famous, although it is not clear whether she consistently followed her attorney’s advice.

Until someone issues refunds or gets a court judgment, what can investors do to minimize their losses?

Aggrieved investors can file a complaint with the government. Given the intense publicity, an investigation is likely, and the government could take action to help investors get their money back and deter similar conduct in the future. Investors can contact the Securities and Exchange Commission, the Commodities Future Trading Commission, and the FBI’s Internet Crime Complaint Center if they think criminal activity could be involved.

Private law firms could also help investors. One law firm, Burwick Law has posted on X, requesting $HAWK investors contact them to learn about their legal rights.

So, can investors write off the loss on their tax return? The position of the IRS is that cryptocurrency-related losses are treated like a capital loss. Capital losses can offset any capital gains. Unfortunately for taxpayers, capital losses can only offset $3,000 of ordinary income every year, with the remainder to be carried forward. This hard rule has been around for years without adjusting for inflation and will provide a meager tax benefit.

A taxpayer in the cryptocurrency trading business full time can claim the loss as an ordinary loss.

In 2023, the IRS publicly released its Office of Chief Counsel Memorandum stating its position on the deductibility of worthless and abandoned cryptocurrency. A taxpayer cannot claim a deduction for worthlessness if the cryptocurrency can be traded on the open market, even if there is a significant loss in value. To claim a worthlessness deduction, the taxpayer must relinquish dominion and control of the cryptocurrency and take affirmative steps to abandon the cryptocurrency during the tax year. However, the memorandum does not elaborate on how to abandon the cryptocurrency.

The memorandum points out that even if the cryptocurrency became worthless or abandoned, taxpayers still cannot claim the loss because it is considered a miscellaneous itemized deduction. The Tax Cuts and Jobs Act (TJCA) disallowed the miscellaneous itemized deduction from 2018 until 2025. Whether the TJCA provisions will be extended for 2026 and later is not yet clear.

The taxpayer may be eligible to claim a theft loss so long as the transaction was made with the expectation of a profit, such as an investment. This nonpersonal theft loss is not considered a miscellaneous itemized deduction.

Generally, to be eligible to claim a nonpersonal theft loss, several requirements must be met. First, the theft must be connected to a trade or business or as part of a transaction made with an expectation of a profit. Second, the theft must be illegal in the jurisdiction where the victim lives, although a theft conviction is not required. Third, the stolen funds must go directly to the scammer and not to an unconnected third party (the people who lost money on Enron stock learned this the hard way). Lastly, there must not be a reasonable prospect of recovery.

From my experience on matters like this, the IRS is likely to disallow a theft loss. They will argue that the since the taxpayers are still in possession of the $HAWK coins, no theft took place.

Also, since some of the parties on the other side of the transaction — namely Welch and others who created and promoted the $HAWK coin — are still present, there may be a reasonable prospect of recovery either through voluntary refunds or a legal judgment. Until that is established, the taxpayers cannot claim the theft loss.

Welch’s fame will shoot down just as quickly as it went up. Hopefully this will serve as a warning for people thinking about getting into questionable cryptocurrencies.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker. 

It’s been a brutal few weeks in the headlines for the cryptocurrency industry following FTX founder Sam Bankman-Fried’s fraud conviction earlier in the month.

The FTX saga is far from over: Its customers are still waiting to get their money back, and its bankruptcy advisers sued another crypto exchange for nearly $1 billion. Elsewhere in recent crypto news:

• OneCoin’s compliance chief pleaded guilty to fraud and money-laundering charges.
• Another allegedly once-fraudulent crypto shop, Celsius Networks — which claimed to be safer than a bank — emerged from bankruptcy offering its customers a mere 67 cents on the dollar of their deposits.
• The SEC punted once again on allowing spot crypto exchange-traded funds.
• The war in Gaza concentrated legislative and regulatory minds around doing something about cryptocurrency financing for terrorism.
• The world’s largest crypto exchange, Binance, struck $4.3 billion settlement and pleaded guilty to violating money-laundering laws and sanctions, including those on Hamas, as did founder and CEO Changpeng Zhao, who also agreed to step down from the company.

It certainly looks grim for crypto. But the Binance deal may, in fact, be the best thing that’s ever happened to it.

While cryptocurrency enthusiasts trumpet the benefits of decentralization, the industry is, in fact, extremely centralized, with massive platforms like Binance cornering the market. It turns out that crypto-entrepreneurs may be more interested in getting rich than in the ideology behind the blockchain.

And that — as the Binance settlement shows — gives governments, particularly the U.S. government, enormous leverage to drive crypto into less free-wheeling waters. The exits of crypto bros like Bankman-Fried and Zhao may open the door to institutionalists hoping to embed the blockchain in the existing financial infrastructure rather than overthrowing it.

There certainly are plenty who seem willing to try.

Former New York Stock Exchange President Tom Farley bought crypto media company CoinDesk and hopes to buy FTX out of bankruptcy with an eye on resurrecting the company — a prospect that even arch crypto-skeptic and SEC chief Gary Gensler isn’t shutting the door on.

The world’s largest money manager, BlackRock, isn’t reading too much into Gensler’s refusal so far to sign off on bitcoin ETFs, making its first move toward launching one to hold Ethereum. Meanwhile, some FTX alumni are racing from the witness stand to launch a new crypto exchange.

The Binance deal may also save the crypto industry from some regulatory headaches: Failed Speaker candidate and third-ranking House Republican Tom Emmer — a crypto backer — says the deal shows that there’s no need for new crypto-specific legislation.

To read the full newsletter, subscribe to Finance Docket clicking here. 

This is only an initial filing and Commissioner Pham has yet to provide her side of the events.

But the recitation of facts in the letter revisits well-worn battlelines between the legal profession’s culture of rough-and-tumble intellectual pugilism and tacitly fostering a bullying culture.

On or about Friday, October 20, 2023, the Union became aware of an instance of extreme intimidation, harassment and abuse of an Enforcement attorney by Pham. More specifically, at a Closed Commission Meeting (Closed Meeting) earlier on that same day, several BUEs observed first-hand Pham’s almost 30-minute harangue of an Enforcement attorney. During the Closed Meeting, Pham treated the Enforcement attorney as if they were a hostile witness being cross-examined and not as if they were both CFTC employees working toward a common goal. For example, Pham demanded that the Enforcement attorney answer her questions with only a “yes” or “no” response. Further, Pham repeatedly raised her voice and made angry facial expressions at the Enforcement attorney. When the Enforcement attorney attempted a substantive response to one of Pham’s questions, Pham raised her voice and yelled at the employee to “answer yes or no!” At this point, the Director of Enforcement interjected and asked Pham to allow the attorney to give a complete answer.

Some may argue that this sort of interrogation is not harassment but an integral part of building the best possible case. Steel sharpens steel or whatever vapid platitude you want to use. But that’s also not the purpose of this meeting. Enforcement can drill its attorneys on its own time and in the manner that Enforcement is more than qualified to employ. The Commissioners aren’t there to perform bad Socratic exercises to crush the will of their own staff.

You’ve got to feel bad for Socrates. Besides the whole “put to death” thing, the man’s legacy in the legal profession is providing an intellectual veneer for a bullying culture.

The thing is, the Socratic Method isn’t bad in theory. Socrates layered questions to patiently help his dialogue partner reach a new epiphany (except Meletus, but he was trying to get Socrates killed at the time so it’s hard to characterize that as a good faith exchange). It’s more Columbo than Perry Mason.

And whether its in the classroom or the Zoom room, there’s nothing productive about that ersatz Socratic Method.

The grievance doesn’t limit itself to this October meeting:

On information and belief, at the August Closed Meeting, Pham subjected an Enforcement manager to a lengthy (sixty-plus minutes) harangue in which she questioned the manager about the intelligence and skill of the manager’s staff, which had prepared papers that Pham and her staff reviewed in advance of the meeting. Upon information and belief, Pham also subjected an Office of General Counsel manager to similar questioning, suggesting their staff was equally incompetent.

Questioning the staff’s intelligence would seem to go afield of the Socratic Method. While the first anecdote could be cast as a bid to improve the case, this reads as a Commissioner actively opposed to Enforcement’s efforts.

The union requested recordings of both meetings to verify the allegations in the letter, providing a November 2 deadline. No indication yet whether or not the CFTC complied.

But they didn’t need recordings to establish the public statements Pham has made disparaging the staff. Like dissenting opinions blaming Enforcement for “no longer tak[ing] care to be precise” or a LinkedIn post that reads:

“The staff press release incorrectly appears to question the standard practice of rolling (i.e. rollover a trading provision. . . . I repeat my call for mandatory CFTC staff training program to improve basic knowledge and expertise.”

LinkedIn is all about posting your resume and posts like this can definitely bolster one’s resume as a potentially fierce CFTC opponent.

Whether or not this constitutes “intimidation, harassment, and abuse,” the allegations in the letter describe at least a needlessly unpleasant work environment.

Unfortunately, they also describe a work environment that’s all too familiar to attorneys.

UPDATE: Commissioner Pham provided the following statement.

“This baseless grievance was only filed after CFTC management made a report on October 30, 2023, regarding a targeted incident against Commissioner Pham to Workforce Relations as in violation of the CFTC’s Anti-Harassment Policy and federal laws. The threat was concerning enough that the incident was also reported to the CFTC’s Physical Security and Cyber Security offices. The fact that this retaliatory grievance was filed the day after CFTC management reported the harassment of Commissioner Pham speaks for itself.”

For what it’s worth, Above the Law received tips that the Union would be filing something the week before the October 30 trigger date.

(Full grievance letter available here…)

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

But above all, they are loathe to admit that the money paid or (God forbid) the monitor accepted means they did anything wrong. This seems perverse: If there’s nothing to see here, why fear a monitor? But, of course, it makes sense: An admission of guilt in a legally-binding consent decree sure wouldn’t look too good if someone a bit more eager for a courtroom battle were to sue such an admitter over the same conduct. In fact, some argue it might make defending against such a claim impossible.

To which the CFTC’s new head of enforcement says: tough shit.

“For many years, the CFTC — and many other agencies — have resolved most matters on a no-admit, no-deny basis,” [Ian] McGinley said in prepared remarks for a Tuesday speech in New York. “In negotiations, respondents should no longer assume that no-admit, no-deny resolutions are the default.”

Oh, and also, those other two things? Yea, they’re gonna get worse, too.

Companies should also expect to pay higher fines and it will be more likely they have to hire people to monitor their conduct after a settlement, said McGinley, who started as the head of the agency’s enforcement division in February.

Especially, as one of McGinley’s bosses is only too eager to point out, it’s not the first time a firm has had to have a little chat with the CFTC about a particular matter.

“Recidivism has gotten worse in regulated financial services,” [Commissioner Christy] Goldsmith Romero said in a separate statement on Tuesday, which like McGinley’s didn’t mention any specific firms or settlements. “In these situations, it is critical for the CFTC to send a message to senior leadership to fix that culture, through heightened penalties, defendant admissions, undertakings, and in some cases a monitor.”

