February 2024 - cypherpunks@lists.ogf.org

Fintech Group Of The Year: Sullivan & Cromwell
by Gunnar Larson 14 Feb '24

14 Feb '24

Fintech Group Of The Year: Sullivan & Cromwell <https://www.law360.com/fintech/articles/1783676?nl_pk=d2b3e7ef-ab62-4a62-80…> By Aislinn Keely Sullivan & Cromwell LLP's fintech group led some of 2023's most headline-grabbing crypto cases, from steering the bankruptcy of FTX to defending Coinbase in a landmark securities registration suit, earning the firm a spot among Law360's 2023 Fintech Groups of the Year.

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Cuomo Says Law Firms Won't Comply With Subpoenas
by Gunnar Larson 14 Feb '24

14 Feb '24

Cuomo Says Law Firms Won't Comply With Subpoenas <https://www.law360.com/newyork/articles/1797302?nl_pk=ac5a3855-e47c-4403-be…> By Ryan Boysen Former New York Gov. Andrew Cuomo wants to force law firms Cleary Gottlieb Steen & Hamilton LLP and Vladeck Raskin & Clark PC to turn over information about the women whose sexual misconduct accusations forced him to resign, even as those women accuse Cuomo of "blatantly" weaponizing his taxpayer-funded attorneys to mount a "revenge" campaign through the courts. Letter attached | Read full article » <https://www.law360.com/newyork/articles/1797302?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1797302?nl_pk=ac5a3855-e47c-4403-be…>

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SEC's Gensler Promises 'War' On AI Fraud
by Gunnar Larson 14 Feb '24

14 Feb '24

SEC's Gensler Promises 'War' On AI Fraud <https://www.law360.com/fintech/articles/1797350?nl_pk=d2b3e7ef-ab62-4a62-80…> By Jessica Corso U.S. Securities and Exchange Commission Chair Gary Gensler told an audience of Yale Law School students on Tuesday that financial firms using so-called artificial intelligence could face the agency's wrath if they don't put proper safeguards in place to combat fraud against investors. Read full article » <https://www.law360.com/fintech/articles/1797350?nl_pk=d2b3e7ef-ab62-4a62-80…> | Save to favorites » <https://www.law360.com/fintech/articles/1797350?nl_pk=d2b3e7ef-ab62-4a62-80…>

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Bank Trade Chief Warns Of Rules 'Masquerading As Guidance'
by Gunnar Larson 14 Feb '24

14 Feb '24

Subject: Bank Trade Chief Warns Of Rules 'Masquerading As Guidance' Bank Trade Chief Warns Of Rules 'Masquerading As Guidance' <https://www.law360.com/banking/articles/1796882?nl_pk=feb6bbba-7878-4d39-be…> By Jon Hill The American Bankers Association's chief executive fired off a warning shot at federal regulators on Monday over their use of agency guidance, cautioning that several recent documents addressing certain bank fees and other practices are no substitute for formal rulemaking. 2 documents attached | Read full article » <https://www.law360.com/banking/articles/1796882?nl_pk=feb6bbba-7878-4d39-be…> | Save to favorites » <https://www.law360.com/banking/articles/1796882?nl_pk=feb6bbba-7878-4d39-be…>

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Citigroup Is Having a Very Bad Week; Regulators Are Breathing Down Its Neck
by Gunnar Larson 14 Feb '24

