The Office of Management and Budget’s Office of Information and Regulatory Affairs has released the Unified Agenda of Regulatory and Deregulatory Actions, an agenda that represents the Trump administration’s next step in fundamental regulatory reform. The agenda includes the Current Agency Statements of Regulatory Priorities for several federal financial services regulatory agencies. The regulatory priorities of the Consumer Financial Protection Bureau can be found here. The regulatory priorities of agencies that are part of the Treasury Department, including the Office of the Comptroller of the Currency (in some cases jointly with the FDIC and Federal Reserve) and the Financial Crimes Enforcement Network (FinCEN) can be found here.
On December 15, FinCEN published answers to Bank Secrecy Act (BSA)-related frequently asked questions (FAQs). These FAQs are meant to provide financial institutions with guidance in their BSA compliance efforts and are part of a broader transparency initiative announced by Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker at the ABA Financial Crimes Enforcement Conference earlier this month. FinCEN will periodically update these FAQs.
On December 13, the Securities and Exchange Commission (SEC) announced that Gary Barnett, Deputy Director in the Division of Trading and Markets, will retire from the agency at the end of the year. Since January 2015, Mr. Barnett has overseen the division’s Office of Broker-Dealer Finances, Office of Derivatives Policy, Office of Trading Practices, its Volcker rule team, and its participation in various global regulatory initiatives. In addition, he has been a member of the agency’s Cybersecurity Working Group and its Fintech Working Group and has been its senior most representative on multiagency groups including the Senior Supervisors Group and the Supervisors Roundtable on Governance Effectiveness.
The SEC recently issued two warnings about investments sold on the basis of celebrity endorsements, including one relating to initial coin offerings (ICOs), and followed up with enforcement actions against unregistered ICOs. Investors can be misled by biased promotions. Receipt of cash or other consideration in exchange for promoting a security can create an incentive to describe the security in an attractive light, regardless of associated risks, costs and fees. Promoters of ICOs that are securities must fully disclose any consideration received, including the type (i.e., cash or securities), amount and the identity of the party making the payment, in order to comply with federal securities laws. For more information, read the client alert issued by Goodwin’s Digital Currency + Blockchain Technology practice.
On December 11, the SEC issued a cease-and-desist order to Munchee Inc. (Munchee), a company that was in the process of a $15 million ICO, for selling unlicensed securities. The SEC found that the ICO targeted investors, with the expectation of future profits, rather than users of the company’s products, with the explicit aim of using the token sale proceeds to further develop its iPhone application and corresponding “ecosystem.” Munchee, upon being contacted by the SEC, stopped the sale and returned all ICO proceeds. Immediately following the publication of the Munchee Order, SEC Chairman Jay Clayton released a public statement on cryptocurrencies and ICOs, reiterating the SEC’s focus on substance over form in evaluating the implications of the federal securities laws on ICOs. Chairman Clayton specifically cautioned against assuming that any particular token will be considered a utility. Chairman Clayton’s comments suggest that the SEC may consider a true utility token to be an exception to the rule, which warrants caution and forethought when proceeding with any unregistered token sale. These developments represent the latest guidance from the SEC, as it endeavors to further define the bounds of regulation in the burgeoning ICO market. For more information, read the client alert issued by Goodwin’s Digital Currency + Blockchain Technology practice.
An ICO does not happen on its own. Rather, there are companies and individuals that assist in successful token sales. These can include ICO consultants, marketing firms, board members, partners at private equity and venture capital firms, and those that assist in finding buyers for tokens. While there are benefits to those making ICOs happen, there are also risks. View the Digital Currency + Blockchain Perspectives blog post.
Enforcement & Litigation
On December 13, the Delaware Supreme Court issued a decision in In re Investors Bancorp, Inc. Stockholder Litigation, holding that director compensation awards made pursuant to an equity compensation plan that permits a board of directors discretion in making such awards will not be reviewed under the business judgment rule, which treats them as presumptively valid. Rather, such discretionary awards will be subject to review under the entire fairness standard, which places the burden of proof on the directors to show that the award process and amounts were objectively fair to the corporation and its stockholders. The Court held that director compensation awards will be reviewed under a deferential business judgment standard of review only if specific awards are approved by a fully informed disinterested stockholder vote or if awards are made pursuant to a “self-executing” equity compensation plan that is approved by a fully informed disinterested stockholder vote and permits directors no discretion in making such awards. Investors Bancorp represents a significant development in Delaware director compensation law that may lead to increased stockholder challenges to director compensation awards as excessive. For more information, read the client alert issued by Goodwin’s Securities + Shareholder Litigation practice.
Bank Director’s 24th annual Acquire or Be Acquired Conference focuses on banks seeking to explore strategic short- and long-term growth options. Regina Pisa will be speaking on the panel “Effectively Communicating an M&A Transaction” on January 28. Samantha Kirby will also be in attendance. For more information, please visit the event website.