Given that this covers, well, everyone, what you hear is some well-earned panic on Wall Street. But McGinley wants you to know he’s a reasonable man. He’s probably gonna go easy on recidivists who break different rules rather than those who keep breaking the same one (bad news for the Wells Fargoes of the world but good news for the cleverer law breakers), as well as those who tell on themselves and pre-invest future fines in their compliance departments.

“At the end of the day, the penalties need to exceed the costs of compliance,” CFTC enforcement head Ian McGinley said at New York University Law School Tuesday evening. “We want to send a message that firms should be investing in compliance….”

McGinley said firms that come forward to self-report and cooperate will likely receive a reduced penalty, and are less likely to have a monitor imposed as part of a settlement…. The CFTC said it would in particular focus on firms that have been involved in repeated wrongdoing, but the analysis of what constitutes a repeat offender will be nuanced. The CFTC will consider, for example, whether a firm’s violations are of different laws or are far apart in time, McGinley said.

US regulator pledges harsher punishment for Wall Street misdeeds Bloomberg via Yahoo!]
U.S. Derivatives Regulator Plans Tougher Enforcement Approach [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Do Kwon, the CEO of Terraform Labs, was arrested at an airport in Montenegro on March 23 where he attempted to use a fake Costa Rican passport, possibly to leave the country. He is currently wanted by the South Korean police for his involvement in the collapse of the Luna cryptocurrency. The crash wiped out $40 billion in value and created the 2022 crypto winter where numerous stablecoins such as Bitcoin dropped in value.

Last month, the SEC filed a civil lawsuit against Kwon and Terraform Labs charging them with fraud, selling unregistered securities and security-based swaps. He is accused of misleading investors with false statements about Luna coin which led to massive losses when the coin was depegged from the US Dollar.

Soon after Kwon’s arrest, the U.S. Department of Justice filed a criminal indictment against him, charging Kwon with securities fraud, commodities fraud, wire fraud, and market manipulation.

Samuel Bankman-Fried, the former CEO of FTX (which recently filed for bankruptcy), was criminally charged with fraud and violating federal campaign finance laws. He is currently under house arrest while awaiting trial.

A few days ago, he was hit with an additional criminal charge accusing him of violating the Foreign Corrupt Practices Act by bribing Chinese government officials with $40 million worth of cryptocurrencies.

And, on Monday, the Commodity Futures and Trading Commission (CFTC) filed a civil lawsuit against Binance and its CEO Changpeng Zhao. In its complaint, the CFTC accused Binance of selling derivatives without registering with the CFTC. The agency also accuses the company of secretly operating in the U.S. despite publicly stating that it did not do so. Employees encouraged U.S. users to use virtual private networks to hide their U.S. IP address. It has also directed trading companies in the U.S. to set up shell companies overseas to avoid regulations. And some of the senior staff at Binance acknowledged that terrorists may be using their exchange.

After the fall of many large crypto companies such as FTX, most crypto users believed Binance was the only remaining stable, reputable company left. Others believed that it was a matter of time before enforcement and regulatory agencies would target Binance.

Despite the serious government actions against these once well-known companies, the prices of stablecoins such as Bitcoin and Ethereum have not plunged dramatically. This was unlike the previous crypto winter when the price of Bitcoin fell to $27,000 from $40,000 due to the collapse of the Luna token.

So why hasn’t the price of stablecoins tanked despite the bad news? There are several opinions.

First, people are still reacting to the recent failures of some U.S. banks, including Silvergate and Signature Bank, both being known for being crypto friendly. They may be converting their real money into crypto until the government can stabilize the situation and restore confidence in the banking sector. Of course, cryptocurrencies may have wild price swings but losing some of your money is better than losing all of your money if the bank goes into receivership.

Second, there seems to be belief that cryptocurrencies can beat inflation. While that might be true for a little while, history shows that eventually the price will fall. But investors seem to be fine with accepting that risk.

Third, people are still using stablecoins for transactions regardless of the value. Not all of these transactions are good as some can be attributable to online scams or even criminal or terrorist activities. But as long as there is a seller and a buyer, the cryptocurrency will continue to exist.

So far cryptocurrency values have withstood recent bad news. But whether it will stay that way is anyone’s guess.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

So, if you’d like to hear what the Senators charged with keeping an eye on farming and a guy who’d like to be in charge of the blockchain space but isn’t think, tune in to C-SPAN 645 or whatever at 10 tomorrow. Alternatively, you can just hear it from the horse’s mouth at 5 p.m. today.

Andrew Ross Sorkin, the founder of DealBook, will interview Mr. Bankman-Fried on Nov. 30 at 5 p.m. Eastern at the DealBook Summit live event. The interview is available for anyone to watch online live. No questions will be off limits, and topics may include the collapse of the company, allegations of fraud and mismanagement and how Mr. Bankman-Fried intends to pay back customers, investors and creditors.

Which is great news, because BlockFi’s bankruptcy proceedings will go a lot smoother once it knows where it’s $1 billion has gone.

BlockFi loaned $671 million to Alameda and had an additional $355 million in digital assets that are currently frozen on the FTX platform, Sussberg said.

Exposure to both firms prompted client withdrawals, but it was FTX’s plan to acquire BlockFi that ultimately led it into bankruptcy proceedings….

Speaking of Alameda, co-founder Tara Mac Aulay probably doesn’t need to watch either spectacle, as she—and a number of her former colleagues—have a pretty good idea of what happened.

Mr. Bankman-Fried placed huge bets on crypto assets but paid little heed to the risk of those bets, brushing off the staffers’ concerns, according to people familiar with the matter. The firm commingled trading capital with operating cash and had poor record-keeping that left its profits and losses unclear, they said.

“He didn’t want to feel constrained,” said Naia Bouscal, a former software engineer at Alameda who left with Ms. Mac Aulay and the others. “But as a result we ended up not really knowing how much money we even had.”

Watch a Live Interview With Sam Bankman-Fried [DealBook]
FTX collapse to be focus of Senate hearing Thursday — here’s what to watch for [MW]
BlockFi lawyer tells bankruptcy court that the priority is to ‘maximize client recoveries’ [CNBC]
Early Alameda Staffers Quit After Battling Sam Bankman-Fried Over Risk, Compliance Concerns [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Of course, there are also nefarious reasons, specifically that no one is looking at what you’re saying or doing on those devices. Allow one Bank of America trader explain:

"We use WhatsApp all the time but we delete convos regularly."

Which, if you were wondering, is the sort of convo you should be deleting regularly, because if you don’t and the SEC and CFTC find it, it sort of blows the whole game away. As it has done.

U.S. regulators on Tuesday fined 16 financial firms, including Barclays, Bank of America, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley and UBS, a combined $1.8 billion after staff discussed deals and trades on their personal devices and apps….

The head of a trading desk routinely directed traders to delete messages on personal devices and to use Signal, including during the CFTC's probe.

In another example, a Nomura trader deleted messages, which included incriminating statements about trading, after the CFTC sent a request to preserve documents, her office said.

U.S. fines 16 Wall Street firms $1.8 billion for talking deals, trades on personal apps [Reuters via Yahoo!]
Wall Street to Pay $1.8 Billion in Fines Over Traders’ Use of Banned Messaging Apps [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Oh, Cryan tried, imploring his underlings to use the app only on a traceable platform that no one uses. But, like just about everything else from the Cryan era (and, to be fair, at Deutsche Bank generally), it didn’t work. And, in further fairness, it didn’t work for the much-better-run JPMorgan Chase, either. Or, you know, for anyone else.

The roster of banks poised to pay $200 million each includes Bank of America Corp., Barclays PLC, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., and Morgan Stanley and UBS Group AG, the people said. Jefferies Financial Group Inc. and Nomura Holdings Inc. are nearing settlements with regulators but will pay lower fines, reflecting their smaller size, the people said…. The SEC’s push for big fines has irked many defense lawyers and legal executives at the banks, according to people familiar with the negotiations. That’s because the investigations don’t allege any fraud or harm to clients.

Not that Gary Gensler cares what defense lawyers and bank leaders think, but he’s got to make an example here because….

The record-keeping enforcement initiative likely won’t end with the big banks, some of the people said, because the SEC is now probing whether regulated money managers broke the same rules.

“The fines are high to try to serve as a deterrent,” Mr. Berman said. “On the other hand, Democrats like to increase the amount of fines. In this case it is probably more of the former, because they have to send a really strong message.”

Banks Nearing $1 Billion Settlement Over Traders’ Use of Banned Messaging Apps [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Here's the thing, though: Hwang & co. didn’t allegedly do any insider-trading or pumping-and-dumping or resorting to nefarious schemes to hide their more than 50% (!) stake in ViacomCBS and smaller but still-eyewatering interests in a whole host of other large companies. They didn’t have to: As a family office, Archegos isn’t subject to any particularly onerous disclosure requirements, and since those stakes were composed mostly of swaps arranged by essentially every major bank on earth, he wouldn’t have had to, anyway. None of which is illegal, any more than moving markets by making large purchases, criminalization of which would land every single person on Wall Street in jail tomorrow. So Williams, the Securities and Exchange Commission and the Commodity Futures Trading Commission have to find a way to make them illegal, and their theory is it was all illegal because Hwang, et. al., took to stretching the truth a bit with the banks only too eager to extend them all kinds of leverage.

Archegos made swaps deals with a number of banks including Credit Suisse, Nomura, Morgan Stanley and UBS, and prosecutors said Mr. Hwang, Mr. Halligan and others at the firm had made “materially false and misleading statements” to conceal the extent of its bets…. “They lied about how big Archegos’s investments had become; they lied about how much cash Archegos had on hand; they lied about the nature of the stocks that Archegos held,” Mr. Williams said. “And we allege that they told those lies for a reason: so that the banks would have no idea that Archegos was really up to a big market-manipulation scheme.”

Not that they seemed to care enough to put any effort into checking into the validity of those statements, but it’s nice to know some prosecutors still think lying to banks shouldn’t be allowed. Of course, Hwang and his alleged co-conspirators (well, his one remaining alleged co-conspirator, anyway) aren’t having any of it.

“We are extremely disappointed that the U.S. Attorney’s Office has seen fit to indict a case that has absolutely no factual or legal basis; a prosecution of this type, for open-market transactions, is unprecedented and threatens all investors,” said Lawrence Lustberg, a lawyer at Gibbons who is representing Hwang.

The indictment names two former Archegos employees, Scott Becker and William Tomita, as part of the scheme. Both have pleaded guilty and are cooperating with the federal prosecution, said Mr. Williams….

Also cooperating is Archegos biggest “victim,” Credit Suisse, albeit in an entirely different matter, one that continues to cast a pall on an already very pallid bank.

Credit Suisse told CNBC on Wednesday that U.S. authorities will “absolutely not” find any evidence of wrongdoing as it faces a probe of its compliance with sanctions on Russian oligarchs…. CEO Thomas Gottstein said Wednesday that the letter received by investors had “nothing to do” with sanctions or loans belonging to members of President Vladimir Putin’s inner circle.