14 Feb '24

https://wallstreetonparade.com/2024/02/citigroup-is-having-a-very-bad-week-… By Pam Martens and Russ Martens: February 14, 2024 ~ Sanford (Sandy) Weill, the Man Who Walked Away from Citigroup a Billionaire Before Its Collapse At the exact moment that the stock market closed on Monday, Reuters dropped a bombshell in Warren Buffett’s lap with news that federal banking regulators are breathing down Citigroup’s neck. Buffett’s Berkshire Hathaway owns 55,244,797 shares of Citigroup, according to its last 13F filing with the SEC. The bulk of the stake was acquired in the first quarter of 2022. (See our report: Warren Buffett Is Taking a Flyer on $3 Billion of Citigroup’s Stock — After It Loses 40 Percent in a Year.) While a $3 billion stock holding is chump change for Berkshire (as of its last 13F filing, it owned approximately $33 billion in Bank of America stock), Buffett has a stock-picking reputation to defend and neither the history of Citigroup nor its troubles today are boosting that reputation. On Monday, with the strike of the closing bell, Reuters reported the following: “U.S. regulators have asked Citigroup for urgent changes to the way it measures default risk of its trading partners and the bank’s own auditors have found a plan to improve internal oversight to be lacking, developments that could hinder CEO Jane Fraser’s plans to revive the bank’s fortunes. “Late last year, the Federal Reserve sent Citi three notices directing the bank to address in the coming months how it measures risk of default by counterparties in derivative transactions, a source with direct knowledge of the matter said.” To fully grasp the hubris at Citigroup, a few key historic details are in order. First, Citigroup’s Citibank turned money laundering into an art form, or perhaps a concierge service, with its own “relationship managers.” Second, Citigroup received the largest bailout in global banking history before, during and after the financial crash of 2008 – a crash it played a pivotal role in causing with its subprime debt bombs and off-balance-sheet Structured Investment Vehicles (SIVs). Between December 2007 and July 2010, Citigroup received the following bailouts: The U.S. Treasury injected $45 billion of capital into Citigroup; there was a government guarantee of over $300 billion on certain of its assets; the FDIC provided a guarantee of $5.75 billion on its senior unsecured debt and $26 billion on its commercial paper and interbank deposits; and secret revolving loans from the Federal Reserve sluiced a cumulative $2.5 trillion in below-market-rate loans to Citigroup according to an audit released by the Government Accountability Office in 2011. Third, despite the unprecedented infusions of capital, guarantees and secret loans from the Fed, Citigroup’s share price sank to 99 cents in the spring of 2009. In a clever maneuver to dress up its share price and remove the beaten-down appearance of a single digit stock, effective May 9, 2011, Citigroup did a 1-for-10 reverse stock split, meaning if you had 100 shares of Citigroup previously, you were left with just 10 shares; but those shares now had a double-digit price that looked far more respectable to the uninformed. The shocking truth is that if you owned Citigroup’s stock on January 1, 2008 – the year of the worst financial crash since the Great Depression – and you maintained your position in the stock all these years, you are still down 76 percent on the share price. (See chart above.) Another key detail in Citigroup’s history is that despite taking its shareholders on a very nasty journey for the last 16 years, its former Chairman and CEO, Sandy Weill, was able to walk away as a billionaire as a result of his so-called “Dracula” stock options. Weill’s riches grew out of what corporate compensation expert Graef “Bud” Crystal labeled the Count Dracula stock option plan – you simply could not kill it; not even with a silver bullet. Nor could you prosecute it because Citigroup’s Board of Directors approved it. Weill’s stock option plan worked like this: every time he exercised one set of stock options, he got a reload of approximately the same amount of options, regardless of how many frauds the bank had been charged with during the year. In an article at Bloomberg News, Crystal explained that between 1988 and 2002, Weill “received 96 different option grants” on an aggregate of $3 billion of stock. Crystal says “It’s a wonder that Weill had time to run the business, what with all his option grants and exercises. In the years 1996, 1997, 1998 and 2000, Weill exercised, and then received new option grants, a total of, respectively, 14, 20, 13 and 19 times.” When Weill stepped down as CEO in 2003, he had amassed over $1 billion in compensation, the bulk of it coming from his reloading stock options. (Weill remained as Chairman of Citigroup until 2006.) With a bird’s eye view of Citigroup’s internal problems, Weill decided real estate looked like a better risk than Citigroup stock. Just one day after stepping down as CEO, Citigroup’s Board of Directors allowed Weill to sell back to the corporation 5.6 million shares of his stock for $264 million. This eliminated Weill’s risk that his big share sale would drive down