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Acceptance of Cryptocurrency Magnifies Legal Securities Risks

Tuesday, February 16, 2021 In recent days, several major companies have moved toward implementing cryptocurrency transactions in their business.  Tesla stated in its recent Annual Report that it had “invested an aggregate $1.50 billion in bitcoin” and expected to “begin accepting bitcoin as a form of payment for [its] products in the near future.” [i]  Mastercard announced that it would “start supporting select cryptocurrencies directly on [its] network” in 2021. [ii]  And BNY Mellon issued a press release regarding the opening of a new “enterprise Digital Assets unit” to assist customers in their custody and administration of cryptocurrency holdings. [iii]  Despite these strides toward mainstream acceptance of cryptocurrency for use in everyday transactions, there is legal risk under the securities laws, including SEC enforcement risk, surrounding the release and implementation of new cryptocurrencies.  The former Chairmen of the SEC and CFTC publ

FINRA Notice on Fraud Procedure Involving Low-Priced Securities

SEC Letter on Securities Offerings During Market and Price Volatility

Friday, February 12, 2021 On February 8, the staff of the SEC’s Division of Corporation Finance (the Staff) published a sample comment letter that the Staff might send to companies that conduct securities offerings during periods of extreme stock price volatility. In its statements accompanying the sample comment letter, the Staff acknowledged the necessity of capital formation, even when the financial markets and stock prices are volatile, while also cautioning that unpredictability in the market can prove hazardous to investors and companies alike. The Staff noted the risks are “particularly acute” when companies attempt to raise capital during times of “recent stock run-ups or recent divergences in valuation ratios relative to those seen during traditional markets,” “high short interest or reported short squeezes,” and “reports of strong and atypical retail investor interest (whether on social media or otherwise).” The Staff indicated that those risks

Gary Gensler Biden s SEC Chairman Nominee Crypto Implications

Thursday, February 11, 2021 As has been widely reported, President Biden has nominated Gary Gensler to be the next chairman of the Securities and Exchange Commission.  After becoming one of the youngest partners at a leading Wall Street investment bank, Gensler transitioned into government service as a senior official in President Clinton’s Treasury Department and as the chairman of the Commodity Futures Trading Commission under President Obama.  While at the CFTC, Gensler was the principal architect of the sprawling Dodd-Frank Act’s provisions regulating the swaps markets, and he worked tirelessly to implement new CFTC rules regulating the space.  He has deep experience both in the financial markets and as a regulator.

Individuals Offering Fraudulent Unregistered Digital Assets Charged

Monday, February 8, 2021 On February 1, 2021, the U.S. Securities and Exchange Commission (SEC) announced that it had brought charges against several individuals involved in an alleged scheme to induce investors to transfer more than $11 million to buy into an unregistered initial coin offering (ICO) of B2G tokens, which the SEC claimed was merely an elaborate sham. ( SEC v. Krstic, No. 21-0529 (E.D.N.Y. Filed Feb. 1, 2021)). The complaint, filed in the Eastern District of New York, alleged that Kristijan Krstic (“Krstic”), John DeMarr (“DeMarr”), and Robin Enos (“Enos”) (collectively, “Defendants”) conspired, in violation of securities laws, to defraud over 460 investors of $11.4 million with promises of large returns on investments from its offerings, including for B2G tokens that the defendants claimed were genuine digital assets for a mining and trading platform.

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