″[It] has nothing to do with destroying materials related to sanctions,” Gottstein told CNBC’s Geoff Cutmore.

The bank posted a $284 million net loss for the first quarter, mainly because of $730 million in provisions for lawsuits./At the end of the quarter, its main capital ratio slipped to 13.8%—from 14.4% at the end of December—and below a bank-set 14% target. Unless the bank returns to profitability, the drop in its capital could weigh on its ability to conduct buybacks and pay dividends./Results for the same quarter a year earlier were saddled by $5 billion in losses from exiting stock positions of family office Archegos Capital Management.

Archegos owner Bill Hwang and former CFO Halligan plead not guilty to U.S. fraud charges [CNBC]
Archegos stock manipulation scheme was ‘historic,’ U.S. attorney says. [NYT]
Archegos Founder Bill Hwang, Former CFO Charged With Securities Fraud [WSJ]
Credit Suisse says U.S. authorities will ‘absolutely not’ find any wrongdoing amid probe into Russian oligarch record shredding [CNBC]
Credit Suisse Loss Eats Into Capital Buffers [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

The U.S. attorney’s office in Manhattan charged Mr. Velissaris with securities fraud, wire fraud, lying to auditors and obstruction of justice. He faces up to 20 years in prison on each count…. The Securities and Exchange Commission and Commodity Futures Trading Commission also filed civil complaints against Mr. Velissaris….

And how did Velissaris achieve this distinction? Well, creatively, of course. Arguably (and, as ever, allegedly) too creatively.

The U.S. attorney’s office said Mr. Velissaris overvalued derivatives positions by tweaking inputs to the Bloomberg Valuations Service, which was used to calculate the positions values.

In some cases, Mr. Velissaris made adjustments that caused positions to have anomalous and “impossible valuations,” prosecutors said. In others, identical positions in the mutual fund and hedge fund had diverging values./When the SEC started investigating the matter, Mr. Velissaris sought to cover it up, prosecutors said. He provided Infinity Q’s auditor with false documents that tried to support the “fraudulently inflated values” and provided false information to regulators.

Infinity Q Investment Adviser Faces Securities Fraud Charges [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

The American Investment Council, the private-equity industry’s largest trade and lobbying group, is “concerned that these new regulations are unnecessary and will not strengthen pension returns or help companies innovate and compete in a global marketplace,” according to an emailed statement by Drew Maloney, the group’s president and chief executive.

The Managed Funds Association, which lobbies on behalf of hedge funds, echoed that concern, saying the SEC’s proposed rules would “harm the most sophisticated investors.”

So what exactly are those regulations that the alternative investments lobby thinks are so unnecessary and harmful. Well, for one, it would make it much more difficult for them to lie to their investors about performance and fees by requiring some standardized disclosures which the SEC would audit. But they would also be barred from charging some of those fees they so often like to elide the truth around.

It would go beyond mandating more disclosure to banning some activities by buyout-fund managers, such as charging investors controversial consulting fees and getting investors to pay for managers’ legal expenses when defending themselves against alleged misconduct…. “After a decade of oversight of private fund advisers…it seems requiring better disclosures alone is likely not enough to adequately protect investors,” Ms. Crenshaw said….

“These are things the SEC really did not like,” and the agency found it “frustrating from a policy perspective that as long as you disclosed them, you could do them,” [Ropes & Gray partner Jason Brown] said.

Well, the hedge funds and private equity players now have two months to distill their unhappiness into comment letters that Gensler & co. can ignore. Speaking of which:

FinCEN on Tuesday said it received more than 230 comments in response to its proposed rules [on its proposed corporate ownership database]…. Organizations representing financial institutions and small businesses, expressed concerns over the potential challenges in complying with various aspects of the proposal, including the deadlines for submitting or correcting information submitted to FinCEN.

One early opponent of the CTA, the National Federation of Independent Business, has gone as far as to call on the Treasury to ask Congress to repeal the ownership reporting requirement.

Nice try: Biden’s people are too busy asking Congress for more power over these sorts of things, not less.

[Commodity Futures Trading Commission Chairman Rostin] Behnam suggested Congress pass a law that would allow the CFTC to regulate cash markets for certain types of cryptocurrencies—currently the agency is limited to regulating derivatives—and provide it with funding to conduct additional oversight. Such legislation would aim to fill a regulatory gap, as some types of cryptocurrency claim to fall outside the jurisdiction of the federal government’s other market regulator, the Securities and Exchange Commission…. “There is no one regulator, either state or federal, with sufficient visibility into digital-asset commodity trading activity to fully police conflicts of interest and deceptive trading practices impacting retail customers,” Mr. Behnam said in his prepared testimony.

Anyway, lest anyone think that Gensler is only interested in tormenting people, here he is doing Robinhood a solid while also not causing Wall Street to lose their shit.

Under the proposal, Wall Street would switch to so-called T+1 settlement in which securities trades are settled one business day after a trade is agreed upon by March 2024. It currently takes two business days to settle trades…. Robinhood was among the firms that advocated for accelerating the settlement process…. The SEC’s proposal stops short of ordering T+0 settlement in which trades would settle the same day. Proponents say markets would become more efficient with same-day or even instantaneous settlement. But Wall Street lobbying groups have said same-day settlement would require a fundamental overhaul of many of the stock market’s processes and could introduce new risks.

SEC Proposes Broad Disclosure Rules for Private Investment Funds [WSJ]
SEC Seeks More Disclosures From Private-Equity and Hedge Funds [WSJ]
After retail investors’ rebellion, the S.E.C. wants a stock market makeover. [NYT]
CFTC Chair Asks Congress for Authority to Regulate Some Cryptocurrencies [WSJ]
FinCEN’s Corporate Ownership Rules Stir Debate From Banking, Small Business Groups [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Unsurprisingly, Gary Gensler & co. are taking it a bit more seriously.

JPMorgan Chase & Co. is nearing a deal to pay a $200 million fine and admit that it failed to properly monitor employees’ messages, the first settlement to emerge from a regulatory sweep into how banks oversee traders’ chats…. In recent months, regulators have questioned a number of big banks, including Bank of America Corp., Citigroup Inc., Morgan Stanley and Credit Suisse Group AG , about how they track employee communications, some of the people said. The status of that regulatory effort, and whether other entities would face fines, couldn’t be determined…..

The SEC deal would be the first to involve an admission of misconduct since agency officials said in October that they would deviate from “no admit, no deny” settlements in some cases…. A $200 million fine is large for a record-keeping violation. Such investigations are often conducted by the Financial Industry Regulatory Authority, a self-regulatory organization overseen by the SEC, according to securities lawyers.

Indeed, as far as the SEC is concerned, not monitoring traders texting on their iPhones is nearly as serious as not monitoring potential money-laundering.

A NatWest Group PLC subsidiary was fined £264.7 million, equivalent to $351.3 million, in a London court over anti-money-laundering offenses for its failure to follow-up on red flags associated with the cash deposits of a customer.

In fairness, though, keeping tabs on those kinds of things are just as hard as keeping tabs on what people do on their own laptops, right?

Beginning in late 2013, the bank’s branches began receiving millions in cash from [gold dealer] Fowler Oldfield, in sums so large, for instance, that they would break the black garbage bags in which they arrived and wouldn’t fit in the bank’s safes.

Often, the cash was in Scottish bank notes—unusual for a business based so far from the border between Scotland and England, according to the court—and carried a noticeably musty smell—indicating that the notes had sat in storage instead of being put to business use.

What’s not so serious, as it turns out, is helping Frenchmen evade French taxes.

The court upheld the guilty verdict against the Swiss banking giant, in a case tried under French criminal law. However, it slashed an earlier fine of 3.7 billion euros, equivalent to around $4.2 billion, to 3.75 million euros, all but eliminating the largest chunk of penalties. It ruled that UBS must still pay 800 million euros in damages and interest, and ordered the confiscation of 1 billion euros.

JPMorgan in Talks to Pay $200 Million Fine Over Employee Text Messages [WSJ]
NatWest Fined $351 Million for Overlooking Money-Laundering Risks Posed By Client [WSJ]
UBS Penalties Slashed by Around $3 Billion in French Tax Case [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Deputy Attorney General Lisa Monaco on Thursday said prosecutors would consider all prior wrongdoing by corporations when deciding how to resolve a new investigation. Previously, prosecutors were allowed to only review cases whose facts were similar to the claims in the latest probe.

Corporations also won’t qualify for leniency programs unless they provide information on all employees or executives believed to have participated in crimes such as fraud or bribery, Ms. Monaco said…. Ms. Monaco, the department’s second-in-command, said prosecutors would also consider the outcome of civil regulatory investigations…. Prosecutors are also reviewing whether companies are living up to the terms of their probationary or nonprosecution deals, Ms. Monaco said.

Indeed, it seems, global regulators are generally weighing their charges in the balance and finding them wanting. Especially if they deal in cryptocurrencies.

The [U.K. Financial Reporting Council] asked 15 companies—up from 14 the previous year—to make a change to a significant aspect of their reporting, potentially due to errors or omissions of relevant information…. The regulator also found other areas of financial statements for some companies lacking detail. Companies should make disclosures about critical accounting estimates that are specific to their business and not just repeat accounting rules, the FRC said.

The [Financial Action Task Force] called on governments to broaden regulatory oversight of crypto firms and force more of them to take measures such as checking the identities of their customers and reporting suspicious transactions to regulators…. The guidelines take aim at DeFi projects such as decentralized exchanges, in which crypto traders can swap assets with each other, typically on an anonymous basis. The task force said the people or companies that own or operate such decentralized platforms could be considered virtual asset service providers, or VASPs, a designation that would force them to check users’ identities and take other measures against money laundering.

Rostin Behnam, the CFTC’s acting chairman, noted that the agency has settled two enforcement actions against cryptocurrency companies totaling $140 million. “But this is the tip of the iceberg,” he said in a confirmation hearing before the Senate Agriculture Committee.

The SEC indicated it wants to limit new bitcoin-related products to those that provide unleveraged exposure to bitcoin futures contracts…. Valkyrie Investments on Tuesday proposed to launch a fund that sought to amplify the daily returns of a portfolio of bitcoin derivatives, including futures contracts and options, by using 1.25 times leverage, or borrowed money. Valkyrie was asked to pull its proposal….

Anyway, in the interests of balance, here’s a counterpoint from a guy with no power who’ll be retiring before he gets any back.

[Sen. Pat] Toomey’s bill would prevent the SEC from instituting an outright ban on payment for order flow, an idea [SEC Chairman Gary] Gensler has said he’s considering as part of his broader efforts to reform the practice…. The odds Toomey’s bill becomes law anytime soon appear slim in a Congress controlled by Democrats. Gensler, nominated to lead the SEC by President Joe Biden, has been encouraged by progressive lawmakers to step up regulatory oversight.

