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SEC steps up analysis into ‘gamification’ of buying and selling with on-line brokers, Gary Gensler says

SEC steps up research into 'gamification' of trading with online brokers, Gary Gensler says

Former chairman of the Commodity Futures Trading Commission, Gary Gensler, testifies at a US Senate Banking Committee hearing on systemic risk and market oversight on Capitol Hill in Washington on May 22, 2012.

Jonathan Ernst | Reuters

The Securities and Exchange Commission announced on Friday that it is intensifying its investigation into gamification and behavioral prompts used by online brokers and investment advisors to encourage people to trade more stocks and other securities.

Wall Street’s top regulator said that rosy earnings forecasts can mislead investors from technology that in reality underestimates the risk of a particular investment or the chances of staggering returns.

“While new technologies allow us greater access and product choice, they also raise the question of whether we as investors are adequately protected when we trade and seek financial advice,” said SEC chairman Gary Gensler in a press release. “In many cases, these characteristics can encourage investors to trade more often, to invest in other products or to change their investment strategy.”

The SEC often seeks public comments before drafting new rules and regulations for Wall Street, which means Friday’s announcement, while procedural, could be a headache for industry leaders.

Robinhood Markets, the operator of a popular digital trading platform that has been under scrutiny for its client trading requests, fell as much as 1% to the day’s lows, according to the SEC report.

The commission said that online investment firms and brokers often use “predictive” analytics tools designed to show clients what they would make under optimal – but not necessarily likely – outcomes.

While brokers may disclose that their predictive models are no guarantees of future returns, Gensler would like to gather investors’ thoughts on game-like features on financial platforms, behavioral prompts, more frequent trading, and “other digital elements or features designed to interact with” retail investors on digital platforms. “

As part of the announcement, the SEC announced that it would collect public submissions for 30 days after the application and comment forms are made available online.

Gensler said he was particularly keen to hear from the public on two key issues.

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First, the SEC chairman would like to know how financial regulators should protect investors from a potential conflict of interest.

Online brokers make profits when their customers trade more often. Robinhood Markets, for example, makes part of its money by sending its customers’ orders to high-frequency traders for cash. This process is itself controversial and known on Wall Street as paying for the flow of orders.

But if game-like prompts or congratulatory messages from online brokers encourage customers to make more trades – and especially if more trades result in poor portfolio performance at slightly lower prices – should the SEC intervene?

Gensler’s second key question is a little more cerebral.

In essence, the SEC wants to answer: If the game-like or predictive prompts from brokers are producing optimal results and affecting how often clients trade, should the regulator treat those prompts in the app as formal investment recommendations or advice?

The SEC often seeks public comments before drafting new rules and regulations for Wall Street, which means Friday’s announcement, while procedural, could be a headache for industry leaders.

Despite the stellar growth of the millennials favorite stock trading app, Robinhood has faced regulatory headwinds when it comes to its digital engagement with its millions of clients.

The financial industry regulator imposed Robinhood in June with the highest fine ever of around $ 70 million. FINRA said its penalty came in response to Robinhood’s technical failures in March during a spike in trading frenzy, their lack of diligence in authorizing clients to place option trades, and providing misleading information to clients on issues such as margin trading .

CEO Vlad Tenev testified to the U.S. House of Representatives Financial Services Committee in February about the GameStop trading mania in early 2021.

Robinhood also paid the SEC $ 65 million after being charged with misleading clients about how the app makes money and fails to deliver the promised best execution of trades.

In response to the public backlash, Robinhood has since taken steps to address some of the controls, such as:

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Politics

The SEC wants extra energy from Congress to completely regulate crypto, Chair Gensler says

The SEC needs more power from Congress to fully regulate crypto, Chair Gensler says

Gary Gensler

Andrew Harrer | Bloomberg | Getty Images

Securities and Exchange Commission Chairman Gary Gensler said Tuesday that Wall Street’s top regulator needs Congress to grant it additional powers for overseeing a vast and ever-evolving cryptocurrency market.

Speaking about crypto at the Aspen Security Forum, Gensler said the SEC has “taken and will continue to take our authorities as far as they go.”

“Certain rules related to crypto assets are well settled. The test to determine whether a crypto asset is a security is clear,” he said. “There are some gaps in this space, though: We need additional congressional authorities to prevent transactions, products and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector.”

Gensler, who previously taught classes about blockchain and other financial technology at the Massachusetts Institute of Technology, has asked lawmakers to grant his agency the legal authority to oversee crypto exchanges.