his own share prices as he was selling. The Board negotiated the price at $47.14 for Weill’s shares. The $264 million that Weill got for his Citigroup shares in 2003 were worth $29.5 million at yesterday’s closing price, adjusted for the reverse stock split: a very sweet deal for Weill and a very raw deal for long-term shareholders. Now, back to the Reuters’ story about Citigroup’s current troubles with its regulators. Despite the bank’s inability to resuscitate its share price, Citigroup held $51 trillion in derivatives as of September 30, 2023, according to the Office of the Comptroller of the Currency. (For how Citigroup could have blown itself up with derivatives and off-balance-sheet vehicles in 2008 and still be allowed to live so recklessly today, see our report: Meet Your Newest Legislator: Citigroup.) Regulators are now apparently questioning Citigroup’s calculations on how much capital it should be holding based on the credit quality of the counterparties to that $51 trillion in derivatives. Federal banking regulators have good reason to question that. The giant insurer AIG had to be taken over by the U.S. government in 2008 and backstopped with more than $180 billion when it turned out that one of its divisions had been a major derivatives counterparty to a multitude of Wall Street banks – but AIG had neglected to put aside reserves to pay up on those derivatives. When the Financial Crisis Inquiry Commission wrote its final report for Congress, mapping out the major causes of the Wall Street financial collapse in 2008, it devoted an entire chapter to AIG. One exhibit stands out. It was an email sent on the evening of September 12, 2008 – three days before Lehman Brothers filed bankruptcy. It came from Hayley Boesky of the New York Fed and was directed to William Dudley, an Executive Vice President at the New York Fed at the time who oversaw its trading operations. Dudley would become President of the New York Fed on January 27, 2009 when its then President, Tim Geithner, was tapped by President Obama for Treasury Secretary. The email read: “More panic from [hedge funds]. Now focus is on AIG. I am hearing worse than LEH [Lehman Brothers]. Every bank and dealer has exposure to them.” On the same day that Lehman Brothers declared bankruptcy, Monday, September 15, 2008, the rating agencies brought down the hammer on AIG. The ratings downgrades were even worse than anticipated. AIG’s share price collapsed in one trading session by 61 percent to $4.76. By Wednesday of the same week, AIG’s stock traded at an intraday low of $1.99. The Financial Crisis Inquiry Commission report notes that AIG’s “previous eight years’ profits of $66 billion would be dwarfed by the $99.3 billion loss for this one year, 2008.” After much public uproar, a chart would eventually be released showing that more than $90 billion of government bailout funds earmarked for AIG went to pay off its derivatives and stock lending agreements with the big trading houses on Wall Street. (See the chart here.) The Financial Crisis Inquiry Commission summed up its analysis of what went wrong at AIG as follows: “The Commission concludes AIG failed and was rescued by the government primarily because its enormous sales of credit default swaps [derivatives] were made without putting up initial collateral, setting aside capital reserves, or hedging its exposure — a profound failure in corporate governance, particularly its risk management practices. AIG’s failure was possible because of the sweeping deregulation of over-the-counter (OTC) derivatives, including credit default swaps, which effectively eliminated federal and state regulation of these products, including capital and margin requirements that would have lessened the likelihood of AIG’s failure. The OTC derivatives market’s lack of transparency and of effective price discovery exacerbated the collateral disputes of AIG and Goldman Sachs and similar disputes between other derivatives counterparties. AIG engaged in regulatory arbitrage by setting up a major business in this unregulated product, locating much of the business in London, and selecting a weak federal regulator, the Office of Thrift Supervision (OTS)… “AIG was so interconnected with many large commercial banks, investment banks, and other financial institutions through counterparty credit relationships on credit default swaps and other activities such as securities lending that its potential failure created systemic risk. The government concluded AIG was too big to fail and committed more than $180 billion to its rescue. Without the bailout, AIG’s default and collapse could have brought down its counterparties, causing cascading losses and collapses throughout the financial system.” If you think it is nothing short of dereliction of duty that federal banking regulators have allowed Citigroup to hold $51 trillion in derivatives given its history, please contact your U.S. Senators today via the U.S. Capitol switchboard by dialing (202) 224-3121. Tell your Senators to demand that regulators rein in this out-of-control derivatives market and its concentrated risk at a handful of mega banks on Wall Street. Related Article: Is Citigroup Under Orders from Its Regulators to Break Itself Up?

