Author:

Mary Donohue

Market Integrity Enforcement Update

In addition to enforcement agencies attempting to tame the seemingly untameable world of cryptocurrency trading, agencies continue to tackle issues of market manipulation, including spoofing, as well as push into investigating international corruption in an effort to maintain economic and market integrity. As new developments emerge, compliance directors and operations associates will hopefully gain more guidance on coaching traders on exchange rules.

FINRA Releases Regulatory Notice Announcing 529 Plan Share Class Initiative

On January 28, 2019 the Financial Industry Regulatory Authority (FINRA) released Regulatory Notice 19-04 announcing a 529 Plan Share Class Initiative encouraging firms to self-report potential violations. Broker-Dealers are encouraged to consider self-reporting under the initiative if they have identified specified failures in connection with 529 plan recommendations, and have the ability to assess the impact of the failures. Firms have until April 1st to notify FINRA in writing if it has decided to self-report.

New York Federal Court Rules in Favor of CFTC in its First Ever Anti-Fraud Enforcement Action Involving Bitcoin

Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York entered an Order for Final Judgment and Consent Order for Final Judgment (“the Orders”) early this month, resolving charges of a Commodity Futures Trading Commission (the “CFTC”) Complaint against a New York Corporation, Gelfman Blueprint Inc. (“GBI”) and its Chief Executive Officer, Nicholas Gelfman. The CFTC’s complaint, filed in January of 2017, marked the first anti-fraud enforcement action involving Bitcoin filed by the Commodity Futures Trading Commission. The Orders found that from approximately January of 2014-January 2016 Defendants Gelfman and GBI, through its officers and agents and employees, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from at least 80 customers.

SEC Continues to Carve Out Regulatory Framework for Cryptocurrencies

On September 11, 2018, the Securities and Exchange Commission (SEC) announced two enforcement actions relating to failures to register by market intermediaries in connection with digital asset activities. Despite earlier suggestions that the Commodity Futures Trading Commission (CFTC) might be the primary self-regulatory organization (SRO) regulating this market, the main takeaway from these cases is that market intermediaries dealing in digital assets may also have registration and customer protection liabilities, and the failure to observe them can result in serious penalties.

Following Classification of Cryptocurrencies as Commodities, Regulators Shift Focus

On March 6th, 2018 the. District Court for the Eastern District of New York upheld the classification of cryptocurrencies, such as Bitcoin and Litecoin, as commodities. The ruling subjects the cryptocurrencies to the regulation of the U.S. Commodity Futures Trading Commission (CFTC).