He said many of the crypto coins were trading like assets and should fall under the purview of the SEC, which already has significant authority over digital assets.

Despite his deep knowledge of blockchain and cryptocurrencies, Gensler has made it clear that he intends to take a hands-on approach when it comes to new financial technologies. Capitol Hill has for months held hearings on how best to monitor the nascent market, now worth trillions, amid violent price swings and rapid growth.

Sen. Elizabeth Warren, for example, last week wrote to Treasury Secretary Janet Yellen to urge her to bulk up oversight efforts.

Warren, a member of the Senate Banking Committee and a longtime critic of the nation’s largest banks, pressed the Treasury secretary to use her powers on the Financial Stability Oversight Council to bring about a safer crypto market.

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“FSOC must act quickly to use its statutory authority to address cryptocurrencies’ risks and regulate the market to ensure the safety and stability of consumers and our financial system,” the Massachusetts Democrat wrote in a letter to Yellen. “As the demand for cryptocurrencies continues to grow and these assets become more embedded in our financial system, consumers, the environment, and our financial system are under growing threats,” she added.

Chief among regulators’ concerns about crypto are its susceptibly to fraud and market manipulation.

The Federal Trade Commission reported earlier this year that consumers reported losing more than $80 million to crypto scams between October and March, with many of those losses stemming from underhanded scammers targeting small investors on social media, the FTC said.

“The American public is buying, selling, and lending crypto on these trading, lending, and DeFi [decentralized finance] platforms, and there are significant gaps in investor protection,” Gensler said. “Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the commission unless they meet an exemption. Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction.”

Gensler on Tuesday did not offer comment on the potential for approving a bitcoin exchange-traded fund, a pending decision that many in the crypto market are anxiously awaiting.

Investors are closely following the status of an application by VanEck to list shares of its Bitcoin Trust on the Chicago Board of Exchange’s BTZ Exchange. Regulators said in a letter dated June 16 that they would take additional time to seek comments from the public.

Bitcoin was last seen trading at $38,200, but has been volatile in recent months and in late July dipped below $30,000.

Republican SEC Commissioner Hester Peirce, known for advocating somewhat easier regulation of digital assets, told CNBC last month that she’s frustrated with how slow the regulator has been to approve such an ETF.

Denying bitcoin ETF applications not only runs the risk of a double standard but also may leave thousands of investors with few, more-dangerous alternatives, Peirce said.

“The complications of not approving [an application] become stronger, because people are looking for other ways to do the same kinds of things that they would do with an exchange-traded product,” she said. “They’re looking at other types of products that aren’t as easy to get in and out of, they’re looking at companies, perhaps, that are somehow connected with bitcoin or crypto more broadly.”

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Politics

Bitcoin ETF ought to have been accredited some time in the past, SEC regulator Peirce says

Bitcoin ETF should have been approved a while ago, SEC regulator Peirce says

Hester Peirce, Commissioner for the U.S. Securities and Exchange Commission (SEC), Center, listens during a House Financial Services Committee hearing in Washington, DC, the United States, on Tuesday, September 24, 2019.

Andrew Harrer | Bloomberg | Getty Images

Hester Peirce is at a loss.

For years, the Securities and Exchange Commission, of which Peirce is a member, has rejected requests from national stock exchanges and financial companies to list securities that track the performance of the popular digital currency Bitcoin.

Back in the day – let’s say 10 years ago – concerns about possible market manipulation and liquidity might have made sense, but things have changed.

“This is probably the biggest and most frequently asked question I get: When will the SEC approve a Bitcoin publicly traded product?” Commissioner Peirce said in an interview with CNBC on Thursday.

“I thought if we had applied our standards as we applied them to other products, we would have already approved one or more of them,” she said. “With every day that goes by, the rationale we have used in the past for not being approved seems to be weakening.”

The SEC applies a “unique, elevated standard” to filings related to digital assets, it wrote in 2020. And it has argued that the agency is asking exchanges and potential ETF sponsors for assurances beyond what they do for traditional, stock-based demands products.

“People with a regulatory mindset say, ‘Oh wait, the market for Bitcoin looks a little different from the markets we’re used to,'” said Peirce on Thursday.

Now, she added, the Bitcoin market looks more like an established market with more institutional and established retail investors involved.

“So I think the markets have matured quite a bit,” said Peirce.

