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Tag: Corporate crime

  • J&J Can’t Use Bankruptcy to Resolve Talc-Injury Lawsuits, Appeals Court Rules

    J&J Can’t Use Bankruptcy to Resolve Talc-Injury Lawsuits, Appeals Court Rules

    A federal appeals court rejected Johnson & Johnson ‘s plan to use a legal strategy to push about 38,000 talc lawsuits into bankruptcy court, hampering the controversial tactic the company and a handful of other profitable businesses have used to move mass personal-injury cases to chapter 11.

    The Third U.S. Circuit Court of Appeals on Monday dismissed the chapter 11 case of J&J subsidiary LTL Management LLC, which the consumer-health-goods giant created in 2021 to move to bankruptcy court the mass lawsuits alleging its talc-based baby powder products caused cancer.

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  • AT&T stock moves higher after earnings as subscriber growth story continues

    AT&T stock moves higher after earnings as subscriber growth story continues

    Shares of AT&T Inc. were rising in premarket trading Wednesday after the company swung to a loss upon taking restructuring charges, but beat earnings expectations on an adjusted basis and showed continued subscriber growth in its fourth quarter.

    The company posted a loss from continuing operations of $23.1 billion, or $3.20 a share, whereas it earned $5.2 billion, or 66 cents a share, a year-earlier. The loss includes $3.57 cents a share of non-cash impairment, abandonment, and restructuring charges, among other factors.

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  • Elon Musk says ‘funding secured’ tweets were a way to ‘do the right thing’

    Elon Musk says ‘funding secured’ tweets were a way to ‘do the right thing’

    Tesla Inc. Chief Executive Elon Musk on Tuesday told a San Francisco jury that “funding secured” and other tweets he fired off as he considered taking the EV maker private were a way to “do the right thing.”

    Musk was in his third day of testimony in a federal trial over alleged investor losses caused by the tweets.

    The billionaire said he…

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  • Feds poised to file another antitrust suit against Google this week: report

    Feds poised to file another antitrust suit against Google this week: report

    The U.S. Justice Department is preparing to sue Alphabet Inc. in the coming days over its dominance in the online ad market, according to a report late Monday.

    Citing sources familiar with the matter, Bloomberg News reported the antitrust suit is expected to be filed in federal court before the end of this week, and as soon as Tuesday.

    The pending filing has been rumored for months, after the Justice Department reportedly rejected concessions offered by Google last summer. A Google spokesperson declined to comment Monday.

    Google dominates the online ad market, earning more than one-quarter of U.S. digital-advertising revenue, according to estimates from research firm Insider Intelligence Inc.

    It would be the second antitrust suit filed by the Justice Department against Google parent Alphabet. In October 2020, the DOJ accused Google of being “a monopolist in the general search services, search advertising, and general search text advertising markets.” In a 2020 blog post, Google called that suit “deeply flawed” and said people use Google because they choose to, not because they are forced to. That case is set for trial in the fall.

    Alphabet faces a number of other lawsuits targeting its business practices, including a $16.3 billion class-action suit filed in the U.K. in November accusing the tech giant of reaping “super profits” at the expense of thousands of smaller companies. Google called that lawsuit “speculative and opportunistic.”

    Alphabet’s Class A shares
    GOOGL,
    +1.81%

    are down 24% over the past 12 months while its Class C shares
    GOOG,
    +1.94%

    have fallen about 22%, compared to the S&P 500’s
    SPX,
    +1.19%

    9% dip over the past year. Both classes of Alphabet shares dipped nearly 1% in after-hours trading Monday after the Bloomberg report was published.

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  • Why naked short selling has suddenly become a hot topic

    Why naked short selling has suddenly become a hot topic

    Short selling can be controversial, especially among management teams of companies whose stocks traders are betting that their prices will fall. And a new spike in alleged “naked short selling” among microcap stocks is making several management teams angry enough to threaten legal action:

    Taking a long position means buying a stock and holding it, hoping the price will go up.

    Shorting, or short selling, is when an investor borrows shares and immediately sells them, hoping he or she can buy them again later at a lower price, return them to the lender and pocket the difference.

    Covering is when an investor with a short position buys the stock again to close a short position and return the shares to the lender.

    If you take a long position, you might lose all your money. A stock can go to zero if a company goes bankrupt. But a short position is riskier. If the share price rises steadily after an investor has placed a short trade, the investor is sitting on an unrealized capital loss. This is why short selling traditionally has been dominated by professional investors who base this type of trade on heavy research and conviction.

    Read: Short sellers are not evil, but they are misunderstood

    Brokers require short sellers to qualify for margin accounts. A broker faces credit exposure to an investor if a stock that has been shorted begins to rise instead of going down. Depending on how high the price rises, the broker will demand more collateral from the investor. The investor may eventually have to cover and close the short with a loss, if the stock rises too much.

    And that type of activity can lead to a short squeeze if many short sellers are surprised at the same time. A short squeeze can send a share price through the roof temporarily.

