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The Securities and Exchange Commission has announced charges against Jake Soberal and Irma Olguin, Jr., the former co-CEOs of Fresno, California-based private technology services startup Bitwise Industries Inc., for misleading investors about the company’s finances. Soberal and Olguin have agreed to resolve the charges against them.

The SEC's complaint alleges that Soberal and Olguin made material misrepresentations and falsified documents concerning Bitwise’s cash position and historical financial performance while raising approximately $70 million from investors in 2022. Soberal and Olguin allegedly created and provided investors with falsified bank records and a fake audit report that showed, respectively, inflated cash balances and higher revenues than Bitwise actually generated. Soberal and Olguin’s alleged misrepresentations and falsified materials painted Bitwise as a healthy, growing business with favorable financial performance. In reality, and as Soberal and Olguin allegedly knew, Bitwise faced constant cash shortages and was often on the brink of failure because it was unable to generate sufficient funds from its operations. As alleged, Soberal and Olguin’s scheme came to light in May 2023 when Bitwise failed to make payroll and abruptly furloughed—and then terminated—all of its hundreds of personnel.

“In one instance, the defendants allegedly conspired to send a purported screenshot to investors of a company bank account showing a cash balance of $23.4 million. In actuality, the account had only $325,100 in it. That’s not a bank error—that’s fraud, and the SEC is taking action to hold the defendants accountable,” said Monique C. Winkler, Regional Director of the SEC’s San Francisco Regional Office.

Soberal and Olguin have each agreed to the entry of a partial judgment, subject to court approval, imposing permanent and conduct-based injunctions as well as an officer and director bar, and reserving the issues of disgorgement, prejudgment interest, and a civil penalty for further determination by the court.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of California (USAO) has announced criminal charges against Soberal and Olguin.

On Monday, OFAC announced a settlement with daVinci Payments, which manages prepaid reward card programs. DaVinci agreed to remit $206,213 to settle its potential civil liability for apparent violations of sanctions on Crimea, Iran, Syria, and Cuba. Between November 15, 2017 and July 27, 2022, daVinci enabled reward cards to be redeemed from persons in sanctioned jurisdictions. The settlement amount reflects OFAC’s determination that daVinci’s conduct was non-egregious and voluntarily self-disclosed.

Between March 2020 and February 2022, in the course of a compliance review and subsequent investigation, daVinci discovered that on 12,378 occasions it had redeemed prepaid cards for users with Internet Protocol (IP) addresses associated with Iran, Syria, Cuba, and Crimea. After daVinci began preventing access to its platform from IP addresses associated with these sanctioned jurisdictions, the company further discovered it had redeemed prepaid cards for 13 card recipients who had used email addresses with suffixes (sometimes called top-level domains) associated with sanctioned jurisdictions (e.g., Syria is .sy, Iran is .ir) during the redemption process and who were apparently resident therein.

Over the course of the relevant time period, this absence of comprehensive geolocation controls led daVinci to process 12,391 redemptions totaling $549,134.89 for cardholders apparently located in sanctioned jurisdictions, resulting in apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. § 515.201; the Iranian Transactions and Sanctions Regulations, 31 C.F.R. § 560.204; the Ukraine-/Russia-Related Sanctions Regulations, 31 C.F.R. § 589.287; and the Syrian Sanctions Regulations, 31 C.F.R. § 542.207 (the “Apparent Violations”).

The statutory maximum civil monetary penalty applicable for the apparent violations is $4,399,759,685. OFAC determined that the apparent violations were voluntarily self-disclosed and were nonegregious. Accordingly, under OFAC’s Economic Sanctions Enforcement Guidelines, the base civil monetary penalty applicable in this case would be one-half of the transaction value for each Apparent Violation, which is $274,950. The settlement amount of $206,213 reflects OFAC’s consideration of daVinci's remedial measures and cooperation in OFAC's investigation.

On Friday, the Federal Trade Commission released the National Do Not Call Registry Data Book for Fiscal Year 2023, which shows that consumer complaints about robocalls and unwanted live telemarketing calls have decreased to a five-year low.