Renewed demands for a SEC-approved Bitcoin ETF come just weeks after the regulator announced its ruling on approving an application by VanEck to list shares of its Bitcoin Trust on the Chicago Board of Exchange’s BTZ Exchange move.

Regulators said in a letter dated June 16 that they would take additional time to seek comments from the public. In particular, the SEC asks investors and scientists for their opinion on whether Bitcoin ETFs could be susceptible to manipulation or whether Bitcoin itself is sufficiently distributed and therefore resistant to similar underhand manipulation.

But Peirce, a Republican named one of the SEC’s five commissioners by former President Donald Trump, has long denounced what she sees as double standards for Bitcoin products in her own agency.

Perhaps her sharpest objection came in a dissent in 2018, when she argued that the SEC should have approved an application by the Chicago Board of Exchange’s Bats BTZ Exchange to list and trade shares in the Winklevoss Bitcoin Trust.

“By excluding the approval of cryptocurrency-based ETPs for the foreseeable future, the Commission is operating a performance regulation,” she wrote at the time. “Bitcoin is a new phenomenon and its long-term viability is uncertain. It can be successful, it can fail. However, the commission is not well positioned to assess the likelihood of either outcome for Bitcoin or other assets. “

Three years later, VanEck’s current filing – much like pending Bitcoin ETF filings from Fidelity, Cathie Wood’s Ark Invest, and a few others – is viewed by the industry as an SEC litmus test now led by a cryptocurrency expert, Chairman Gary Gensler becomes.

Former chairman of the Commodity Futures Trading Commission, Gary Gensler, testifies at a US Senate Banking Committee hearing on systemic risk and market oversight on Capitol Hill in Washington on May 22, 2012.

Jonathan Ernst | Reuters

His appointment as head of the SEC by President Joe Biden, and his subsequent Senate confirmation, met with optimism from many in the crypto community as he is seen as a skilled hand in creating novel financial rules.

Gensler, who taught crypto courses at the Massachusetts Institute of Technology, is perhaps best known for his influential tenure as chairman of the Commodity Futures Trading Commission in the Obama administration. There Gensler helped develop and introduce a new supervisory system for the swap market, which was largely unregulated before the financial crisis.

Even if the Democrat Gensler does not necessarily agree with the Trump-appointed Peirce on all issues, they can join a more proactive SEC on Bitcoin regulation.

Rejecting Bitcoin ETF applications not only carries the risk of double standards, it can also provide few, more dangerous alternatives to thousands of investors.

“The Complications of Not Approval [an application] get stronger because people are looking for other ways to do the same things that they would do with an exchange traded product, “she said.” They are looking for other types of products that are not that easy to get in and out of maybe look at companies that are somehow related to bitcoin or crypto in a broader sense. “

Bitcoin itself has taken a violent start to summer and has fainted its price by more than 40% in the past three months. Although it remains one of the most actively traded digital assets, some market watchers say Bitcoin is at a critical juncture.

“It looks like it might be preparing for a $ 30,000 retest, and that could be critical,” Art Cashin, director of NYSE floor operations at UBS, said Thursday. “If you crack $ 30,000, traders will see if there is a trapdoor, a cascade sell-off, to follow.”

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Its dizzying ups and downs even come as a growing number of companies and banks, including payment companies Square and PayPal, began to facilitate Bitcoin transactions.

Meanwhile, the Bank of New York Mellon announced in February that it would start funding Bitcoin, a major development given that it is both the oldest bank in the country and a leader in custody banking.

Late on Friday morning, Bitcoin rose 1.6% to $ 33,550.

Despite the volatile fluctuations in the price of the currency, Peirce remains convinced that a Bitcoin ETF is overdue.

It is not the SEC’s job to approve or deny requests based on the merits of the investment itself, she said Thursday, especially if the exchanges meet legal requirements to protect investors from fraud.

“Bitcoin is so decentralized now. The number of nodes involved in Bitcoin is large and the number of people who have an interest in keeping this work decentralized is very large, ”she said. “People should make their own decisions: if people don’t want to buy bitcoin because they think it’s tampered with, they shouldn’t buy bitcoin.”

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Males charged in shell firm inventory fraud scheme, used SEC filings

Men charged in shell company stock fraud scheme, used SEC filings

Three men have embarked on a brazen scheme to “secretly kidnap” and take over dormant mailbox companies, whose shares they then fraudulently inflated to sell to ignorant investors, according to the indictment, which was unsealed on Friday.