Justice Department Vows Tougher Action Against White-Collar Crime [WSJ]
U.K. Audit Regulator Says Companies Need to Improve Disclosure on Revenue, Cash Flows [WSJ]
Global Regulators Back Tougher Rules to Prevent Criminals From Using Crypto [WSJ]
CFTC Chief Says Recent Crypto Cases Are ‘Tip of the Iceberg’ [WSJ]
SEC Won’t Approve Leveraged Bitcoin Fund [WSJ]
GOP Senator Toomey debuts bill to protect broker revenues, payment for order flow [CNBC]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

“2021 will be remembered for this milestone,” said Michael Sapir, the C.E.O. of ProShares.

That’s right: Move over, coup attempts! Forget about the pandemic and miraculous vaccine! Ignore the ignominious end of America’s 20-year misadventure in Afghanistan! For tomorrow, the first bitcoin exchange-traded fund is at long last upon us.

Well, sort of.

The much-anticipated ETF from ProShares, which will track the bitcoin futures market, will begin trading Tuesday on the NYSE under the ticker “BITO,” the company confirmed…. Investing in a futures-based ETF would not be the same thing as investing directly in bitcoin…. A futures-based ETF tracks cash-settled futures contracts, not the price of the asset itself.

It is a distinction that appears not to matter much to investors.

The price of bitcoin climbed more than 2% on Monday to $62,041.84, according to Coin Metrics. Many investors are watching to see if bitcoin will jump above $64,800 this week to reach a new all-time high.

And, you know, really, why should it?

Tether Ltd., the largest stablecoin issuer, agreed to pay a federal regulator a $41 million penalty Friday…. The CFTC said that from at least mid-2016 to Feb. 25, 2019, Tether “misrepresented to customers and the market” that it held U.S. dollar reserves in bank accounts for all of its stablecoins, dubbed USDTs, in circulation. In reality, Tether held equivalent dollar reserves in its accounts “for only 27.6% of the days in a 26-month sample time period,” the CFTC said.

First bitcoin futures ETF to make its debut Tuesday on the NYSE, ProShares says [CNBC]
Bitcoin Comes to the Big Board [DealBook]
Stablecoin Giant Tether Hit With $41 Million Fine in Latest Crypto Crackdown [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

But what of the fifth pillar of the finance services regulatory regime? No, we’re not talking about Gensler’s old haunt, the Commodity Futures Trading Commission. No one takes that seriously, least of all President Biden. We’re talking about the Justice Department. After four years of taking matters white collar (among others) as unseriously as everyone now takes the CFTC, when would Merrick Garland, who after all has been in his job of Attorney General longer than any of the previously-mentioned regulators—although he arguably inherited by far the largest mess to clean up—finally get in on the party?

Well, now, it seems.

Lisa Miller will serve as acting deputy assistant attorney general for the criminal division, overseeing the fraud and appellate sections, a Justice Department spokesman said. Ms. Miller replaces Daniel Kahn, who left the department Wednesday to join the law firm Davis Polk & Wardwell LLP.

The Justice Department also has appointed two deputy chiefs within its fraud section, according to an internal Justice Department announcement viewed by The Wall Street Journal. The section, one of the largest teams of white-collar criminal prosecutors in the U.S., investigates business crimes ranging from foreign bribery to healthcare and securities fraud and market manipulation…. The appointments follow the Senate confirmation in July of Kenneth Polite Jr., who was nominated by the Biden administration to serve as assistant attorney general of the Justice Department’s criminal division.

The creation of the National Cryptocurrency Enforcement Team, which would be under the supervision of Assistant Attorney General Kenneth Polite Jr., will focus on crimes committed by virtual currency exchanges and mixing and tumbling services, the DOJ said in a statement. The team also would help trace and recover assets lost to fraud and extortion, the DOJ said…. NCET would strengthen DOJ’s capacity “to dismantle the financial entities that enable criminal actors to flourish—and quite frankly to profit—from abusing cryptocurrency platforms,” [Deputy Attorney General Lisa] Monaco said. “As the technology advances, so too must the department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems,” she said.

John Carlin, a senior member of the deputy attorney general’s office, in a speech on Tuesday to an audience of white-collar defense lawyers, acknowledged the Justice Department’s efforts to combat white-collar crime had fluctuated over the years. He added that the agency would “redouble” its commitment to white-collar crime enforcement under the Biden administration…. Mr. Carlin described several initiatives to boost white-collar enforcement, which he said he was previewing for the first time, including one that will embed Federal Bureau of Investigation agents within a component of the Justice Department that investigates foreign bribery, market manipulation and healthcare fraud cases. The addition of new resources to the prosecution of white-collar crime already has begun, he said.

The Justice Department is poised to sue government contractors and other companies who receive U.S. government grants if they fail to report breaches of their computer systems or misrepresent their cybersecurity practices, the department’s No. 2 official said Wednesday…. “For too long, companies have chosen silence under the mistaken belief that it’s less risky to hide a breach than to bring it forward and to report it. Well, that changes today,” Monaco said.

And before Garland or Gensler up and decide such matters are illegal in some way, companies across the business landscape would like the friendly folks at the Financial Accounting Standards Board to do so. Quickly, if possible.

Businesses such as telecommunications firm Charter Communications Inc. and software firm Autodesk Inc. are urging the FASB to pursue rule making on a range of accounting issues. These include digital assets such as bitcoin and energy transactions—for example, renewable-energy certificates and carbon-offset credits, which companies can purchase and apply toward their greenhouse gas emissions-reduction targets.

In both cases, there are currently no specific accounting rules for companies to follow.

Speaking of which, if someone knows where all of the billions of dollars Tether swears it has in reserve are, do let someone in a position of authority know.

Exactly how Tether is backed, or if it’s truly backed at all, has always been a mystery. For years a persistent group of critics has argued that, despite the company’s assurances, Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud…. So earlier this year I set out to solve the mystery. The money trail led from Taiwan to Puerto Rico, the French Riviera, mainland China, and the Bahamas. One of Tether’s former bankers told me that its top executive had been putting its reserves at risk by investing them to earn potentially hundreds of millions of dollars of profit for himself. “It’s not a stablecoin, it’s a high-risk offshore hedge fund,” said John Betts, who ran a bank in Puerto Rico Tether used. “Even their own banking partners don’t know the extent of their holdings, or if they exist.”

No wonder it’s all giving David Einhorn such a headache, although George Soros and Public.com don’t seem quite so concerned.

The family office owns “some coins … but not a lot,” Dawn Fitzpatrick, CEO and chief investment officer of Soros Fund Management, said…. “I’m not sure bitcoin is only viewed as an inflation hedge here,” Fitzpatrick said. “I think it’s crossed the chasm to mainstream.”

Starting Thursday, Public.com will begin gradually launching the offering to most users, who will be able to buy, sell and hold 10 cryptocurrencies, including bitcoin, ether, joke cryptocurrency dogecoin and Cardano’s ada token…. Cryptocurrencies have “really attracted a new generation of investors to it as an asset class,” Stephen Sikes, chief operating officer of Public.com, said. “We also think…there is some validity to including crypto within a broadly diversified portfolio.”

Justice Department Sets Up National Cryptocurrency Enforcement Team [WSJ]
Justice Department to Redouble Efforts in Combating White-Collar Crime, Official Says [WSJ]
US poised to sue contractors who don’t report cyber breaches [AP]
Justice Department Firms Up Criminal Division Leadership Ranks [WSJ]
Companies Want FASB to Focus on Crypto, ESG-Related Rule Making [WSJ]
SEC’s Gensler Aims to Save Investors Money by Squeezing Wall Street [WSJ]
SEC head Gary Gensler under fire over crypto regulation [FT]
Sen. Elizabeth Warren Says Fed Suffers From ‘Culture of Corruption’ [WSJ]
Anyone Seen Tether’s Billions? [Businessweek]
George Soros’ fund owns bitcoin, CEO confirms [CNBC]
Investing Platform Public.com Launches Crypto Trading [WSJ]
Hedge fund legend David Einhorn warns investors aren't doing their homework, predicts stubborn inflation, and says crypto is too complex for him in a new interview. Here are the 10 best quotes. [BI]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Over the span of a decade, Marietta-based investment adviser John J. Woods persuaded more than 400 investors in 20 states to trust him with their investments. He and his associates made an attractive offer: a guarantee of 6% to 7% interest for two to three years for investing in a fund called Horizon Private Equity. Investors weren’t told much about how the fund worked, only that money would be put in things like government bonds or small real estate projects…. Now, the Securities and Exchange Commission has accused Woods, 56, of operating a massive Ponzi scheme. By the end of July, according to the SEC, Horizon owed investors more than $110 million in principal alone but had liquid assets worth less than $16 million….

Tuesday, a federal judge froze Woods’ assets, including his minority interest in the Chattanooga Lookouts minor league baseball team.

A Roswell man who went by the name “Quicksilver” as he enticed potential clients has been ordered to pay millions of dollars in restitution and penalties after a federal judge found he and two related companies were liable for fraud and other violations…. The CFTC alleged that more than 9,000 clients purchased access to Mayer’s trading system through two affiliated companies, Silver Star Live Software LLC of Florida and Silver Star FX LLC, which was listed in New Mexico, and went by the name Silver Star Live.

Neither Mayer nor the companies filed an answer in court to the case, and Judge J.P. Boulee issued a default judgment in late July.

For restitution, he ordered Mayer and SSLS to pay about $3.7 million and SSL to pay nearly $200,000. The judge also set civil penalties of more than $1.3 million for Mayer, nearly $9.8 million for SSLS and about $600,000 for SSL.

Marietta man accused of $110 million Ponzi scheme [AJC]
Roswell man ‘Quicksilver’ told to pay millions in fraud case [AJC]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

The executive had provided information that helped CFTC and Justice Department investigations that led to roughly $2.5 billion in settlements with Deutsche Bank in 2015, including $800 million with the CFTC. They alleged that the bank manipulated the London interbank offered rate, or Libor, a benchmark interest rate used to set short-term loans for global banks….

Agency leaders have contended there is no mechanism to pay the bank executive and other applicants and keep funding the whistleblower program.

The CFTC pays whistleblowers from money it collects in enforcement penalties. But the agency’s whistleblower fund can be replenished only when it falls below $100 million…. The Dodd Frank Act, enacted in 2010, said whistleblowers could collect between 10% and 30% of penalties or settlements reached with the companies accused of financial misconduct. The $100 million CFTC cap didn’t anticipate that a single award could exceed that amount.

Besides paying awards, the money is used to fund the whistleblower office, which attracts and handles whistleblowers, who are the source of or are helping with about one-third of the agency’s active investigations.

In other words, Deutsche Bank is such an unprecedented catastrophe that no one even 11 years ago could have predicted it would be forced to cough up so much in fines as to bankrupt a critical part of a federal agency. Given that impressive bit of potential collateral damage, you’d presume that whenever a regulatory authority decided to have a look-see, they’d find something wanting. Certainly, the Justice Department expected to do so when it opened its umpteenth probe into the Germans, this time over the sordid and lucrative matter of the 1MBD scandal. But, incredibly, no!

