Top Ten SEC and CFTC Recoveries of 2021

As we recently detailed, 2021 proved to be a blockbuster year for whistleblowers under the CFTC and SEC Whistleblower Programs.  Seven of the ten largest whistleblower awards of 2021 were made to SEC and CFTC whistleblowers, including a massive $200 million CFTC award that was roughly twice as large as all prior CFTC awards combined.  In total, the SEC paid more awards—both in total dollars and individual payouts—than ever before in its 2021 fiscal year.

Both agencies also had banner years on the enforcement front, paving the way for more large whistleblower awards.  In this post, we detail the Top Ten SEC and CFTC recoveries of 2021 in cases other than Foreign Corrupt Practices Act (FCPA) enforcement.  As detailed below, the SEC and CFTC obtained more than a billion dollars in penalties and restitution from companies and individuals accused of a litany of misconduct.

Notably, the list includes several enforcement actions that reflect the hallmarks of our modern world and may signal what the future of securities and commodities enforcement looks like.  A whopping four of the top ten recoveries relate to cryptocurrency offerings or exchanges, reflecting the exponential growth of the digital asset space—and related frauds—in recent years.  Two others involved special purpose acquisition vehicles, or SPACs, which have quickly become a hotbed for fraud and misconduct. Finally, the SEC just recently brought a shot-across-the-bow case for major financial institutions, hammering a major bank for allegedly failing to monitor its employees’ use of private electronic devices and applications for company business.

Just a few years ago, these cases wouldn’t even be on the radar.  Now they are the vanguard of the SEC and CFTC’s enforcement activities.  Without further ado, here are the Top Ten SEC and CFTC recoveries of 2021 in cases other than FCPA enforcement, with links to more information about each of the cases:

