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On Monday, the Securities and Exchange Commission reported it has charged Payward Inc. and Payward Ventures Inc., together known as Kraken, with operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

According to the SEC’s complaint, since at least September 2018, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Kraken intertwines the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law. Kraken’s alleged failure to register these functions has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.

The SEC’s complaint also alleges that Kraken’s business practices, deficient internal controls, and poor recordkeeping practices present a range of risks for its customers. Kraken allegedly commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash. Kraken also allegedly commingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.

In February of this year, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and pay a civil penalty of $30 million. [Editor's note: According to The Motley Fool, “staking” is the way many cryptocurrencies verify their transactions, and it allows participants to earn rewards on their holdings; crypto staking involves committing one's crypto assets to support a blockchain and confirm transactions.]

The Office of the Comptroller of the Currency (OCC) has announced that registration is open for its symposium on the tokenization of real-world assets and liabilities on February 8, 2024, at its headquarters in Washington, D.C.

The symposium will include panel discussions among thought leaders, academics, community groups, and the banking industry on tokenization and is open to the public for in-person or virtual attendance.

The event will feature opening remarks from Acting Comptroller of the Currency Michael J. Hsu and keynote remarks from Hyun Song Shin, Economic Adviser and Head of Research at the Bank for International Settlements (BIS). The symposium will also include moderated panel discussions to explore the legal foundations for digital asset tokens, tokenization use cases, and risk management and control considerations. There will also be a panel discussion of academic papers on tokenization.

Registration is required for in-person attendance at the symposium and is open until January 22, 2024, or until full, whichever occurs first. For security reasons, in-person attendees will be subject to screening and must present a valid government-issued identification to enter the building. The symposium will also be livestreamed.

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.