SEC brings charges for $1 billion unregistered crypto asset offering and fraud
The Securities and Exchange Commission (SEC) has taken legal action against Richard Heart, also known as Richard Schueler, and three unincorporated entities under his control: Hex, PulseChain, and PulseX, for allegedly conducting unregistered offerings of crypto asset securities that raised more than $1 billion in crypto assets from investors. In addition to the unregistered offerings, Heart and PulseChain are also charged with fraud for misappropriating at least $12 million of investor funds to purchase luxury items.
According to the SEC’s complaint, the alleged misconduct began when Heart started marketing Hex in 2018, positioning it as the first high-yield “blockchain certificate of deposit” and touting Hex tokens as a lucrative investment opportunity. From December 2019 to November 2020, Heart and Hex purportedly conducted an unregistered offering, collecting more than 2.3 million Ethereum (ETH). The SEC asserts that Heart gained control of additional Hex tokens through deceptive “recycling” transactions. Furthermore, between July 2021 and March 2022, Heart orchestrated two more unregistered crypto asset security offerings, amassing hundreds of millions of dollars in crypto assets to support the development of PulseChain and PulseX. These offerings involved their native tokens, PLS and PLSX, respectively.
The SEC’s complaint also highlights Heart’s promotion of a “staking” feature for Hex tokens, promising returns as high as 38 percent. However, the SEC alleges that Heart attempted to circumvent securities laws by urging investors to “sacrifice” their crypto assets instead of using the term “invest” in exchange for PLS and PLSX tokens.
SEC risk alert highlights AML compliance for BDs
A new Risk Alert published by the Securities and Exchange Commission (SEC) highlights observations from the SEC Division of Examinations regarding key AML requirements, such as independent testing of firms’ AML programs and training of their personnel, and identification and verification of customers and their beneficial owners. A previous Risk Alert from 2021 highlighted compliance issues in suspicious activity monitoring and reporting components of broker-dealers’ AML programs.
The new alert notes that some firms did not appear to devote sufficient resources, including staffing, to AML compliance given the volume and risks of their business and that the effectiveness of policies, procedures, and internal controls was reduced when firms did not implement those measures consistently. It also highlights the following:
- Broker-dealers must have written AML programs approved by senior management and include various elements such as ongoing employee AML training and annual independent testing of the AML program.
- Compliance with the Customer Identification Program (CIP) Rule is crucial, and some broker-dealers were observed not performing adequate CIP procedures.
- Customer Due Diligence (CDD) and Beneficial Ownership Requirements must be properly implemented to identify and verify beneficial owners of legal entity customers.
Key new FCA appointments
The Financial Conduct Authority (FCA) has announced three new appointments.
- Clare Woodman has been appointed as Chair of the FCA Markets Practitioner Panel. Clare is Head of EMEA and CEO of Morgan Stanley & Co. International Plc. She is also a member of both the global operating and management committees and chair of Morgan Stanley Europe SE.
- Matt Hammerstein has been appointed Chair of the FCA Practitioner Panel. Matt is the CEO for Barclays Bank UK, covering Retail Banking, Investments and Wealth UK, Business Banking and Barclaycard UK. Prior to becoming CEO, Matt was Head of Retail Lending.
- Mandy Gradden has been appointed as Listing Authority Advisory Panel. Mandy has been CFO of Ascential plc, a specialist global information, data and analytics company, since 2013 and was a key member of the team that led the company’s IPO in 2016.
EIOPA highlights concerns over insurers’ exposure to macro risks
The European Insurance and Occupational Pensions Authority (EIOPA) has released its latest Insurance Risk Dashboard, which reveals that insurers are facing heightened concerns over their exposure to macro risks. The overall risk levels in the insurance sector have remained stable, with all risk categories indicating medium risks, except for macro risks, which continue to be a major area of focus.
According to the dashboard, macro-related risks have retained their significance for the insurance sector. Global GDP growth is predicted to rise to 0.74% for the upcoming four quarters, while CPI forecasts have slightly decreased to 3.22%. Credit risks are considered to be at a medium level, with credit default swap (CDS) spreads increasing for financial secured bonds in Q2 of 2023 but receding slightly for other fixed income market segments. Market risks have decreased from high to medium level as volatility in the equity market has eased.
The Insurance Risk Dashboard provides essential insights into the European insurance sector’s current state, highlighting the ongoing challenges and areas of focus for insurers in managing risks effectively.
A selected summary of key developments for regulated financial institutions
Access all of our daily regulatory content by using the login button below.
To find out more about how CUBE can help your business click here.