The DOJ sent a letter to notify the German bank that the investigation had been closed, people familiar with the matter said…. The move by the DOJ provides relief as Deutsche Bank was named on Monday as a defendant in a lawsuit brought by 1MDB seeking $1.1 billion in payments from the German lender….

Truly, an astonishing turn of events: Deutsche Bank got involved in a massive international fraud case and managed to not commit a single sanctionable action. Absolutely remarkable. Well done, guys.

Deutsche Bank 1MDB Probe Dropped by U.S. Justice Department [Bloomberg]
CFTC Whistleblower Program in Peril Over Potential $100 Million-Plus Payout [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

British hedge fund manager Alan Howard is the fourth-largest shareholder in digital asset manager CoinShares…. Prior to the listing, Howard was a hidden investor….

Indeed, the Brevan Howard revival continues apace, as Howard could have chosen to make his cryptofancying clear with a different investment.

Cryptocurrency-exchange operator Coinbase Inc. agreed Friday to pay $6.5 million to settle regulatory claims that it reported misleading information about its trading volumes…. The outcome clears one cloud hanging over Coinbase as it prepares to become a public company through a direct listing on the Nasdaq Stock Market…. The claims against Coinbase date from a period between 2015 and 2018 and relate to trading on an exchange now known as Coinbase Pro. The company operated two programs that generated orders that sometimes traded with each other, the CFTC said in a settlement order.

It’s becoming clearer and clearer that having those with cryptoexpertise in top regulatory jobs is not as favorable for the cryptorevolution as its cheerleaders might have hoped.

In fairness, Coinbase chief Brian Armstrong made pretty clear that he and the company would be single-minded in its efforts to maximize productivity and create an open financial system for the world, and isn’t all crypto trading fake on some level? Plus, better to get this whole thing sorted both before the direct listing and this week’s excitement.

Bitcoin options contracts… worth around 100,000 bitcoin, or almost $6 billion at today's prices, will expire on Friday, according to data from cryptocurrency analytics provider Bybt. This coming options expiry is significantly more than the previous $4 billion record, set in late January…. "There is a higher open interest build up on puts than on calls, as options writers remain more comfortable selling the downside than writing the upside," says Balani. "On the downside, the highest buildup is on $40,000 strike puts for the March expiry. $40,000 also remains the most sold strike for the June expiry and for longer maturities."

Coinbase to Pay $6.5 Million to Settle CFTC Investigation Over Trading [WSJ]
Bitcoin Is Braced For A Huge $6 Billion Price Earthquake This Week [Forbes]
Billionaire Hedge Fund Mogul Alan Howard Is a Shareholder in CoinShares [Coindesk via Yahoo! Finance]

Oh, about that:

Antivirus software entrepreneur John McAfee was indicted on fraud and money laundering conspiracy charges alleging that he and cohorts made over $13 million by fooling investors zealous over the emerging cryptocurrency market, authorities said Friday.

McAfee, 75, was charged in a newly unsealed indictment in Manhattan federal court along with Jimmy Gale Watson Jr., who served as an executive adviser on what prosecutors described as McAfee’s “so-called cryptocurrency team.”

That’s one description of Watson. Here’s another:

Authorities accused McAfee and his bodyguard, Jimmy Gale Watson Jr., of exploiting McAfee’s large Twitter following to artificially inflate prices of “altcoins” through a so-called pump-and-dump scheme, and concealing payments McAfee received from startup businesses to promote initial coin offerings….

The Commodity Futures Trading Commission filed related civil charges concerning the alleged pump-and-dump scheme…. Both also face civil charges by the U.S. Securities and Exchange Commission, which in October accused McAfee of concealing more than $23.1 million he made from boosting seven cryptocurrency offerings on Twitter.

In the cryptocurrency cases, authorities said McAfee touted assets including Verge, Reddcoin and Dogecoin as part of a “Coin of the Day” or “Coin of the Week” tweet from around December 2017 through February 2018.

Antivirus software creator charged with cheating investors [AP]
Antivirus software pioneer McAfee charged by U.S. with cryptocurrency fraud [Reuters]
Earlier: Steven Seagal Is Out Of The CryptoPromotion Business

Speaking of which, has Gary Gensler decided who’s going to run the SEC? It seems he has.

Gary Gensler will be named chair of the U.S. Securities and Exchange Commission (SEC) by President-elect Joe Biden, said two sources familiar with the matter…. Policy experts expect Gensler will pursue new corporate disclosures on climate change related-risks, political spending, and the composition and treatment of their workforces. Democrats also are keen to reverse new investment advice protections which they say do more harm than good, to restore some shareholder rights, and complete post-crisis executive compensation curbs.

The only thing that could make this any worse (well, the only thing other than Preet Bharara getting the nod over Gensler) would be if Jay Clayton’s putting all of the hard work of gutting the Deep State off to the last second were now poised to blow up in Wall Street’s face.

“The good news is that much of that action came late enough in his tenure that it may still be possible to reverse course,” said Barbara Roper, investor protection director for the Consumer Federation of America.

And the other good news is that the formerly technophobe Gensler has gotten up to speed on things should any hackers try any more funny stuff with the SEC. Which they will.

Biden to name Gary Gensler as U.S. SEC chair, sources say [Reuters]

Gary Gensler, a former Obama administration official best known for cracking down on Wall Street banks, will join Joe Biden's presidential transition team and lead its review of financial regulatory agencies, people familiar with the matter said.

Gensler's involvement will likely calm the nerves of progressives who want Biden to take a hard line with the finance industry. The former Goldman Sachs partner faced off with the banking industry as chair of the Commodity Futures Trading Commission from 2009 to 2014, guiding the agency as it imposed new rules on Wall Street trading after the 2008 financial crisis.

That’s right, baby: Gary Gensler’s back! And while he probably won’t get to be Treasury Secretary, maybe he will finally get to be SEC chair or, better yet, just get to pick every nominee for a financial regulatory role for the next four years. And he’s not the only one.

In 2010, during a brief stint in the Senate, Mr. Kaufman led a push to limit the size of U.S. lenders—a move that would have led to the breakup of the biggest banks had it been successful.

Mr. Kaufman is leading President-elect Joe Biden’s transition team, giving him a voice in choosing appointees to fill positions across the government, including the Consumer Financial Protection Bureau and the Securities and Exchange Commission…. Mr. Kaufman has taken aim at the revolving door between Wall Street and Washington and was an early critic of the high-frequency trading that he said contributed to the May 2010 stock-market “flash crash….”

After leaving the Senate, Mr. Kaufman served on an SEC advisory panel where he pressed regulators to strengthen oversight of automated trading on U.S. stock markets. A key focus: getting brokers to provide more information about how they handle stock orders on behalf of retail and institutional investors.

Something tells me these two might work well together.

Mr. Kaufman has also criticized the practice of recruiting bankers from firms such as Goldman Sachs Group Inc. for top economic jobs in government…. But in a 2018 column, he made an exception for Mr. Gensler….

And, given the outgoing president’s magical touch for picking Federal Reserve nominees that even his toadies in the Senate can’t stomach, there are already a lot to pick.

When Mr. Biden takes office on Jan. 20, he could have up to three vacancies to fill…. The board now has two openings…. If the Senate doesn’t confirm Mr. Trump’s picks, Mr. Biden would have two seats to fill. He would have a third if he nominates Fed governor Lael Brainard to serve as his Treasury secretary.

That kind of math might worry a Fed chair tapped by Donald Trump, but for Jay Powell, it’ll be quite a relief. And he might even get to keep his job in such fortuitous circumstances. Indeed, he’s already campaigning for it.

Mr. Powell is likely to enjoy a more civil and less antagonistic relationship with Mr. Biden than he did with President Trump…. Mr. Biden could face pressure from within his party to replace Mr. Powell with a Democrat, especially given policy differences with Mr. Powell over bank regulation. But some Democrats have called on Mr. Biden to reappoint Mr. Powell, which Senate Republicans would likely support.

Fed officials continue to discuss what they can do to help, and those talks have included stepping up the asset purchase program if necessary, the central bank official told CNBC.

Former Wall Street cop Gary Gensler to join Biden transition [Politico]
Biden Transition Chief Proposed Limiting Size of Biggest U.S. Banks [WSJ]
Where Is Wall Street in Biden’s Transition Team? [DealBook]
Biden’s Election Win Was a Big Bet for These Wall Street Executives [WSJ]
What Biden’s Election Means for the Fed [WSJ]
Fed officials in ‘robust’ discussions about the future of their asset-purchase program [CNBC]

The SEC in November had proposed requiring broker-dealers and investment advisers to vet individual investors before approving them to trade the products, known as leveraged and inverse exchange-traded funds…. In explaining the decision to shelve the provision, the commission cited an unusual volume of comment letters—numbering some 6,000—from people identifying themselves as investors concerned about losing access to the funds.

Nor is the SEC the only federal regulator getting in on the going-easy-on-corporate-America game in what might be the final days of the great deregulatory bonanza of the Trump years.

The Commodity Futures and Trading Commission is expected to release guidance Thursday spelling out how companies that self-report potential misconduct, cooperate with investigators and take steps to address underlying issues could receive a “substantially reduced” financial penalty.

SEC Shelves Measure to Protect Investors in Leveraged ETFs [WSJ]
CFTC to Offer Lower Fines to Offenders That Cooperate [WSJ]

Robert Bowes, a political appointee in the Department of Housing and Urban Development, has reported 140 trades of stocks and options that collectively amount to between $671,000 and $3.2 million since joining the government in early 2017. Three bets on options or individual stocks were larger than $50,000 each….

Ethics rules don’t ban government officials from trading, as long as they steer clear of conflicts of interest and don’t take advantage of inside information, which Mr. Bowes said he didn’t. What was unusual, ethics experts said, was the frequency of his transactions, the high-stakes bets he sometimes made and the exotic securities he sometimes traded. On several occasions in 2018 and 2020, he bought and sold thousands of dollars of options on the same day.

“It is literally day trading,” Robert Rizzi, a partner at law firm Steptoe & Johnson LLP who advises government officials and nominees on financial disclosure, said after reviewing Mr. Bowes’s filings. “When they’re in the government, a lot of them don’t have time to do this, so it’s pretty amazing that he’s doing all this trading.”

Even truer to Trumpian form, it’s not at all clear whether Bowes made or lost money on all that trading, as his financial disclosures are almost as lacking as his patron’s. Obviously, this is a man who has earned a promotion.

In August, Mr. Trump nominated Mr. Bowes to a seat on the five-member CFTC, a financial regulator that oversees derivatives markets and enforces laws against insider trading and fraud.

Nominee to Financial Regulator CFTC Traded Stocks, Options While in Government [WSJ]

No, what makes Deutsche Bank such a special, hopeless case is not that it makes mistakes. It’s that it makes the same mistakes, over and over and over again, before getting ordered to do something about the endless making of that type of mistake, and then fails to do even that, establishing a new vicious cycle of meta-mistakes, on and on, ad infinitum. Consider, for instance, the Germans’ little problem with money laundering, as we have, ad infinitum.