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Discord Stock Traders Say Prosecutors' Evidence Is Faulty
by Gunnar Larson 14 Feb '24

14 Feb '24

Discord Stock Traders Say Prosecutors' Evidence Is Faulty <https://www.law360.com/legalethics/articles/1796700?nl_pk=153d4a8a-6fb9-4a5…> By Spencer Brewer A group of men accused of operating a multimillion-dollar pump-and-dump scheme on Discord and other social media asked a Texas federal judge to sanction the government, saying that prosecutors had cherry-picked evidence to create exhibits that are misleading at best and inaccurate at worst. Memorandum attached | Read full article » <https://www.law360.com/legalethics/articles/1796700?nl_pk=153d4a8a-6fb9-4a5…> | Save to favorites » <https://www.law360.com/legalethics/articles/1796700?nl_pk=153d4a8a-6fb9-4a5…>

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Fired Wells Fargo Exec Nabs Partial Win In Retaliation Suit
by Gunnar Larson 14 Feb '24

14 Feb '24

Fired Wells Fargo Exec Nabs Partial Win In Retaliation Suit <https://www.law360.com/banking/articles/1797003?nl_pk=feb6bbba-7878-4d39-be…> By Sarah Jarvis A California magistrate judge on Monday granted a partial win to a former Wells Fargo executive who sued the bank for allegedly firing him because he was a whistleblower, rejecting arguments that the bank is preempted by a provision of the National Banking Act. Order attached | Read full article » <https://www.law360.com/banking/articles/1797003?nl_pk=feb6bbba-7878-4d39-be…> | Save to favorites » <https://www.law360.com/banking/articles/1797003?nl_pk=feb6bbba-7878-4d39-be…>

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European Private Banks Facing Cross-Border Investigations And Litigation: Practical Considerations - Financial Services - European Union
by Gunnar Larson 14 Feb '24