Now in its fifteenth year of publication, the data book also provides the most recent fiscal year information available on robocall complaints, the types of calls consumers reported to the FTC, and a complete state-by-state analysis. According to the data book, complaints about imposter calls again topped the list, with more than 175,000 received during the fiscal year ending on September 30, 2023, 117,000 of which were robocalls. In such calls, imposters falsely pose as representatives of government, such as the Social Security Administration or the IRS, legitimate business entities or as people affiliated with them.

On Friday, the Treasury Department reported that OFAC had sanctioned Ekaterina Zhdanova, a Russian national, for her role in laundering and moving funds using virtual currency on behalf of Russian elites.

For identification information on Zhdanova, see this BankersOnline OFAC Update.

OCC Bulletin 2023-35, issued yesterday, published the revised interagency examination procedures for the Telephone Consumer Protection Act (TCPA). The OCC, Federal Deposit Insurance Corporation, and the National Credit Union Administration have revised the interagency examination procedures to reflect amendments to the TCPA that became effective on October 25, 2021.

With the publication of the revised interagency examination procedures, the OCC has rescinded the “Telephone Consumer Protection Act and Junk Fax Protection Act” section of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller’s Handbook. OCC examiners will rely on the interagency procedures.

We reported on October 20 that the CFPB had proposed a Personal Financial Data Rights Rule. That proposal was published at 88 FR 74796 in the October 31, 2023, Federal Register. The public comment period ends December 29, 2023.

The Bureau has also released Fast Facts: Personal Financial Data Rights Proposed Rule, a 9-page PDF with an overview of the topics covered in the proposed rule.

The Federal Reserve System’s FedCash Services yesterday announced broad availability of its new E-Manifest Service to all financial institution customers of the Federal Reserve Banks and their servicing armored carriers. This milestone announcement delivers on the Federal Reserve’s commitment to advancing Cash Visibility and adoption of GS1 Standards for cash supply chain logistics and package tracking.

The E-Manifest Service enables financial institutions and armored carriers that work directly with the Federal Reserve to electronically process currency deposits and orders at Federal Reserve docks. With the E-Manifest Service, armored carriers, on behalf of their financial institution customers, can share and receive electronic information in real-time. The E-Manifest Service replaces the manual process of matching paper manifests for deposits and orders at Federal Reserve docks with a technology that enables scanning and an electronic exchange of data.

The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, is conducting a virtual stakeholder outreach event via Webex on financial resources and tools for Central Counterparty (CCP) resolution on Wednesday, November 8, 2023, from 1:00 to 3:00 p.m. CET (7:00–10:00 a.m. EST).

This virtual outreach event aims to gather preliminary feedback on the FSB's proposed toolbox approach for financial resources and tools to support CCP resolution. It is organized in two sessions of discussions among panelists from industry and academia:

• qualitative analysis of resolution-specific resources and tools
• proposed toolbox approach for CCP resolution

Online registration is required.

Yesterday, the CFPB announced a proposed rule that would accelerate a shift toward open banking, where consumers would have control over data about their financial lives and would gain new protections against companies misusing their data. The proposed Personal Financial Data Rights rule activates a dormant provision of law [section 1033 of the Consumer Financial Protection Act of 2010] enacted by Congress more than a decade ago. It would jumpstart competition by forbidding financial institutions from hoarding a person’s data and by requiring companies to share data at the person’s direction with other companies offering better products.

The proposed rule would establish 12 CFR part 1033, allow people to “break up with” banks that provide bad service, and forbid companies that receive data from misusing or wrongfully monetizing the sensitive personal financial data.

Comments on the proposed rule will be accepted through December 29, 2023.
UPDATE:

• Published in the Federal Register on 10/31/2023 at 88 FR 74796
• The CFPB has published Fast Facts for the Personal Financial Data Rights Propose Rule (nine-page PDF)

Yesterday, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced a Notice of Proposed Rule Making (NPRM) that would identify international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern. This NPRM highlights the risks posed by the extensive use of CVC mixing services by a variety of illicit actors throughout the world and proposes a rule to increase transparency around CVC mixing to combat its use by malicious actors including Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK).

Comments on the proposal will be accepted for 90 days following publication in the Federal Register.

Publication and comment deadline update: Published at 88 FR 72701 on 10/23/2023, with comments due by 1/22/2024.