Gensler testimony and budget request   

SEC chair Gary Gensler spoke before the Subcommittee on Financial Services and General Government US Senate Appropriations Committee. 

For FY 2024, the SEC has requested a budget of $2.436 billion, with the majority allocated to support staffing levels due to inflation. This funding would help the SEC adapt to market changes and adequately address risks and misconduct.  

Genlser noted that the Division of Enforcement and Examinations plays a crucial role in investigating and preventing fraud and misconduct, and additional resources would enable more effective oversight. He added that, even on a reduced budget in GY22, the Division brought more than 750 enforcement actions in FY 2022, a 9 percent increase over the prior year. SEC actions resulted in orders for $6.4 billion in penalties and disgorgement. 

He added too that within the Examinations division, In FY 2022,  more than 3,000 examinations were carried out across tens of thousands of registrants, from investment advisers to broker-dealers to exchanges, to ensure they are following their legal obligations to customers, including seniors and other vulnerable investors. The budget requested would help this division grow to more than 1100 full-time employees. 

Elsewhere: 

• Gensler’s budget request would lead to growing the corporation finance team to 454 full time employees (FTE). 
• The investment management team would grow to 238 FTEs. 
• Trading and markets have requested 309 FTEs. 
• He has requested $393 million to support the Commission’s data analysis, cybersecurity, and other IT needs. 

FATF reports improvements in Turkey AML    

In its latest follow up report, the Financial Action Task Force (FATF) has re-rated Turkey on a number of recommendations made since the mutual evaluation report in October 2019. 

As a result, the country has been re-rated on six recommendations: 

• Recommendations 8, 22 and 28 are re-rated from Partially Compliant to Largely Compliant. 
• Recommendation 12 is re-rated from Non Compliant to Compliant. 
• Recommendation 15 is re-rated from Largely Compliant to Partially Compliant. 
• Recommendation 26 is re-rated from Partially Compliant to Compliant. 

SEC charges firm for fraud     

The Securities and Exchange Commission (SEC) has announced it has settled fraud charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC). The charges are related to material misrepresentations made by DWAC in forms filed with the SEC as part of its initial public offering (IPO) and proposed merger with Trump Media & Technology Group Corp. (TMTG). 

According to the SEC’s order, DWAC failed to disclose its plan to acquire and pursue TMTG before the IPO. In early September 2021, DWAC filed an amended Form S-1 for its IPO, stating that it had not discussed with any potential target companies before the IPO. However, investigations revealed that DWAC’s CEO and others involved had extensive discussions with TMTG dating back to February 2021. 

The order also found that DWAC’s CEO pursued discussions with TMTG on behalf of another SPAC but later formulated a plan to use DWAC for a potential merger with TMTG. DWAC failed to disclose this potential conflict of interest and signed agreement with TMTG in its IPO filing, making the amended Form S-1 materially false and misleading. 

Furthermore, in a later Form S-4 filed after the announcement of the proposed merger, DWAC mischaracterised and omitted information about its history of interactions with TMTG. 

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasised that these disclosure failures are particularly problematic for SPACs, as investors rely on factors such as management teams and potential merger targets for their financial decisions. 

As part of the settlement, DWAC agreed to a cease-and-desist order and to pay an $18 million penalty if it closes a merger transaction. It also committed to filing an amended Form S-4 that accurately reflects the SEC’s findings. 

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