14 Feb '24

Subject: European Private Banks Facing Cross-Border Investigations And Litigation: Practical Considerations - Financial Services - European Union https://www.mondaq.com/france/financial-services/1422856/european-private-b… Private banks are a core piece of the European financial services landscape. While some of the largest operations are concentrated in Geneva, London, Paris, Luxembourg and Monaco, the industry has a strong presence in Belgium, Germany, Iberia, Italy, the Netherlands and the Nordics. A 2023 McKinsey study shows industry profits rose to a historic high of €22bn in 2022, largely driven by high value of assets under management (AUM) and a substantial increase in net interest margins. Growing operating and regulatory costs can make deep dents in profit margins, especially for smaller institutions, which may not benefit from the shared resources of a larger global banking network. This includes external adviser and operational expenses necessitated by growing enforcement actions by regulators and prosecutors on both sides of the Atlantic. European private banks are disproportionately exposed to higher anti-corruption, sanctions and anti-money laundering (AML) enforcement risks given that their global clientèle may include high and ultra-net worth individuals from higher-risk jurisdictions, including politically exposed persons (PEPs). Despite the growing enforcement risks, senior management and general counsel at private banking institutions often do not dispose of the same internal resources as large financial institutions (FIs). Thus, cross-border disputes and investigations must be conducted effectively to manage the costs that can escalate given the unique challenges caused by the complex interplay of sometimes conflicting legal frameworks, as well as the cultural and linguistic differences evident across different jurisdictions. Mobilising the right internal resources and partnering with external advisers with multijurisdictional capabilities and a deep knowledge of the industry is therefore essential. Here are some of the key high-level considerations for senior management and general counsel at European private banks facing a cross-border litigation or investigation. Understanding the legal frameworks in each country It is important that FIs' legal teams familiarise themselves with the legal systems of the countries involved in the cross-border investigation or litigation, including differences in banking secrecy, data privacy laws, employment laws, evidence gathering procedures, enforcement mechanisms, applicable international treaties and penalties for non-compliance with foreign procedures. This is particularly important where a private bank in a European civil law jurisdiction may be unfamiliar with its obligations under common law jurisdictions, most notably in the US. Working with external legal advisers with prior experience in these issues is critical to understanding the overall impact of applicable regulations, best practices of similarly situated institutions, and key risks. Effective resource allocation Understanding and planning each phase of the cross-border litigation or investigation in advance can help conserve limited resources and provide senior management with visibility into potential costs. For instance, more restrictive legal obligations in some jurisdictions may necessitate greater attention and effort to collect, redact and transfer relevant information. External counsel and electronic discovery providers with expertise in cross-border litigation can help anticipate the various stages of the proceedings and suggest potential economies. Comparing the potential exposure against the potential cost of litigation or investigation may also inform management's decision to explore an early settlement. In matters involving historic facts, conducting initial interviews with witnesses and key personnel with knowledge of historic IT and human resources systems can allow the bank to take a more surgical approach in identifying and collecting data, thereby reducing data hosting and treatment costs during the life of the project. Respecting banking secrecy Financial centres in Europe have some of the strongest banking secrecy laws protecting confidential information, with no uniform rules that apply across the entire continent. Most European countries have also implemented measures to enhance financial transparency and combat tax evasion and money laundering, in line with international standards. Care must be taken in the context of cross-border litigation and investigations, to ensure that applicable banking secrecy laws are respected, especially where any documents may be produced as evidence in foreign legal proceedings. It is equally important to understand how local law in each jurisdiction defines confidential information that is subject to banking secrecy. Typically, confidential information must be entrusted, recorded, inferred or learned from third parties or more generally be of a secret nature. It must have been received in a professional capacity, it must not be known to the public, and it must be sufficiently specific. Confidential information subject to banking secrecy would typically be redacted prior to transfer, unless consents are obtained from the relevant parties, or a regulatory exception allows such information to be transferred abroad without redactions. Failure to respect banking secrecy obligations in cross-border proceedings may result in both civil as well as criminal sanctions, as well as potential exposure to civil litigation. Disciplinary sanctions from European banking regulators can range from reprimands to warnings and prohibition from conducting certain operations, in addition to financial penalties and reputational harm. Respecting data privacy and protection obligations With the growth of European data privacy obligations, compliance with data protection laws and regulations in each jurisdiction impacted by the cross-border dispute or investigation is essential. Private banks must develop strategies to handle and transfer sensitive information securely, while complying with applicable local legislation, including the General Data Protection Regulation (GDPR). In some instances, employee or third-party consents may be necessary, absent which certain information may need to be redacted, unless a special exception in applicable legislation (such as necessary for legal defence) can be invoked. As with banking secrecy, failure to comply may result in significant monetary penalties. Coordination with local regulatory authorities Contact with local authorities may be advisable, especially in countries where certain public entities may be dedicated in assisting companies faced with cross-border litigation and investigation involving transfer of evidence or sensitive information covered by a blocking statute. Prior authorisation from or notice to such authorities may be required, and building in time for that process is needed to avoid unnecessary delays. In some instances, a letter of support recalling obligations and constraints of national law from the concerned authority may be needed, for submission to a foreign jurisdiction which may not be otherwise amenable to redactions of certain information pursuant to local law. Authorities in certain European jurisdictions routinely provide such letters in support of entities operating in their jurisdictions facing US proceedings, and establishing a channel of communications with the authorities is key. Engaging an external advisory team Lawyers from both local and foreign jurisdictions must work as a team to assist the bank in understanding its obligations, and navigate the intricacies of local laws, especially when there are potential conflicts or ambiguity on the ability to disclose information across borders. Cross-border investigations and disputes attorneys in Europe who are admitted to the bars of multiple jurisdictions and have linguistic capabilities can function more effectively in this space. Similarly, selecting an e-discovery vendor with experience in handling knowledge of European banking secrecy and data privacy restrictions in production of large volumes of documents to jurisdictions abroad is important. In general, partnering with external advisers who already understand the private bank's operations can be helpful in hitting the ground running. Managing documentation and record-keeping European private banks are typically subject to existing record-keeping requirements, which can vary according to the type of record. Once a cross-border investigation or litigation begins, banks must ensure potentially relevant data is not purged in the ordinary course of business, as it could expose the bank to enforcement actions abroad. Any purges of non-relevant data must be meticulously documented with a clear audit trail, to anticipate potential challenges to the preservation practice in place. Considering whistleblower protections When conducting internal investigations locally that may involve transfer of information abroad, the impact of any European whistleblower protection laws should be considered, which may restrict how certain information gathered from a whistleblower may be treated, as well as ensuring the confidentiality of the whistleblower. Early involvement of external counsel can also prevent the misuse of information gathered from whistleblowers. Considering technology and cyber security Some European private banking institutions may often deal with sensitive high-profile clients. The unintended loss or theft of such sensitive client data in the context of a cross-border investigation and litigation, where multiple external third parties may be accessing the data, is a real risk that can cause reputational harm as well as expose the bank to further litigation from clients. It is important to ensure that robust cyber security measures are in place to protect sensitive information and ensure that technology solutions comply with local regulations. In many cases, dedicated on-site servers can be installed, thereby restricting the flow of data from the bank's workspace and transiting through multiple third-party networks, where the risk of data loss is higher. Cultural sensitivity and language Language issues come up immediately in any cross-border investigation, from review of underlying documents and interviewing witnesses to dealing with local employees and regulators. Recognising and respecting cultural differences is crucial, as they can impact the way investigations are conducted and perceived in different countries. Given a wave of US enforcement actions in some European jurisdictions, employees at private banks are often sensitive to requests from external advisers in the context of cross-border disputes and investigations and are wary of being potentially implicated in foreign proceedings. Engaging multilingual external counsel with prior experience in conducting investigations in the jurisdiction with witnesses in their native language and with sensitivity to local culture is therefore crucial to ensuring necessary cooperation. When documents are being produced abroad, managing translation costs can become a challenge. E-discovery vendors can often propose more cost-effective AI-driven translation tools that may reduce document review expenses. Confidentiality and communication strategy Assurance of confidentiality is a key driver of the European private banking business, so efforts must always be made to ensure that any external communication is sensitive to potential reputational risks. As the cross-border litigation or investigation progresses, it may be necessary to develop a clear and consistent communication strategy to manage the associated reputational risks. Once the cross-border dispute or investigation is made public or once it ends, certain communication may be necessary to investors (where such entities are part of a publicly traded parent institution) and other stakeholders, that must similarly respect all applicable laws. Finally, at various points in the investigation or cross-border dispute, confidential communications to local regulators on ongoing findings may be necessary under applicable banking supervision laws. Originally published by Financier Worldwide.

