CUBE RegNews:
5^th April

Justice Department seizes more than $112M in crypto fraud gains

The Department of Justice has announced the seizure of virtual currency worth an estimated $112 million linked to cryptocurrency investment scams. The virtual currency accounts were allegedly used to launder proceeds of various cryptocurrency confidence scams. In 2022, investment fraud caused the highest losses of any scam reported by the public to the FBI’s Internet Crimes Complaint Center (IC3), totaling $3.31 billion. Frauds involving cryptocurrency, including pig butchering (where scammers steal cryptocurrencies after reaching out to potential victims via dating apps, social media websites, or even random text messages) represented the majority of these scams, increasing a staggering 183% from 2021 to $2.57 billion in reported losses last year.

FDIC releases list of banks for CRA compliance

The Federal Deposit Insurance Corporation (FDIC) has issued its latest list of banks examined for Community Reinvestment Act (CRA) CRA compliance. The list covers evaluation ratings that the FDIC assigned to institutions in January 2023.

The Securities and Exchange Commission’s (SEC) complaint against Charlie Javice alleges that she committed fraud in connection with the $175 million sale of her company, Frank, to JPMorgan Chase Bank in 2021. The complaint claims that Javice misled JPMC into believing that Frank had access to valuable data on 4.25 million students when in reality the number was less than 300,000. The SEC alleges that Javice made numerous misrepresentations about Frank’s user base to entice JPMC, and when pressed for customer data, she allegedly paid a data science professor to manufacture the data required to close the deal. As a result of the acquisition, Javice received $9.7 million in stock proceeds, millions more indirectly through trusts, and a $20 million retention bonus as a new employee of JPMC. The SEC is seeking injunctive relief, an officer and director bar, disgorgement and prejudgment interest, and civil penalties.

The Securities and Exchange Commission (SEC) has charged Michael J French and two companies controlled by him, MJF Holdings, LLC (MJF Holdings) and MJF Capital, LLC (MJF Capital), for defrauding investors and misappropriating millions in investor funds.

According to the SEC’s complaint, French, through MJF Holdings, sold more than $20 million in high-yield promissory notes to over 400 investors throughout the country. The complaint alleges that French falsely told investors that the notes – promising 12% returns for a one-year investment – were backed by a low-risk investment program, under which the note proceeds would be loaned to small businesses and/or invested in commercial loans on a fractional basis to produce returns. The complaint also states that French claimed that the loans selected for investment to back the promissory notes were strictly underwritten and thus posed little risk to investors. According to the SEC’s complaint, the lending program was a sham, and French spent the money he raised to repay earlier investors and to fund a lavish lifestyle. The complaint also states that French ultimately defaulted on the notes and ceased communicating with investors. 

FCA sets out 12 month plan with four key priorities

The FCA has published four priorities for the second year of its three-year strategy.

The three-year strategy set out three key themes the FCA was focusing on:

• Reducing and preventing serious harm
• Retting and testing higher standards
• Promoting competition and positive change

And the new business plan identifies four priorities which include:

• “Preparing financial services for the future – working with the Treasury to implement the new regulatory framework so we can address emerging harms more efficiently
• Putting consumers’ needs first – to improve consumer protection and standards for all consumers and ensure our support for struggling consumers remains a priority 
• Reducing and preventing financial crime – prioritizing this will also help protect consumers to an extent and consumers in vulnerable circumstances specifically, as they may be more susceptible to fraud. This also supports our commitment Putting consumer needs first 
• Strengthening the position in global wholesale markets – to help ensure that the UK continues to be seen as one of the leading global markets of choice and strengthen our ability to respond to market volatility”.

The Prudential Regulation Authority (PRA) has censured Wyelands Bank Plc (Wyelands) for wide-ranging significant regulatory failings between 21 December 2016 and 28 May 2020, which spanned breaches relating to large exposure limits, capital reporting, governance and risk controls and PRA Own Initiative Requirements (OIREQs) and poor retention of WhatsApp messages. This is the first time the PRA has taken action against a firm for breaches of large exposure limits and found a breach of PRA Fundamental Rule 3 (requiring a firm to act in a prudent manner). The seriousness of the breaches justifies a substantial fine of £8,515,000. However, Wyelands is in wind down and the PRA accepted that it has very limited financial resources. The PRA has concluded that fining Wyelands would not advance its general objective to promote the safety and soundness of firms.