The 2017-2019 men allegedly used fake resignation letters to take control of four mailbox companies, then used the Securities and Exchange Commission’s EDGAR public filing system and fake press releases to fraudulently “pump up” their stock prices by seeking new business opportunities says.

Millions of shares of those stocks, which the defendants bought in many cases for less than 1 cent a share, were then sold over-the-counter by the men and others at gains of up to 900%, according to the court record.

The defendants – Mark Allen Miller, Christopher James Rajkaran and Saeid Jaberian, also known as Andre Jaberian – are charged in 15 cases of securities fraud, securities fraud conspiracy and wire transfer fraud.

The indictment states that Minnesota residents, Miller and Jaberian, as well as an unidentified person who is a relative of Miller, actually became the nominal CEOs and presidents of the companies affected by the scam.

Prosecutors believe the men made hundreds of thousands of dollars in illegal profits just from the behavior described in the indictment, according to a spokeswoman for the US prosecutor in Minnesota.

The indictment, filed in the U.S. District Court in Minnesota, was first reported Friday on the Twitter account of Seamus Hughes, associate director of the Extremism Program at George Washington University.

Hughes regularly scours the federal court’s online archive system, PACER, for interesting criminal and civil litigation documents that were not previously reported.

The Securities and Exchange Commission did not immediately respond when CNBC asked if the agency had taken any action against the defendants and whether they had made changes to the EDGAR file system to prevent tampering by suspected fraudsters.

None of the defendants could be reached for comment.

Rajkaran, a resident of Queens, New York and Guyana, was arrested on Friday as a possible aviation hazard after appearing in court in Brooklyn, New York.

The other two defendants, Miller and Jaberian, are due to appear in federal court in Minnesota on July 2.

The four mailbox companies affected by the alleged conspiracy were Digitiliti, Encompass Holdings, Bell Buckle Holdings, and Utilicraft Aerospace Industries.

While the companies were supposedly doing business – online privacy services, computer software, debt collection, and aerospace – all were actually dormant mailbox companies “with no business or income to speak of,” the indictment said.

The companies had all stopped filing required documents with the SEC and the Secretary of State, but their shares were publicly traded on the over-the-counter market.

After the corporate quartet was identified, “the conspirators then bought shares in the dormant public letterbox companies at low prices on the OTC market,” the indictment said.

“The conspirators were able to buy hundreds of thousands or even millions of shares because the shares traded for a fraction of a penny per share.”

In the Digitiliti case, according to the indictment, Miller drafted a fake resignation letter and board minutes in September 2017, falsely stating that the company’s previous CEO had resigned and Miller had been appointed president and CEO.

Miller then filed with the SEC papers falsely identifying himself as the company’s new head and asked for “the login codes that allow him access to the company’s SEC-EDGAR filing account.”

This in turn “allowed Miller to make public filings with the SEC on behalf of the company.”

The EDGAR system is used by publicly traded companies to disclose material events, including quarterly and annual financial results, changes in management, and sales and purchases of significant amounts of company stock by insiders and others.

The indictment states that Miller bought 50,000 Digitiliti shares in November 2017.

“After Digitiliti’s kidnapping, the Defendant Miller used his control over the company to issue a false and misleading press release on behalf of the company,” the indictment stated.

“On or about July 9, 2018, Miller issued a press release falsely claiming that Digitiliti was ‘negotiating’ with a private company that is trying to ‘buy’ Digitiliti.”

The press release also falsely alleged that the private company “has a proven track record of generating revenue and succeeding in a highly desirable sector of the market,” according to the indictment.

Miller sold his 50,000 Digitiliti shares three weeks later.

During the alleged hijacking of Encompass Holdings from June to November 2017, Miller and Rajkaran together bought more than 40 million shares in the company at low prices, the indictment said.

As with Digitiliti, Miller claimed in a forged letter of resignation and board minutes that he had become president and CEO, the indictment said.

Rajkaran then began posting about the company on investorhub.com to “promote and raise the price of ECMH stock,” the indictment stated.

“For example, he announced that the new CEO is’ likely to have nearly 20 million real estate holdings”[s] and construction machinery … heard, he owns several shopping centers in Mn ‘, “the indictment reads.

Miller then released a press release falsely claiming that Encompass “had signed a letter of intent to acquire approximately $ 6.4 million in assets from DDG Properties. according to the indictment.

“None of that was true.”

The stock price rose in response to the allegations, and Miller shortly thereafter sold 12 million shares in the company at fraudulently inflated prices and made a gain of more than 300%, the indictment said.