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PayPal Stock Falls on Downgrade. There’s Question Marks Around Growth. | Barron's
by Gunnar Larson 14 Feb '24

14 Feb '24

https://www.barrons.com/articles/paypal-stock-pypl-downgrade-5a0a43b7 PayPal Holdings stock dropped Tuesday, one day after it lost a bull who cited concerns over the payments company’s growth trajectory. Daiwa Capital Markets analyst Kazuya Nishimura downgraded shares to the equivalent of Neutral from Outperform, cut his price target to $62 from $64 and lowered forecasts in a Monday report. “It is difficult...

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Edward Snowden Says He's Watching The Bitcoin Chart While Everyone Else Is Glued To The Super Bowl Game - Benzinga
by Gunnar Larson 14 Feb '24

14 Feb '24

https://www.benzinga.com/markets/cryptocurrency/24/02/37062117/edward-snowd… Earlier in January, Snowden had made comments targeting Jamie Dimon, the CEO of JP Morgan, following the approval of a Bitcoin ETF by the Securities and Exchange Commission (SEC). His tweet read, “Wild how the SEC approving a Bitcoin ETF was all it took to transform the CEO of JPMorgan from the King of Money into that guy who spends one half of every interview insisting "I don't care about Bitcoin," and the other half sobbing that it stole his wife and shot his dog.”

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