Of course, Deutsche Bank has been laundering money for quite a long time, indeed. And, occasionally, it gets caught in less than a half-century, as when it helped the Russians wash money through mirror trades or Denmark via Estonia, or with whatever it helped President Trump do over the years, or when it allegedly got involved in the 1MDB scandal, or when the cops pulled up outside headquarters for a looksee. And every time, the authorities issue a fine and extract a solemn promise from Deutsche to do something about its anti-money laundering controls, which it then fails to do or fails to do sufficiently, leading to further fines for that, but apparently no further work on the underlying problem, which is Deutsche Bank’s absolute inability to detect or otherwise do anything about the money laundering it is or could be doing.

Apparently concerned that it’s not giving its compliance and legal departments enough work to do on that front, however, Deutsche Bank has decided that spoofing would make a splendid concurrent sequel to its ongoing AML haplessness. The bank began this latest exercise in illicit incompetence back in 2015, when it promised to do a better job keeping track of and reporting its swaps trading activities. This weakness in detection and reporting was eagerly seized upon by trader David Liew, who had been putting into practice the skills he learned at the feet of the “Legend,” allegedly alongside a couple of colleagues, for a couple of years already. And it would still be another couple of years before he was caught, not, apparently, by Deutsche itself, but by the FBI. And, of course, immediately after promising to do better, Deutsche did the opposite.

The charges stem from an issue in 2016, when an unprecedented outage in the bank’s swap reporting platform kept Deutsche unable to report data for multiple asset classes for five days, exacerbating existing report problems at the firm, the CFTC said. In 2015, Deutsche agreed to a CFTC order to improve its internal controls after being charged with failures in swaps reporting.

Oh, and also, obviously, there was even more spoofing than we were aware of.

Deutsche agreed to pay a $1.25 million penalty to settle the allegations that two of the bank’s traders engaged in numerous instances of a type of market manipulation called “spoofing” in Treasury futures and Eurodollar futures contracts on CME, the bank said in a statement…. “As reflected in both the settlement orders, we have taken meaningful steps to enhance our controls and are pleased to put these matters behind us,” Deutsche Bank spokesperson Dan Hunter said in an emailed statement.

Given your employer’s track record, we wouldn’t be so sure, Dan.

Deutsche Bank to pay $10 million over spoofing charges, reporting failures: CFTC [Reuters]

The memo outlines several broad categories of factors to consider, such as the gravity of the violation and mitigating and aggravating circumstances. With respect to the gravity of a violation, the memo directs staff lawyers to consider the number, duration and degree of the infraction, among other factors.

Mitigating or aggravating conduct could include whether a company or individual self-reported or took steps to prevent future infractions. The memo also says staff lawyers can consider factors such as the conservation of the CFTC’s resources.

But not too much transparency: The CFTC isn’t losing all of its Bart Chilton-esque jazzy ways.

The guidance doesn’t elaborate on how the agency calculates the number of violations in cases alleging market manipulation or other types of misconduct related to the derivatives and commodities markets, lawyers for the law firm Skadden, Arps, Slate, Meagher & Flom LLP said in a client message….

“The goal of this document is not that you plug the conduct into a formula and it spits out a number,” [CFTC staff enforcement director James McDonald] said.

Which is just as well, because there’s no way the CFTC could afford to build a system to make that happen.

Penalty Guidance Gives Companies More Transparency, CFTC Official Says [WSJ]

On Monday, the SEC announced its latest award, to a recipient who will get almost $2 million for helping the agency probe an ongoing fraud and get investors their money back. That brings to over $64 million the amount paid to whistleblowers during the first seven months of the fiscal year that began in October—more than the SEC has awarded in any full year except 2018, according to an analysis of agency records. The 16 whistleblowers receiving money thus far exceeds the number in any previous year….

“We’ve made significant strides to streamline and accelerate the evaluation of claims, and the recent increase in the number of whistleblower awards reflects our efforts,” the SEC’s enforcement co-directors, Stephanie Avakian and Steven Peikin, said in a statement. “We are committed to rewarding the valuable contributions of whistleblowers in a timely and efficient manner.”

Whether this is a true change of heart due to a realization that whistleblowers can actually be useful, an ad-hoc stimulus program for our benighted times, or simply SEC bureaucrats’ reaction to boredom, and just how long the change will last, are, as so much else, unclear. But, like COVID-19 itself, it’s catching on.

The Commodity Futures Trading Commission today announced a whistleblower award exceeding $2 million to be shared among four whistleblowers. The CFTC granted the whistleblowers’ award applications for both a CFTC action and related actions brought by another regulator…. “The four whistleblowers here synthesized information for the CFTC that highlighted the economic impact of the suspicious activity they identified,” said CFTC Whistleblower Office Director Christopher Ehrman. “The whistleblowers’ initiative not only led to the CFTC’s investigation, but also to related investigations brought by other regulators.”

SEC Ramps Up Whistleblower Awards [WSJ]
CFTC Awards More Than $2 Million to Four Whistleblowers [press release]

CME had just changed its computer systems earlier this month to allow negative pricing in WTI, anticipating such a scenario, and many traders had discussed it as a possibility.… “It’s not a price that makes you feel good,” he said. “But the reality is, there is oversupply, there is under-demand that’s virus-driven, and there is nowhere to put the stuff.”

That is, you’ve got to hand it to them unless you are an oil company or widely-traded oil exchange-traded fund, in which case the move to allow oil futures to go sub-zero just like any other commodity contract looks less like foresight and more like foul play.

In a Tuesday letter signed by oil tycoon Harold Hamm, executive chairman of Continental Resources Inc., the company asked CME’s regulator, the U.S. Commodity Futures Trading Commission, to investigate whether “possible market manipulation, failed systems or computer programming failures” caused the drop into subzero prices.

“The sanctity and trust in the oil and all commodity futures markets are at issue as the system failed miserably,” Mr. Hamm told the CFTC. Continental also filed a similar complaint with CME’s market-regulation department.

USCF, the manager of the fund, said that it will execute a one-for-eight reverse share split for USO that will go into effect after the close on April 28.... On Tuesday USCF said that going forward the fund would hold longer-term West Texas Intermediate contracts instead of just focusing on the front month contract…. USCF also said that it was temporarily suspending the issuance of so-called creation baskets. Creation baskets are how an ETF creates new shares to meet demand.

On the bright side, the whole thing is really keeping Kyle Bass’ spirits up.

After vaporizing billions from unweary investors this week alone, the retail killer USO begins the day at a 36% premium to its current asset value of $2.06. Reverse splitting garbage continues to give you garbage.#USOIL #USO #supercontango pic.twitter.com/D2pqPpISjW

— 🇺🇸 Kyle Bass 🇹🇼 (@Jkylebass) April 22, 2020

If May WTI Crude went negative -$40, and June WTI Crude is currently down $8 to $11 (on its way to negative), can US exchange listed oil ETFs go below Zero? If I were a major counterparty after yesterday’s session, I would demand more than 100% collateral. #USO #usoil https://t.co/o3Na8flNPB

— 🇺🇸 Kyle Bass 🇹🇼 (@Jkylebass) April 21, 2020

Negative Oil Prices Pose Headache for Futures Giant CME [WSJ]
The oil ETF trying to avoid imploding on retail investors attempts another trick with reverse split [CNBC]
US Oil Fund drops 25% after changing structure again as popular ETF tries to stave off collapse [CNBC]

The Commodity Futures Trading Commission said it has received hundreds of complaints about such fee frauds in recent months and warned individual investors should be particularly aware of the schemes, which promise easy ways to make money with no trading experience, the agency said in an advisory note…. Victims are shown text updates or statements that state the amount they invested is growing but are asked to pay high commissions, money transfer fees and taxes when they try to claim profits, according to the CFTC. The profits aren’t real and the swindlers disappear when the victims stop paying, the CFTC said./ The schemes described by the CFTC highlight the challenges individual investors face as they look for alternatives to the turbulence they face in the stock market….

Derivatives Regulator Warns of Fee Scams During Coronavirus Pandemic [WSJ]
Don’t Click! Coronavirus Text and Phone Scams Are Designed to Trick You [WSJ]
NYC files lawsuits against stores for coronavirus price gouging [N.Y. Post]

The bank disclosed in a Feb. 25 regulatory filing that it is dealing with “related requests concerning similar trading-practices issues in markets for other financial instruments, such as U.S. Treasurys.” According to people familiar with the matter, the investigation also is probing the bank’s trading in futures…. A move to examine trading practices in Treasury securities would be a big step in a market that has historically had little transparency… “It is going to be a lot harder for the government to catch spoofers in the cash Treasury market than in the futures market,” Mr. Angel said.

Of course, the Feds already have a hard enough time with that, so this is perhaps more of a warning to banks to cut that shit out than it is an actual effort to find and apprehend the “Legend” of Treasurys spoofing.

Government Is Broadening Investigations of Spoofing-Like Practices [WSJ]
Shedding 2008 Stigma, Biggest U.S. Banks Borrow Straight From the Fed [WSJ]

Catalyst Capital Advisors LLC (CCA) and its President and Chief Executive Officer, Jerry Szilagyi, agreed to pay a combined $10.5 million to settle the charges. The SEC also filed a complaint in federal district court in Madison, Wisconsin, against Senior Portfolio Manager, Edward Walczak, for fraudulently misrepresenting how he would manage risk for the fund.

Catalyst is found liable for the misstatements of the fund’s portfolio manager regarding his management of the Fund’s risk, as well as Catalyst’s misrepresentations that stop-loss measures were in place to limit losses, when in fact no such measures existed. Additionally, while Catalyst represented that a dedicated risk manager monitored the fund’s risk metrics daily, the risk manager did not actually do so.

SEC Charges Portfolio Manager and Advisory Firm with Misrepresenting Risk in Mutual Fund [SEC]
CFTC Orders Commodity Pool Operator, CEO to Pay More Than $10 Million for Misleading Statements, Supervision Failures [CFTC]

This is especially true of the Commodity Futures Trading Commission which, even by generally meagre standards of U.S. regulatory funding, is a pathetic pauper. Getting to trumpet getting tough on Goldman Sachs to the tune of $1 million is a godsend for an agency as broke as the CFTC. Anything more ambitious is going to require some help.

The Commodity Futures Trading Commission during the 2019 fiscal year filed a record 16 enforcement actions alongside related criminal charges, the agency said this week in its annual enforcement report…. The agency has strengthened its relationship with the U.S. Justice Department, sharing information on cases in which it spots potential criminal activity…. The director of the agency’s enforcement division, James McDonald—himself a former federal prosecutor—has highlighted the benefits of the increased coordination for both agencies. The CFTC’s specialized expertise and deep knowledge of market data enable it to identify potential criminal conduct that others wouldn’t otherwise catch, he told attendees of a legal conference in New York in September.

And then leave the real work to those with the money to pursue it.