Rajkaran achieved an earnings return of around 150% after dumping more than 34 million shares, according to the indictment.

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Business

S.E.C. Chair Gensler Emphasizes Transparency in Markets

S.E.C. Chair Gensler Emphasizes Transparency in Markets

Gary Gensler puts market transparency and the need to understand the impact of new technology high on his priority list as the new chairman of the Securities and Exchange Commission.

“I think transparency is at the heart of efficient markets,” said Gensler on his first Capitol Hill testimonial as the country’s top securities cop.

Speaking from his living room, Mr. Gensler video appeared before the House Committee on Financial Services to discuss the SEC’s response to the tumultuous trading of GameStop stock in January. The massive surge in the video game company’s stock price was fueled by retail investors who bought their stocks through Robinhood and other commission-free trading apps, and banded together on social media to inflict huge losses on a hedge fund that had bet on GameStop stocks would fall. Some investors who bought GameStop stock at peak times later lost money.

Mr Gensler said SEC officials were working on a report addressing the issues raised by the episode, which will be released this summer. He also said new rules might be needed for brokerage apps that turn stock trading into a game or competition, a method called gamification.

“Through gamification, you are using psychological props to get people to act more,” Gensler said. Apps that encourage easy trading are part of a wider financial transformation where new technologies have opened markets to ordinary investors, but they also bring new risks, he said.

Mr. Gensler used his appearance to speak on other issues facing the markets and Wall Street. He said the SEC needs to “lean in” to ensure that traders, corporations and others are not using social media to manipulate the markets. Mr Gensler said he plans to work with Congress to develop a strategy to regulate the exchanges on which cryptocurrencies are bought and sold.

Legislators took the opportunity to invite Mr. Genslers’ views on a number of other issues, including whether companies should be required to disclose the environmental impact of their business and whether new regulations are needed for business development companies.

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May 6, 2021, 11:23 a.m. ET

Mr Gensler, 63, reminded lawmakers that he was only his third week on the field and that while he had many things on his to-do list, he had some catching up to do on topics the SEC had already been working on.

In his prepared testimony, Mr Gensler said the staff who prepared the report on GameStop were also looking into whether professional investors who bet that stocks will fall – meaning keeping them short – should be required to disclose .

Mr Gensler said the collapse of Archegos Capital Management, which caused Wall Street banks to lose more than $ 10 billion, has led regulators to consider whether traders should be required to disclose derivatives – the financial trading instruments which allowed Archegos to take massive positions in stocks without attracting any attention. Much of Archegos’ losses was attributed to the company’s heavy investment in total return swaps, a type of heavily leveraged derivative that can allow a trader to get exposure to a stock without actual ownership.

Mr Gensler’s tenure got off to a rocky start after Alex Oh, his enforcement director election, was forced to step down just days after his appointment because Paul, Weiss, the major law firm she had worked for, faced potential sanctions in a case in which she was heavily involved.

The hearing with Mr. Gensler was the third and last to deal with GameStop and the frantic trading in the House Financial Services Committee’s markets. The first hearing was held on February 18, when GameStop’s shares were trading around $ 40 per share after falling from a high of $ 347 per share. Since then, the stock has risen again, rising nearly 300 percent to $ 160 per share.

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Health

Chamath Palihapitiya-backed Clover Well being will get discover of SEC investigation

Chamath Palihapitiya-backed Clover Health gets notice of SEC investigation

Chamath Palihapitiya

Olivia Michael | CNBC

Chamath Palihapitiya-sponsored Clover Health Investments announced Friday that they have received an investigation from the Securities and Exchange Commission and that they intend to cooperate.

However, Clover backed out of a critical report by the short seller Hindenburg Research, saying some of the claims in the report were “totally false”.

On Thursday, Hindenburg released a damning report calling Clover Health a “broken business”. The insurance company’s stocks fell more than 12%, the largest daily percentage decline in four months. Clover’s shares rose more than 3.5% on the Friday leading up to trading after the company released its response. Hindenburg, which has posted short selling in the past, said Thursday it had no position in Clover.

Hindenburg also said that Clover has been investigated by the Justice Department and that the investigation has not been disclosed to investors. In his response to the Hindenburg report, Clover said he had received inquiries from the DOJ, but didn’t believe the inquiries were material to his investors. The company characterized the DOJ inquiries as standard practice because Clover works with the Medicare system.

