Regulatory Violations

August 17, 2021

Investment advisor Murchinson Ltd., together with associated individuals Marc Bistricer and Paul Zogala, will pay restitution, interest, and penalties totaling nearly $9 million to resolve allegations that they caused a hedge fund client to violate Regulation SHO regarding uncovered short sales and other problematic trading practices.  Respondents allegedly provided erroneous order-marking information, thereby causing the hedge fund brokers to mismark the hedge funds’ sales as “long,” and resulting in their failure to borrow or locate shares prior to executing the sales.  SEC

August 16, 2021

Education publishing company Pearson plc agreed to pay $1 million to resolve an SEC investigation into its disclosures regarding a 2018 data breach that resulted in the exposure of millions of student and school administrator records, including birthdates, e-mail addresses, user names, and hashed passwords.  The SEC found that Pearson understated the nature and scope of the incident, overstated the company’s data protections, and had inadequate controls and procedures regarding the assessment and reporting of cybersecurity incidents.  Pearson, which is publicly traded in the UK, is a foreign private issuer with ADRs trading on the NYSE. SEC

August 13, 2021

Tyson Foods, Inc. will pay $1.5 million to resolve allegations that on nearly 600 dates between 2016 and 2021 the company held positions in Chicago Board of Trade soybean meal futures in excess of then-applicable federal position limits, and filed incorrect Statements of Cash Positions in Grain (Form 204) with the CFTC.  CFTC

August 10, 2021

Five companies that operate the BitMEX cryptocurrency platform will pay a total of $100 million to resolve claims that the platform operated a facility to trade or process swaps without being approved as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF), operated as an unregistered futures commission merchant (FCM), and failed to implement anti-money laundering procedures.  HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited jointly operated BitMEX, which offered leveraged trading of cryptocurrency derivatives, including to customers in the U.S.  BitMEX acted as a counterparty in certain transactions, and accepted bitcoin to margin digital asset derivative transactions.  BitMEX allowed customers to access its platform and conduct derivative trading without verifying customer identity beyond the collection of an email address, and failed to report suspicious activity as required. As part of the settlement, BitMEX certified that it terminated its U.S. business operations, barred access to the platform by U.S. customers, and had undertaken verification procedures for existing customers.  $50 million of the $100 million penalty will be paid to the CFTC, with $30 million of the remainder paid immediately to FinCEN, and an additional $20 million to FinCEN suspended pending defendants’ undertaking of specific compliance procedures.  CFTC; FinCEN

August 9, 2021

Cryptocurrency trading platform Poloniex LLC has agreed to pay more than $10 million in disgorgement, interest, and penalties to settle charges that it operated an unregistered online digital asset exchange.  The SEC found that between 2017 and 2019 the Poloniex trading platform met the criteria of an “exchange” as defined by the securities laws but was neither registered as a national securities exchange nor subject to an exemption from registration. SEC

August 6, 2021

Blockchain Credit Partners, which did business as DeFi Money Market, and its principals, Gregory Keough and Derek Acree, have agreed to disgorge $12.85 million and cease and desist from the unregistered sale of securities using smart contracts and so-called “decentralized finance” (DeFi) technology.  The SEC found that defendants offered and sold mTokens and DMG governance tokens purporting to pay interest and profits, and told purchasers that that DeFi Money Market would pay them those amounts by using investor assets to buy “real world” income-generating assets like car loans. However, these income-generating assets did not generate enough income to cover appreciation of the investors’ principal, largely as a result of the price volatility of the digital assets used to purchase the tokens.  Rather than disclose this to investors, defendants used other funds, including personal funds, to make principal and interest payments for mToken redemptions. Keough and Acree have each also agreed to pay penalties of $125,000.  SEC

July 19, 2021

UBS Financial Services Inc. will pay $8 million to resolve claims of compliance failures with respect to the sale of an exchange-traded product designed to track short-term volatility expectations in the market as measured against derivatives of a volatility index. UBS placed restrictions on the sale of the product to brokerage customers, but did not place similar restrictions on activity by financial advisors, and failed to monitor concentration limits on volatility-linked ETPs. SEC

July 12, 2021

A non-bank institution in Georgia called GreenSky, LLC has been ordered to refund or cancel up to $9 million in fraudulent loans, pay a $2.5 million civil penalty, and implement new procedures to prevent future financial abuse.  According to the CFTC, GreenSky’s inappropriate and ineffective controls enabled third-party merchants to take out loans on behalf of thousands of consumers without their knowledge or authorization.  In addition to the financial resolution, GreenSky is now required to verify consumer identities and confirm authorizations before activating or disbursing loans, implement a consumer complaint management program, and properly oversee third-party merchant partners.  CFTC

July 9, 2021

Registered investment advisor Kestra Advisory Services, LLC will pay disgorgement and interest of $8.5 million and a civil penalty of $1.5 million to resolve SEC charges that it failed to disclose revenue sharing payments received by an affiliated broker-dealer when its clients invested in certain mutual funds.  SEC

June 30, 2021

Following its 2020 SEC penalty, Robinhood Financial LLC was ordered to pay $70 million by FINRA -- a $57 million penalty and $12.6 million in restitution and interest to harmed customers -- to resolve charges that the firm provided false and misleading information, improperly authorized customers for options trading without appropriate due diligence, and failed to reasonably supervise the technology it used to provide core broker-dealer services including for the acceptance and execution of customer orders.  FINRA