CFTC Relying More Heavily on Coordination with Criminal Prosecutors [WSJ]
CFTC Fines Goldman Sachs $1 Million for Failing to Record Calls [WSJ]
Bank Regulator Fines Citigroup’s U.K. Operations $56.6 Million for Regulatory Failings [WSJ]

A former lawyer for Ken Griffin’s Citadel Securities LLC and cryptocurrency exchange Coinbase has been tapped to lead the U.S. Commodity Futures Trading Commission unit that monitors derivatives markets and reviews new products.

Dorothy DeWitt, who served in senior legal and compliance roles for Citadel, will oversee the CFTC’s division of market oversight, the regulator said in a statement on Tuesday. She has been a top attorney at Coinbase since last November, according to her LinkedIn profile.

Ex-Citadel Attorney Picked for Top Market Oversight Job at CFTC [Bloomberg]

The Commodity Futures Trading Commission needs to correct “numerous weaknesses” in the way it manages and stores data, the inspector general’s office said in an audit report released late last week. The review also said the CFTC needs to rebuild or replace a key, but antiquated, database of confidential trading positions that it uses to police futures and options markets…. The two decade-old system must be updated or replaced by “a more modern and efficient technical solution,” the report said....

“I agree that the CFTC should review the security risks of ISS and other legacy systems to assure compliance with current information security standards,” Commissioner Rostin Behnam, who leads the agency’s Market Risk Advisory Committee, said in an email statement. “I am concerned that without additional resources, we will not be able to meet these critical standards.”

A Watchdog Says Hedge-Fund Secrets Kept by the CFTC Are Vulnerable to Hacking [Bloomberg]

Chilton was much more than a spectacular mane of flowing flaxen—and later steel-colored—locks. He was a swirling tour-de-force of similes, metaphors and aphorisms. He was a dedicated warrior in the fight against swaps skullduggery. In another life, he might have been a stand-up comic. In the one we were lucky to get, he was the kind of senior regulator and later biglaw partner who decorated his office with a lava lamp, blasted some rockin’ tunes and stood there looking like someone who just walked off of the cover of a goddamned Harlequin Seniors romance novel. He is irreplaceable.

Mr. Chilton parlayed his force of personality into attention for regulatory issues that might otherwise have been overlooked. He took a special interest in trying to reimburse customers whose funds were held by the brokerage firm MF Global Holdings Ltd. when it failed in 2011, peppering his speech with rock lyrics to get his point across….

“He took more risk than most politicians to achieve his sincerely held views,” said Scott O’Malia, who served as a CFTC commissioner alongside Mr. Chilton. “He was both authentic and an original….”

“Walking into Bart’s office was always a joy,” Mr. Gensler said, noting that the cowboy boot-clad Mr. Chilton would usually have rock music playing on the stereo as he worked. “He approached his time in public service with such zest.”

Since then, he’s been no less interesting, going to bat for the kinds of things that such a guy might go to bat for, like the high-frequency trading he decried when on the CFTC and, uh, other stuff.

In recent years, he took on a variety of disparate projects: backing an oil-based cryptocurrency, hosting a show on the Russian state-funded foreign television network RT, and a stint at the law firm DLA Piper.

Shine on, you crazy, beautiful diamond.

Former Democratic Regulator Bart Chilton Dies at 58 [WSJ]

The U.S. Commodity Futures Trading Commission announced Friday it charged Patrick K. McDonnell and his company CabbageTech with "fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin."
Based just outside Manhattan, in Staten Island, New York, CabbageTech operated under the name "Coin Drop Markets." Since around January 2017, the company promised customers real-time trading advice but never provided it and essentially disappeared after receiving payment, the complaint said.

Crime is bad, but if you're one of the people out there saying "Hey, I think that Staten Island-based Bitcoin trading platform named after gross lettuce stole the money I gave to them," perhaps you shouldn't have money in the first place.

Enjoy your weekend, rubes.

Staten Island-based 'CabbageTech' charged with bitcoin-related fraud after promising 300% returns in a week [CNBC]

New SEC Chairman Jay Clayton is being a good little boy, graciously accepting the $1.6 billion Santa Trump offered him in his, uh, starry-eyed and slightly deranged budget. Sure, Clayton thinks the $240 million that’ll give him to spend on technology is, uh, a little modest compared to the $10 billion some of the folks the SEC polices spent on the same, but that’s OK because the SEC’s sort of taking the year off anyway.

Things over at the CFTC are a little different. For one, that regulator’s budget gift was less than one-sixth the size of its big brother’s. For another, it still doesn’t have a permanent chairman. And, oh yeah, the still-interim guy? He’s also the only sitting commissioner on the CFTC right now, holding meetings with four empty chairs surrounding him. And so with all due respect to Mick Mulvaney’s carefully thought-out plans, and in spite of whatever impact it might have on his getting the top job for real, J. Christopher Giancarlo’s going to need a few more bucks if he’s going to continue doing the work of five people.

"The $31.5 million in additional funds is not a formulaic or superficial number, but a thorough and informed assessment of what the CFTC needs to execute its mission," acting Chairman Chris Giancarlo said in prepared remarks.

Wall Street regulators make budget pitches to Congress [Reuters]

According to a scoop in the NY Post, the CFTC is looking to get a peek under the hood of Renaissance Technologies in order to see if the trading algorithms that power its dominance are totally kosher.

Federal regulators are probing the secret trading code at Renaissance Technologies, the massive quantitative hedge fund run by James Simons and Robert Mercer, The Post has learned.
The Commodity Futures Trading Commission has recently asked to dig into the trading software at the $65 billion hedge fund, James Rowan, the fund’s chief operating officer, told an audience of hedge fund managers on Tuesday in New York, according to two people who were in the audience.

A federal regulator taking interest in a $65 billion quant fund that is shrouded in secrecy and seemingly incapable of losing money is not a shock, in fact it feels almost overdue, but the CFTC taking this action at this moment in time presents us with one enormous question: What the fuck is Bob Mercer even paying for?

After being the bankroll-cum-galvanizing ideological force behind the Trump campaign, Mercer has watched his returns come in as the new administration declared war on political norms, regulation, and the notional idea of government. One of the starkest examples of the Trump White House letting the US Government atrophy is ironically the CFTC. After the resignation of commissioner Sharon Bowen yesterday, the five member committee currently has one member.

One.

But apparently that slow march towards irrelevance is not enough to stop the CFTC from trying to get a look at RenTec's famously secret sauce. And while Jim Simons is probably greeting the news with a fresh ciggie and a charming shrug, we have to assume that Bob Mercer is pretty fucking pissed. In fact that sound you hear is likely all of Steve Bannon's phones ringing at once...even the one he hides inside that bottle of cheap scotch under his desk.

We're going to go out on a limb and guess that this whole probe disappears in the very near future.

UPDATE: According to the CFTC, this thing has already disappeared inasmuch as it never was. “The CFTC has not made any inquiries or requests related to the source code of Renaissance Technologies," an agency spokeswoman told Dealbreaker. James Rowan has also told The Post that he was misquoted.

Regulators probing legendary hedge fund’s secret trading code [NYPost]

Eight Democratic Senators on Tuesday asked U.S. regulators to launch an investigation into billionaire Carl Icahn’s activities in the U.S. biofuels blending credit market, saying the activist investor may have violated securities trading laws since becoming an adviser to President Donald Trump.
“We are writing to request that your agencies investigate whether Carl Icahn violated insider trading laws, anti-market manipulation laws, or any other relevant laws based on his recent actions in the market for renewable fuel credits,” the senators said in a letter to the heads of the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Environmental Protection Agency.

We've been saying for a while that Uncle Carl is swimming around in a legal/regulatory grey area since his BFF Donald Trump got into the White House and started taking requests, but we also just assumed that no one would say anything because Uncle Carl is like a shark; he's a born predator who can't stop swimming into areas that are optimal for him regardless of the effect he has on smaller fish. And like a shark, you can try to stop him, but he will kill you...and that's a dumb way to die, right Bill?

But if anyone is zealous and brave enough to take on Uncle Carl, it's the Bindi Irwin of the US Senate; Elizabeth Warren.

The letter, a copy of which was seen by Reuters, was signed by Democratic Senators Elizabeth Warren of Massachusetts, Sheldon Whitehouse of Rhode Island, Sherrod Brown of Ohio and five others. The letter acts as a request, and the agencies are not required to act upon it.

But, like, they really want regulators to act because they are pretty fucking sure Uncle Carl is whisper-setting White House policy and then profiting from his "advice..."

“We have no way of knowing at this time whether Mr. Icahn made any of his renewable fuel credit trades or decisions about trades based on material, non-public information or otherwise manipulated the market,” the senators wrote.
“But the publicly available evidence is troubling, and based on this evidence, we ask that your agencies investigate whether Mr. Icahn's conduct violated any laws under your jurisdiction,” they said.

This is all murky, partisan and gross but if you sit back and look at this from a certain perspective, it's kind of comforting that despite all the bizarre uncertainty raging around us, Carl Icahn is maybe still trying to get away with whatever he can get away with and Elizabeth Warren will drive herself mad trying to stop him.

Democratic Senators call for probe into Icahn’s biofuel credit dealings [Reuters]

Now we have a clearer understanding of why no one ran the incident up the flagpole to compliance or anything: The managing director in charge of the Treasury desk was doing all kinds of spoofing himself, the CFTC says. On Friday, Stephen Gola paid a $350,000 civil monetary penalty for more than 1,000 trading abuses between July 2011 and December 2012 – a time when he was the head trader on the Treasuries team. His former colleague Jonathan Brims, a vice president and fellow Treasury trader, forked over $200,000.

The settlements describe the spoofing in basically identical terms for the two former Citi bankers:

Generally, Gola's spoofing strategy involved placing bids or offers of 1,000 lots or more with the intent to cancel those orders before execution. The spoofing orders were placed in the U.S. Treasury futures markets after another smaller bid or offer was placed on the opposite side of the same or a correlated futures or cash market. Gola placed his spoofing orders to create or exacerbate an imbalance in the order book. This created the impression of greater buying or selling interest than would have existed absent the spoofing orders and was done to induce other market participants to fill Gola's smaller resting orders on the opposite side ofthe market from his spoofing orders in advance of anticipated price changes. Gola cancelled his spoofing orders after either the smaller resting orders had been filled or he believed that the spoofing orders were at too great a risk of being executed.

Yup, that sounds like spoofing alright. There's also this:

In addition to executing the spoofing strategy individually, at times, Gola coordinated with one or more other traders on the U.S. Treasury desk to implement the spoofing strategy. In some of those instances, Gola would place one or more spoofing orders after another trader had placed one or more smaller resting orders in the same or a correlated futures or cash market. In other instances, another trader would place spoofing orders to benefit Gola's smaller resting orders.

The settlement also notes how both Brims and Gola learned of our Tokyo friend's spoofing mishap – the 4,000-lot spoof order that turned into real one – and failed to report it. Oops! According to the terms of the settlement, the two will be banned from placing and rapidly canceling orders in U.S. Treasury futures for six months. Neither works at Citi any longer.