Clover said it decided not to disclose the DOJ’s inquiries after consulting with its attorneys. The company didn’t say what the DOJ’s inquiries were about. On the SEC side, Clover said he received the agency’s letter Thursday after the Hindenburg report was released. The company said it was unaware of any investigation outside of the SEC’s letter it received Thursday.

The DOJ on Thursday declined to comment on any possible investigation or investigation related to Clover. The SEC declined to comment on Friday.

Clover responded to Hindenburg’s criticism of a separate company, Seek Insurance, that shares investors and governance with Clover. Hindenburg claims that Seek Insurance, a website designed to help people find Medicare plans, does not disclose their relationship with Clover, despite the fact that their website stands out as an unbiased platform for choosing a health plan. Clover said in his response that Seek Insurance is a subsidiary of Clover but is still an independent start-up.

Clover also said that Seek’s website would be updated with more information soon, and released a breakdown of the plans Seek customers are choosing. According to Clover, 13.5% of Seek customers chose a Clover plan, behind CVS / Aetna (17%), Humana (20%) and Cigna (20%).

Finally, Clover responded to Hindenburg’s claims that the company’s software was causing doctors to charge the Medicare system more than necessary, a practice called “upcoding.” According to Hindenburg, Clover’s software encourages up-coding with “irrelevant diagnoses” to “deceive” and charge the Medicare system more. Clover denied these allegations in his response, saying that doctors receive a flat fee for an office visit and that it is up to the doctor to choose the diagnosis.

Hindenburg is known for his short selling research. In particular, a report on electric car company Nikola was released last year, just days after General Motors announced an investment in the company.

Among the allegations made against the company, Hindenburg said Nikola staged a demo video of his electric vehicle, which was not powered by its own but instead rolled down a hill. Nikola denied many of Hindenburg’s claims, but not those about the truck’s demo video. GM eventually gave up its stake in Nikola.

Also of note is Palihapitiya’s commitment to Clover. The VC has built a reputation for supporting several high profile SPAC deals, including Clover and Virgin Galactic. However, Hindenburg’s report raised questions about whether or not Palihapitiya knew about the DOJ’s investigation into Clover, and whether this should have been disclosed when the company went public through the SPAC deal.

You can read all of Clover’s in-depth point-by-point answers on Hindenburg here.

–Reuters contributed to this report.

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Politics

SEC reviewing GameStop frenzy, vows to guard retail buyers

SEC reviewing GameStop frenzy, vows to protect retail investors

The US Securities and Exchange Commission in Washington, DC

Adam Jeffery | CNBC

The Securities and Exchange Commission announced on Friday that it will help protect investors by reviewing recent trading volatility that has caused stocks like GameStop and AMC Entertainment to soar.

In a statement, the country’s top financial regulator pledged to protect individual traders and to examine measures taken by brokers that “could disadvantage investors or otherwise unduly hinder their ability to trade certain securities”.

“We will act to protect retail investors when the facts show abusive or manipulative trading activity that is prohibited by federal securities laws,” the SEC said.

“The Commission is working closely with our regulatory partners, both in government and at FINRA and other self-regulatory organizations, including exchanges, to ensure that regulated companies meet their obligations to protect investors and identify and prosecute potential misconduct.”

The explanation came as sharply shortened, soaring stocks rose again during Friday’s session. Video game retailer GameStop, theater operator AMC and headphone maker Koss were up 50%, 53% and 43%, respectively.

The SEC’s promise to curb brokerage deals that may have “unduly” restricted customers’ tradability is good news for members of WallStreetBets Reddit and other retailers who sparked the rally.

By buying the sharply shortened stocks or their call options, retail investors have forced investors betting against the stocks known as short sellers to cover their positions by repurchasing stocks to avoid further losses.

If this happens on a massive scale, it is called a “short squeeze” and can lead to a dramatic, volatile rise in the share price.

Many individual traders took to Twitter and other social media platforms on Thursday to protest Robinhood’s decision to restrict access to certain stocks at the center of the controversy. The high trading volume puts pressure on online brokers like Robinhood, who customers have to pay in cash when closing a position. The brokers also needed additional cash to provide their clearing facility with additional capital and to protect trading partners from excessive losses.

Robinhood later said it would allow limited purchases in GameStop and other volatile stocks on Friday.

For the week, GameStop is up 420%, Koss is up 1,800%, and AMC is up 280%.

A pedestrian walks past a GameStop Corp. store in Rome, Italy on Thursday, January 28, 2021.

