New CFPB rule to facilitate small business lending       

The Consumer Financial Protection Bureau (CFPB) has confirmed an amendment to Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) made by section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Consistent with section 1071, covered financial institutions are required to collect and report to the CFPB data on applications for credit for small businesses, including those that are owned by women or minorities. The final rule also addresses the CFPB’s approach to privacy interests and the publication of data; shielding certain demographic data from underwriters and other persons; recordkeeping requirements; enforcement provisions; and the rule’s effective and compliance dates. Implementation of the new rule begins 1^st October 2024, phased through to 1^st January 2026. 

SEC charges firm for inappropriate investment recommendations      

The Securities and Exchange Commission (SEC) has settled charges against investment adviser Sapere Wealth Management, LLC, and its principal, Scott Trease, for unsuitably recommending that three clients invest $7.3 million in risky, alternative-investment deals. 

According to the SEC’s complaint, Trease befriended a self-described financier based on shared religious interests in July 2017. The complaint further states that from 2018 through early 2019 this financier helped identify numerous alternative-investment opportunities for Trease and Sapere to consider. The opportunities, which were unlike any others in which Trease or Sapere had ever invested, consistently fell apart and, according to the SEC, raised several red flags indicating that these types of alternative investments were unsuitable for Sapere’s and Trease’s clients. Nevertheless, in May 2019 Sapere and Trease recommended three clients invest a total of $7.3 million in two such alternative investments that Sapere and Trease incorrectly believed were collateralized by gold. The SEC alleges that Sapere and Trease did not reasonably understand the investments and thus lacked a reasonable basis to recommend them to clients.  In one of the investments, a client ultimately lost $2.3 million, while in the other, $5 million of client money was placed at risk, though the defendants and the self-described financier ultimately secured the funds’ return. 

The complaint charges Sapere and Trease with breaching their fiduciary duties of care in violation of Section 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the SEC’s allegations, Sapere and Trease have consented to the entry of a final judgment imposing a permanent injunction against future violations of Section 206(2); a five-year injunction requiring Sapere and Trease to engage due-diligence consultants to review certain potential future transactions; a $100,000 civil penalty against Trease; and an undertaking to distribute the SEC’s complaint and the final judgment to Sapere’s and Trease’s clients. The settlement is subject to court approval. 

Further SEC crypto judgment     

The US District Court for the Southern District of New York has entered a final judgment against Defendants John and JonAtina (Tina) Barksdale, ordering permanent injunctions, disgorgement with interest, and civil penalties. The Securities and Exchange Commission (SEC) had alleged that the Barksdales raised tens of millions of dollars through two unregistered fraudulent offerings of securities involving a crypto asset called “Ormeus Coin” from June 2017 to March 2022. The SEC also alleged that from June 2017 to April 2018, the Barksdales offered and sold subscription packages that included Ormeus Coin through a multi-level marketing business called Ormeus Global. The defendants allegedly promoted the offerings by holding roadshows around the world and producing social media posts, YouTube videos, press releases, and other promotional materials.

FinCEN FAQs on beneficial ownership      

The Financial Crimes Enforcement Network has published a new list of FAQs to help entities understand some of the issues surrounding the reporting requirements related to beneficial ownership. 

The FAQs are explanatory only and do not supplement or modify any obligations imposed by statute or regulation. 

UK government issues ESG consultation        

A major new consultation on regulating environmental, social and governance (ESG) ratings has been published by the UK government. The Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers consultation has, at its core, the proposal to bring into regulation the direct provision of an assessment of environmental, social, or governance factors to a user in the UK, where the assessment is used in relation to a specified investment in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, unless an exclusion applies. The consultation comes as part of the UK Government’s updated Green Finance Strategy which has been welcomed by UK regulators