CFTC Orders Former Citigroup Global Markets Inc. Traders Stephen Gola and Jonathan Brims to Pay $350,000 and $200,000, Respectively, and Bans Them from Trading for 6 Months for Spoofing in U.S. Treasury Futures Markets [CFTC]

Donald Trump’s top economic adviser is so sure about J. Christopher Giancarlo (in a way that he isn’t about, say, Larry Kudlow) that he’s told the CFTC’s only remaining Republican to just start tearing up the rulebook as though he’s already sailed through the Senate.

Though the Trump administration has yet to publicly say it plans to nominate Mr. Giancarlo, Gary Cohn, Mr. Trump’s senior economic adviser, in a private meeting last week indicated he would likely get the nod, according to a person familiar with the matter. Mr. Cohn told Mr. Giancarlo he should act as though he were the full-time chairman, this person said, suggesting the acting chairman wasn’t merely keeping the top CFTC seat warm for another individual.

And why should he be? Who better to be this administration’s top regulator for the futures industry than a former futures brokerage exec. who thinks firms like his old one should have as much leeway as possible in obeying as few rules as possible?

Trump Preparing to Nominate Commodity Futures Trading Commission’s Giancarlo as Chair [WSJ]

Listen pal, you wanna step onto the CFTC's turf and manipulate international market benchmarks at the expense of counterparties just to earn a buck or two for yourself? Well, you might just end up paying a few mil for it, who knows. But if you think you can talk trash about America's hardworking market regulators while doing so, you best believe Christopher Giancarlo will be ankle-deep in your ass before you can say ISDAFix.

I mean, get a load of Royal Bank of Scotland here:

Among themselves, RBS traders joked about their attempts to manipulate the USD ISDAFIX. On the same day the CFTC announced it was charging the hedge fund Amaranth with attempted manipulation of the price of natural gas futures, an RBS swap trader converted a news story about the lawsuit into a prescient “joke” where RBS took the place of Amaranth as the manipulator sued by the government. The RBS trader emailed this “joke” to other RBS swaps traders and RBS’s swaps broker employees:

Amaranth tried to Manipulate Gas Prices, CFTC Says…

[Swaps Trader 1] tried for manipulating ISDAFIX3 settlement . . . [Swaps Trader 1] is on a recorded line shouting, “GET THE NINES DOWN [Broker], GET THE NINES DOWN, NOW NOW NOW”. RBS could not be reached for comment.

Hey kid, funny “joke.” It's even funnier now that it's being used to levy an $85 million fine against your current or former employer, which the CFTC is not at liberty to say, because the CFTC's version of street justice is extracting fines from banks without ever naming names or charging individual traders, chump.

You know what else the CFTC heard over there at RBS? Get a load of this one:

The Order further finds RBS traders understood how their trading at 11:00 a.m. could have an adverse impact on their counterparties. One noted that “we like tried to f*ck” a bank counterparty on a cash settlement; another noted that they had had a big cash settle with a bank counterparty and had “skrood [sic .] them bigtime.”

F*ck a bank counterparty, eh? Well looks like the only party getting “skrood” today is, uh, RBS shareholders. So, um, take that, fellas.

That’s the story from the Commodity Futures Trading Commission, which on Thursday fined Citigroup $25 million over more than 2,500 instances it found between 2011 and 2012 of Citigroup Treasury traders placing large orders with the intent of immediately cancelling them. In other words Citi was spoofing, which, depending on your creed and professional standing, is either bad, merely illegal, or both.

In Citi’s case, traders would regularly bids or offers of at least 1,000 lots, swaying spreads one way or another, the CFTC says. As other market participants (read: algorithms) shifted their trades accordingly, Citi’s traders allegedly filled smaller resting orders opposite of their spoofs. Then they would cancel the fake orders, rinse and repeat.

Though one can find perfectly respectable arguments out there that spoofing amounts to a hill of beans, regulators are not terribly fond of it. It was spoofing, remember, that caused the flash crash (maybe). “Spoofing is a significant threat to market integrity,” the CFTC’s enforcement guy said. “Registrants with supervisory responsibilities must provide their employees with sufficient training and have in place adequate systems and controls to detect spoofing.”

From the CFTC’s point of view, a training program that literally taught junior bankers how to spoof, as the CFTC’s enforcement order alleges, is hardly kosher. Incidentally, our young Japanese trader might feel similarly about the sufficiency of his training, though for different reasons.

After returning from the Citigroup mothership, where he “observed two of the Traders place spoofing orders,” the Tokyo trader commenced to put his newfound skills into action, the order says. But apparently Citi’s instructions weren’t clear enough. On January 31, 2012, he placed a 4,000-lot offer for 10-year futures, expecting to cancel it once it had shifted prices sufficiently to trade on a smaller resting bid.

That’s when things went horribly wrong. “The majority of his 4,000 lot spoofing order traded before he could cancel the order,” the CFTC documents said. This meant a loss big enough for our young trader to have to report his spoof error to Citi higher-ups, including the head of the Treasury desk.

His punishment came swiftly and remorselessly. His supervisor told him, “That's not a smart thing to do” and warned him not to do it again, according to the CFTC.

What really cheesed off the regulators, though, was that Citi's Treasury desk head failed to inform compliance or other senior staff about the Tokyo whiff. It’s not hard to see why they were loath to report it – not only did Citi’s traders instruct their Tokyo colleague how to spoof in the first place (allegedly), they did a bad job at even that. If you’re going to teach someone to break the rules, you should at least teach them well.

Citigroup neither confirmed nor denied that the existence of their mediocre spoofing academy.

Like some of his colleagues, CFTC chief Tim Massad is tying up some loose ends before clearing out of town in two weeks. And one particularly annoying bit of unfinished business was called Jon Stevens Corzine. You see, while everyone else had managed to get the former New Jersey senator and governor out of their systems over that whole unfortunate MF Global situation, Massad wouldn’t give up on his predecessor’s vendetta against Corzine. And when it at last seemed there was an end in sight, with the CFTC agreeing to the relatively paltry sum of $5 million in exchange for a 70-year-old disgraced former politician and Wall Street executive promising never again to darken the regulator’s door, the whole thing was on hold because one of Corzine’s ex-lieutenants also stubbornly insisted she’d done nothing wrong.

Rather than pass the whole thing off to his successor, whoever that might be, Massad decided to swallow his pride and just end the endless thing by giving Edith O’Brien an even lighter slap on the wrist. With that out of the way, can the long-delayed and awaited JSC Capital Management be far away? The man himself offers a tantalizing clue.

He said he plans to focus on "issues that have always been important in my life: my family, community and philanthropic causes, and markets."

Corzine in $5 million settlement with US CFTC over MF Global collapse [Reuters]

The Trump transition team has nominated a man who doesn't believe in climate change to head the EPA, a woman who doesn't believe in public education to head the Department of Education, an Energy Secretary who once tried to promise to abolish the Department of Energy but forgot the name of the Department of Energy, and he is putting Ben Carson in charge of HUD. These choices are high art, there is no questioning that. However today...you guys, today, Donald Trump has painted his masterpiece:

Billionaire investor Carl Icahn is expected to be named special adviser to the president on overhauling federal regulations, according to people familiar with the matter.

Choosing Carl Icahn to advise you on regulation is like selecting Lindsay Lohan as your sobriety coach; You've already made up your mind.

But it also appears that while Trump has looked like the Vincent van Gogh of cabinet creation, Uncle Carl has been his secret Theo.

Mr. Icahn, who has spent the past four decades battling big companies as an activist investor, already has been wielding influence in President-elect Donald Trump’s transition team. He is playing a central role in selecting the next chairman of the Securities and Exchange Commission, the people said. Interested candidates have reached out to him, and he is interviewing others at the request of Mr. Trump, the people said.
The 80-year-old has played a similar role in identifying Mr. Trump’s choices for other important posts. Mr. Icahn, who controls an oil refiner and has spent months berating the Environmental Protection Agency over a rule he says hurts the industry, helped Mr. Trump vet candidates to run the EPA.
He weighed in enthusiastically as Mr. Trump considered whether to nominate Steven Mnuchin and Wilbur Ross to run the Treasury and Commerce departments, respectively. Both men were picked for the jobs.

After months and months of proclaiming that he would not be involved in a Trump cabinet, Icahn is now constructing it. And he's apparently not done what with jobs still open at the top o the SEC and two seats on the CFTC.

We look forward to hearing more about the shortlist that obviously already includes Steve Cohen, Anthony Scaramucci, Leon Cooperman, Peter Thiel and Michael Milken.

That sound you hear is Bill Ackman weeping.

Trump to Name Icahn as Adviser on Regulatory Overhaul [WSJ]

Like Anthony Weiner for fans of chaos and heartbreak and/or the terminal decline of the United States, interest-rate swaps are the gift that keep on giving for Wall Street regulators.

Which is to say: Five months after Corbat & co. ponied up $425 million to the CFTC because one of their ISDAfix traders couldn’t help bragging about “pushing” the market and punctuating it with a smiley face, the authorities are going back over this tremendously fruitful ground in search of a few >: )

The bank said in a quarterly securities filing that the Commodity Futures Trading Commission is investigating “the trading and clearing of interest rate swaps by investment banks….”

Citigroup’s latest disclosure could signal the agency is looking into another aspect of how banks deal with swaps. Throughout the year, multiple pension funds have sued more than a dozen banks, including Citigroup, alleging they conspired to prevent other companies from developing exchange-like trading for interest-rate swaps….

Separately, the CFTC has fined some banks in recent months, including Deutsche Bank AG, J.P. Morgan Chase & Co. and Barclays PLC, over failures to reports swaps trades in a timely and accurate way.

Citigroup Says CFTC Investigating Banks’ Interest-Rate Swaps [WSJ]

Having spent five years trying to nail former New Jersey senator and governor, and former Goldman Sachs and MF Global CEO, Jon Corzine to the wall for killing the latter, to no avail, the CFTC has decided it has better things to do than spend another Thanksgiving lamenting the fact that Corzine is still theoretically allowed to do whatever he wants within its remit. And so JSC can finally move on, albeit $5 million lighter and barred from the CFTC’s sight. No word on the effect of this decision on JSC Capital Management.

Mr. Corzine reached the tentative settlement with the Commodity Futures Trading Commission in June, submitting to a ban from trading client money in commodities and others assets regulated by the commission, the people said….

It is unclear what the settlement will mean for Mr. Corzine’s interests in the markets. He is currently investing his own money through a family office.

Of course, nothing’s official yet, because Corzine’s former treasurer still isn’t playing ball. Nor, for that matter, are a few CFTC Commissioners.

Mr. Corzine reached the tentative settlement with the Commodity Futures Trading Commission in June, submitting to a ban from trading client money in commodities and others assets regulated by the commission, the people said. A final deal has been on hold as the commission negotiates a resolution to its case against another former executive at MF Global, the people said….

Mr. Corzine’s agreement was presented to the three-member commission in June, but was met with questions from both Democratic Commissioner Sharon Bowen and Republican J. Christopher Giancarlo, according to people familiar with the discussions.

Former New Jersey Governor Jon Corzine Near $5 Million CFTC Settlement [WSJ]