Alessia Pierdomenico | Bloomberg | Getty Images

The sharp swings in such stocks, as well as Robinhood’s decision to restrict trading, have drawn the ire of politicians on both sides of the political aisle.

Senator Elizabeth Warren told CNBC Thursday that she blamed the SEC’s failure to act for the days of flash of market speculation.

“We need an SEC that has clear rules for market manipulation and then has the backbone to enforce and enforce those rules,” said the Massachusetts Democrat. “To have a healthy stock market, you have to have a cop on the beat.”

“That should be the SEC,” she added. “You have to step up and do your job.”

North Carolina MP Patrick McHenry, the senior Republican on the House Financial Services Committee, said Friday he was concerned about unequal access to capital markets.

I want to “make sure we don’t stop people from having additional access to markets and therefore leave them to activities like we’ve seen with GameStop and some other tradable stocks,” he said on Squawk Box.

“What I’m seeing here is this bigger case: average, everyday investors are excluded from the access that insiders like C-suite members get from corporations, and hedge funds and private equity get natural access,” he added. “And that the credit investor standard has turned our markets into an extremely prosperous lie.”

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Business

Gary Gensler Set to Lead S.E.C.

Gary Gensler Set to Lead S.E.C.

The Biden administration is using two Obama administration’s financial regulators to oversee key departments that eased control of the industry under President Trump, according to two people with knowledge of the plans.

Gary Gensler, who headed the Commodity Futures Trading Commission during the Obama administration from 2009 to 2014, will be Joseph R. Biden Jr.’s nominee for the Securities and Exchange Commission. Rohit Chopra, the former deputy director of the Consumer Financial Protection Bureau, has been selected to lead this agency.

Mr. Gensler is a seasoned regulator who played a key role in getting the big banks going after the 2008 financial crisis and giving a supervisory authority new teeth. Recently, as an academic, he has become familiar with digital currencies like Bitcoin, which have become an important part of the SEC’s regulatory mandate. He led the transition team and advised Mr. Biden on overseeing financial oversight.

Gensler, 63, is about to join an agency that has been criticized for being too lenient in prosecuting high profile cases involving Wall Street and the American corporation.

“I think he has a more developed enforcement philosophy, given the work he’s done at the CFTC, and is likely more aggressive than the previous chairman,” said Matt Solomon, former chief litigation attorney at the SEC and a partner with the law firm Cleary Gottlieb.

The agency that Mr. Chopra will take over has been mangled under Mr. Trump. The consumer bureau was founded as an idea by Senator Elizabeth Warren under the Dodd-Frank Financial Overhaul Act and largely ineffective after Trump named Mick Mulvaney as interim chairman. He promised to run the agency with “humility and prudence” and did not request funding from the Federal Reserve. Kathy Kraninger, who took over the helm of the agency in 2018, has been accused by Democrats of undermining the office they have accused of denying “millions of dollars in relief” to consumers. Democrats have put pressure on Ms. Kraninger to resign or be fired.

In June, the Supreme Court ruled that the President had authority to remove the CFPB director before his five-year term was up.

During his tenure in the consumer office until 2015, Mr. Chopra was the agency’s first “Student Loan Ombudsman” advocating greater protection for borrowers. Student loans are expected to be a focus for Mr. Chopra in addition to payday loan protection and debt collection provisions. On these issues, he would most likely have an ally in Bharat Ramamurti whom former Warren advisor Biden has won as director of the National Economic Council for Financial Reform and Consumer Protection.

For the past three years, Mr. Chopra has served as Commissioner for the Federal Trade Commission and has often spoken out against the Republican majority. Instead, he advocated stricter enforcement measures against companies like Facebook.

At the SEC, one of Mr. Gensler’s most pressing decisions will be the election of an enforcement director – an important role in setting regulatory priorities. But the new administration and the Congress Democrats, who will control both chambers, have already established a number of chambers.

Mr Biden has spoken about companies needing to disclose more information about their environmental impact, while members of Congress discussed limiting buybacks of company shares and enforcing greater control over so-called shadow banking activities by hedge funds and private equity firms.

“This entire government is prioritizing climate change in terms of what any agency can bring to the table to help us fight climate change – and the SEC is really playing a vital role in that,” said Mary Schapiro, the former Chairwoman of the SEC who worked closely with Mr. Gensler when he was with the commodities regulator. Ms. Schapiro probably named the climate, along with issues of trade and market structure, one of the priorities for Mr. Gensler.