1. Benjamin Reynolds and Control-Finance – In the largest enforcement action of the year, the CFTC obtained a $571 million default judgment against alleged cryptocurrency scam artist Benjamin Reynolds and his bitcoin trading and investment company, Control-Finance. Originally filed in 2019, the CFTC’s case alleged that Reynolds lured unsuspecting victims into handing over their bitcoin through social media posts promising guaranteed daily trading profits generated by a team of “expert” virtual currency traders.  But Reynolds never made any trades.  He simply pocketed the Bitcoins.  He allegedly bolstered the scheme with a Ponzi-like system of rewarding investors for new referrals.  According to the CFTC, Reynolds fraudulently obtained at least 22,191 bitcoin worth $143 million at the time, then abruptly shut down operations.  Unfortunately, Reynolds remains on the lam, and it’s unclear if investors will ever recover their losses.
2. GTV Media Group Inc., Saraca Media Group Inc., and Voice of Guo Media Inc. – In September, the SEC and the State of New York reached a joint $539 million settlement with GTV Media Group Inc., Saraca Media Group Inc., and Voice of Guo Media Inc. over allegations that they engaged in unregistered offerings of stock and a cryptocurrency called “G-Coins” or “G-Dollars.”  According to the SEC,  the Defendants raised approximately $487 million from more than 5,000 investors after promoting the offerings online but never filed registration statements.  The defendants neither admitted nor denied the allegations.
3. JP. Morgan Chase – For the second straight year, JPMorgan Chase finds itself among the top three SEC/CFTC recoveries. This year, it joins the list for its $200 million settlement with the SEC and CFTC over claims that firm employees communicated internally and externally on business matters using personal devices and accounts that were not preserved per federal law.  The agencies found that JPMorgan’s failures were longstanding and firm-wide, including violations by managing directors and other senior supervisors.  As a result of the violations, JPMorgan allegedly failed to preserve records that were responsive to numerous subpoenas and document requests, depriving the agencies of timely access to key records.
4. Nikola Corporation – Next on this list is former start-up darling Nikola Corporation, which became a publicly-traded company created through a SPAC transaction in 2020. In December, Nikola agreed to pay $125 million to resolve SEC charges that it misled its investors about the state of its electronic semi-truck technology, production capabilities, and financial outlook, among other things.  For example, the SEC alleges that Nikola posted a misleading video of its semi-automatic trucking cruising down the road, without disclosing that it was rolling due to gravity rather than the power of its engine.
5. BitMEX – In another cryptocurrency matter, HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited—who jointly operated the cryptocurrency platform BitMEX—paid $100 million to settle charges brought by the CFTC and the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The agencies alleged that BitMEX, which offered leveraged trading of cryptocurrency derivatives, failed to collect customer identifying information and report suspicious activity as required under anti-money-laundering (AML) provisions of the Bank Secrecy Act.  In addition to paying a massive penalty, BitMEX suspended virtually all U.S. operations as part of the settlement.
6. TIAA-CREF Individual & Institutional Services LLC (TC Services) – TIAA-CREF Individual & Institutional Services LLC (TC Services), a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), paid the SEC and New York Attorney General a combined $97 million to settle charges that it misled thousands of investors and failed to disclose conflicts of interest in connection with TIAA employer-sponsored retirement plans for over five years. Specifically, the SEC alleged that TC Services didn’t disclose incentive compensation that TC Services and its wealth management advisers received for placing investors into a specific management account program over lower-cost alternatives.  As a result, the SEC charged TC Services with violating both the antifraud provisions of both the Securities Act and the Investment Advisers Act.
7. Interactive Brokers LLC – In a more traditional CFTC action, the brokerage firm Interactive Brokers LLC agreed to pay $84.3 million in penalties and restitution for its alleged mishandling of consumer accounts. According to the CFTC, Interactive Brokers knew there was a risk that the prices of oil futures could turn negative but failed to prepare its trading system to display such prices or allow customers to place orders with negative pricing limits, leading to more than $82.5 million in losses.
8. Kraft Heinz Company – The SEC’s enforcement in 2021 wasn’t all about cryptocurrency and novel communications. In September, Kraft Heinz Company and two of its former executives paid $62 million to settle accounting fraud charges that have long been a hallmark of SEC enforcement.  Between 2015 and 2018, Kraft allegedly reported false cost savings totaling $208 million, including recognizing unearned discounts and maintaining false and misleading supplier contracts.  The SEC also charged Kraft’s former Chief Operating Officer Eduardo Pelleissone and its former Chief Procurement Officer Klaus Hofmann for their role in the scheme.
9. Tether Holdings Limited – In resolving yet another cryptocurrency matter, the CFTC recovered $41 million from Tether Holdings Limited over its issuance of “Tether Token.” The CFTC alleged that Tether violated the Commodities Exchange Act and CFTC regulations by falsely claiming that it maintained sufficient U.S. currency reserves to back every Tether Token in circulation.  According to the CFTC, Tether’s reserves were not only inadequate in amount but also held in a variety of unsecured and unregulated manners.  The CFTC further found that Tether falsely claimed to have performed routine, professional audits.
10. Modern Media Acquisition Corp / Akazaoo – In October, Modern Media Acquisition Corp, the SPAC that acquired the (purported) music streaming business Akazoo in 2019, paid $38.8 million to resolve allegations that the company lied about having millions of paying customers. The alleged scheme was exposed when a short-selling hedge fund, Quintessential Capital Management, released a report concluding that Akazoo was an “accounting scheme” that conducted sham “round-trip” transactions with related-party shell companies to inflate revenues and customer counts.  One month later, the company admitted to having only negligible actual revenue and subscribers for years.

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READ MORE:

• CFTC Whistleblower Program
• SEC Whistleblower Program
• Accounting Fraud
• Fraud Regulated by the CFTC
• Cryptocurrency Fraud
• Misrepresentations in Sales of Securities and Commodities
• A company about nothing: SPACs and fraud
• Money Laundering and Related Financial Institution Wrongdoing
• I Might Have a Whistleblower Case
• Whistleblower FAQs

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