SEC chair Gary Gensler has been speaking at the International Swaps and Derivatives Association (ISDA) conference, reminding the audience of SEC policy projects underway. 

Gensler covered the Proposed Rules to Improve Risk Management in Clearance and Settlement, and their implications for repo transactions, and the reforms to enhance customer clearing in treasuries. 

Turning to brokers, Gensler noted that certain market participants, including principal trading firms (PTFs) are not registered as dealers or government securities dealers adding that “It’s time to seal this regulatory gap”, referring to the March 2022 proposal to add PTFs and others to the regulatory regime. 

Finally, Gensler referred to last year’s proposal requiring significant trading platforms — including in the Treasury markets — to come under important rules for the markets. Gensler added that this “proposal would modernize our rules regarding the definition of an exchange. This would account for the evolving nature and electronification of trading platforms. In particular, the proposal would require communication protocol systems — venues that bring together buyers and sellers of securities through structured methods to negotiate a trade — to comply with rules for exchanges”. 

SEC settles with reinsurer    

IRB Brasil Resseguros SA (IRB), a publicly-traded Brazilian reinsurance company, has agreed to settle charges brought by the Securities and Exchange Commission (SEC) regarding its involvement in manipulating its stock price. The SEC alleged that IRB and its former executive vice president of finance and investor relations, Fernando Passos, planted a false story in the media and disseminated false documents to influence the company’s stock price. 

According to the complaint filed by the SEC, in February 2020, after IRB’s stock price declined following a report by a short seller questioning the company’s financial results, IRB and Passos spread a fabricated story that Berkshire Hathaway Inc. had invested in IRB. They allegedly created and shared a fake shareholder list showing substantial purchases of IRB stock by Berkshire. IRB then communicated this false information to analysts and investors during meetings in the United Kingdom and the United States. As a result, IRB’s stock price initially rose by more than six percent but dropped by over 40 percent after Berkshire denied being an investor. 

After Berkshire’s denial, IRB conducted an internal investigation, shared the results with the SEC, and fully cooperated with the SEC’s investigation. IRB took significant remedial actions, including replacing senior management, expanding its Board of Directors, and implementing measures to prevent similar misconduct in the future. 

IRB has consented to a final judgment, subject to court approval, which would permanently prohibit the company from violating the antifraud provisions of the Securities Exchange Act of 1934. Due to IRB’s cooperation and remediation efforts, the SEC did not impose a monetary penalty as part of the settlement. However, on April 18, 2022, the SEC separately charged Fernando Passos with violating antifraud provisions and is seeking civil monetary penalties and an officer-and-director bar against him. 

SEC brings charges for fraud  

The Securities and Exchange Commission (SEC) has charged Clayton R Thomas and his defunct company, Personalized Healthcare Solution, LLC, with selling fraudulent promissory notes and misappropriating investor funds. 

According to the SEC’s complaint, Thomas and Personalized Healthcare Solution raised approximately $730,000 from a single investor between February and June 2019. They told the investor that they would use the funds to purchase medical devices and generate investment returns from usage fees by placing the devices in medical offices. However, the complaint alleges that Thomas and the company misrepresented the purchase price and exaggerated the expected returns of the medical devices. Thomas was aware, based on prior experience with a different investor, that the investment would likely be much less profitable than what he communicated to the investor. The SEC also alleges that the investor lost nearly all of their original investment, and Thomas misappropriated investor funds for personal use by pocketing the difference between the actual and represented costs of the medical devices. 

The SEC’s complaint charges Thomas and Personalized Healthcare Solution with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. Without admitting or denying the allegations, Thomas and Personalized Healthcare Solution have consented to a permanent injunction that prohibits them from further violations. The court will determine the amount of disgorgement, prejudgment interest, and civil penalties Thomas will be required to pay later. 

CFPB confirms reopening an account is unfair   

The Consumer Financial Protection Bureau (CPFB) has published Consumer Financial Protection Circular 2023-02 which considers deposit accounts closed by clients but which are re-opened by banks in order to process a transaction.  

The circular confirms the view that if a financial institution unilaterally reopens those accounts to process debits or deposits, it can constitute an unfair practice under the CFPA.  

In the United States the Internal Revenue Service (IRS) has updated its criminal investigation press releases page with information on the latest fraud, money laundering and false returns cases for the month so far. 

Meanwhile in Australia the Australian Securities and Investments Commission (ASIC) has published its enforcement and regulatory update for January to March 2023. The report covers two case studies: the GetSwift case (the largest ever penalty against a company for breaching continuous disclosure laws) and the action brought against Mercer Superannuation, ASIC’s first court action against alleged greenwashing conduct. The report also highlights that AUS$30 million in civil penalties were secured by ASIC, as well as the commencement and finalization of court proceedings against credit providers in the first quarter of 2023 as the regulator sharpens its focus on credit and debt management. 

FCA summarises consumer duty findings  

As the implementation date for the Financial Conduct Authority’s Consumer duty regime approaches, the regulator is increasing its output of advice and guidance. Its latest publication reviews the fair value assessment frameworks of a number of firms. Under the new regime Fair value Assessments must be taken to ensure consumers are paying a fair price.  

The findings of the report reveal four areas for firms to focus on: 

• collecting and monitoring evidence that demonstrates that products and services represent fair value  
• clear oversight and accountability of the necessary remedial actions if they do not provide fair value  
• where relevant, ensuring sufficient analysis of the distribution of outcomes across groups of consumers in the target market, beyond broad averages, to demonstrate how each group receives fair value  
• summarizing and presenting fair value assessments in a way that enables decision-makers to robustly discuss whether the product or service represents fair value, such as by being clear on any limitations in the analysis or evidence   

The report recommends that firms consider the findings from the review and whether they need to develop their approach to implementing price and value outcome rules in line with good practice.