When Mr. Gensler took the helm of the CFTC, it had a poor reputation, largely confined to taking enforcement action against small trading companies. There have even been calls in Congress to merge it with the SEC. But Mr. Gensler’s responsibility after the financial crisis of 2008 calmed this criticism. His agency often shared the spotlight with the SEC – and sometimes even overshadowed it.

Under his leadership, the CFTC took action against the manipulation by large banks of Libor – the London Interbank Bank Offered Rate – which sets the interest rates on many bank loans. Working with the Justice Department, Mr. Gensler and the CFTC pulled heavy fines from banks and led to a plan to replace Libor with a new benchmark that is less subject to abuse.

The CFTC also shared the stage with the SEC investigating the so-called flash crash of 2010, when the Dow Jones Industrials fell 1,000 points in just 10 minutes – a record drop at the time. A joint investigative report from the two regulators never found an exact cause, but found that a combination of high-frequency trading and fast trading in e-mini stock futures – a sophisticated exchange-traded fund – contributed to the turmoil.

“Wall Street interests are not always the same as the public,” he told the New York Times in 2010.

After retiring from the CFTC, Mr. Gensler began teaching at the Sloan School of Management at the Massachusetts Institute of Technology and was well educated in digital currencies. He even taught a course on blockchain technology and how it can play a role in transforming markets and replacing middlemen on Wall Street – an experience that would make him the first commission chairman to speak the language of crypto enthusiasts without having to resort to Google for translation.

Mr. Gensler will succeed Jay Clayton, who stepped down last month. Mr. Clayton was a corporate attorney who joined the SEC from Sullivan & Cromwell after working for many large banks and corporations. One of his mandates is to make it easier for companies to go public and to protect investors on Main Street.

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Cryptocurrency XRP plunges 25% after SEC recordsdata lawsuit in opposition to Ripple

Cryptocurrency XRP plunges 25% after SEC files lawsuit against Ripple

A visual representation of the digital cryptocurrency ripple is displayed in this photo illustration on January 30, 2018 in Paris, France.

Chesnot | Getty Images

The price of XRP fell again on Wednesday after the US Securities and Exchange Commission filed a lawsuit alleging that Ripple, a blockchain company with links to cryptocurrency, had an unregistered offering of 1, $ 3 billion carried out.

According to data from cryptocurrency market site CoinDesk, XRP fell by almost 25% to around 35 cents on Wednesday morning. The virtual currency fell up to 17% on Tuesday after Ripple announced it was anticipating and fighting legal action.

The SEC is suing Ripple and two of its executives, CEO Brad Garlinghouse and co-founder Chris Larsen. At the heart of the federal agency’s complaint is the claim that XRP should be treated as collateral – like a stake in a company – and not as currency.

“We claim that Ripple, Larsen and Garlinghouse have failed to register their ongoing offering and sales of billions in XRP to retail investors, giving prospective buyers adequate information about XRP and Ripple’s business and other important long-term protections that are fundamental to our company Meaning are withheld. ” robust public market system, “said Stephanie Avakian, director of the SEC’s enforcement division.

Ripple denies this on the grounds that XRP is a currency and does not need to be registered as an investment contract. The company questioned the timing of the lawsuit – SEC chairman Jay Clayton will be stepping down soon – and said the U.S. government and other regulators had previously granted XRP currency status.

According to CoinMarketCap data, XRP has lost its place as the third most important cryptocurrency in the world. Tether – a dollar-pegged token that investors often use to trade crypto – surpassed its value on Wednesday.

The “security” label is important as it could put XRP under tough new rules and that would seriously affect Ripple. Ripple owns 55 billion of the total of 100 billion existing XRP tokens and even generates income from the sale of some of its XRP holdings every quarter.

XRP was created and distributed in 2012 by the founders of Ripple and is designed to enable fast cross-border money transfers. The price of XRP has risen in parallel with Bitcoin and other cryptocurrencies this year, but is still around 90% below its high in late 2017.

Ripple was most recently privately valued at $ 10 billion and is backed by companies like Japanese financial services giant SBI Holdings, Spanish bank Santander and leading venture capital firms like Andreessen Horowitz, Lightspeed and Peter Thiels Gründerfonds.

Ripple had threatened to relocate its headquarters outside of the US due to a lack of regulatory clarity in the US, with London, Switzerland, Singapore, Japan and the United Arab Emirates cited as potential locations.