    Short squeezes helped feed the meme-stock craze of 2021 that sent shares of GameStop Corp.
    GME,
    +10.45%

    and AMC Entertainment Holdings Inc.
    AMC,
    +2.54%

    soaring early in 2021. Some traders communicating through the Reddit WallStreetBets channel and in other social media worked together to try to force short squeezes in stocks of troubled companies that had been heavily shorted. The action sent shares of GameStop soaring from $4.82 at the end of 2020 to a closing high of $86.88 on Jan. 27, 2021, only for the stock to fall to $10.15 on Feb. 19, 2021, as the seesaw action continued for this and other meme stocks.

    Naked shorting

    Let’s say you were convinced that a company was headed toward financial difficulties or even bankruptcy, but its shares were still trading at a value you considered to be significant. If the shares were highly liquid, you would be able to borrow them through your broker for little or almost no cost, to set up your short trade.

    But if many other investors were shorting the stock, there would be fewer shares available for borrowing. Then your broker would charge a higher fee based on supply and demand.

    For example, according to data provided by FactSet on Jan. 23, 22.7% of GameStop’s shares available for trading were sold short — a figure that could be up to two weeks out-of-date, according to the financial data provider.

    According to Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF
    HDGE,
    -2.65%
    ,
    the cost of borrowing shares of GameStop on Jan. 23 was an annualized 15.5%. That cost increases a short seller’s risk.

    What if you wanted to short a stock that had even heavier short interest than GameStop? Lamensdorf said on Jan. 23 that there were no shares available to borrow for Carvana Co.
    CVNA,
    +10.63%
    ,
    Bed Bath & Beyond Inc.
    BBBY,
    -12.24%
    ,
    Beyond Meat Inc.
    BYND,
    +11.31%

    or Coinbase Global Inc.
    COIN,
    +1.45%
    .
    If you wanted to short AMC shares, you would pay an annual fee of 85.17% to borrow the shares.

    Starting last week, and flowing into this week, management teams at several companies with microcap stocks (with market capitalizations below $100 million) said they were investigating naked short selling — short selling without actually borrowing the shares.

    This brings us to three more terms:

    A short-locate is a service a short seller requests from a broker. The broker finds shares for the short seller to borrow.

    A natural locate is needed to make a “proper” short-sale, according to Moshe Hurwitz, who recently launched Blue Zen Capital Management in Atlanta to specialize in short selling. The broker gives you a price to borrow shares and places the actual shares in your account. You can then short them if you want to.

    A nonnatural locate is “when the broker gives you shares they do not have,” according to Hurwitz.

    When asked if a nonnatural locate would constitute fraud, Hurwitz said “yes.”

    How is naked short selling possible? According to Hurwitz, “it is incumbent on the brokers” to stop placing borrowed shares in customer accounts when supplies of shares are depleted. But he added that some brokers, even in the U.S., lend out the same shares multiple times, because it is lucrative.

    “The reason they do it is when it comes time to settle, to deliver, they are banking on the fact that most of those people are day traders, so there would be enough shares to deliver.”

    Hurwitz cautioned that the current round of complaints about naked short selling wasn’t unusual and even though short selling activity can push a stock’s price down momentarily, “short sellers are buyers in waiting.” They will eventually buy when they cover their short positions.

    “But to really push a stock price down, you need long investors to sell,” he said.

    Different action that can appear to be naked shorting

    Lamensdorf said the illegal naked shorting that Verb Technology Co.
    VERB,
    +69.65%
    ,
    Genius Group Ltd.
    GNS,
    +45.37%

    and other microcap companies have been recently complaining about might include activity that isn’t illegal.

    An investor looking to short a stock for which shares weren’t available to borrow, or for which the cost to borrow shares was too high, might enter into “swap transactions or sophisticated over-the-counter derivative transactions,” to bet against the stock,” he said.

    This type of trader would be “pretty sophisticated,” Lamensdorf said. He added that brokers typically have account minimums ranging from $25 million to $50 million for investors making this type of trade. This would mean the trader was likely to be “a decent-sized family office or a fund, with decent liquidity,” he said.

    Don’t miss: This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount

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  • Elon Musk tells court Saudi Arabia wanted to take Tesla private; $420 ‘not a joke’

    Elon Musk tells court Saudi Arabia wanted to take Tesla private; $420 ‘not a joke’

    Elon Musk testified Monday he believed he had funding secured to take Tesla Inc. private, both from a Saudi Arabia investment fund and from his stake in SpaceX.

    The Tesla chief executive resumed testimony in a federal trial in San Francisco over investor losses allegedly caused by tweets he fired off in 2018, including his “funding secured” tweet.

    Representatives of Saudi Arabia’s investment fund “were unequivocal about moving forward,” Musk said. He also mentioned his large stake in privately held aerospace company SpaceX, and that “alone meant funding was secured.”

    Tesla
    TSLA,
    +8.48%

    stock added to gains as Musk’s testimony got underway, and at last check was up nearly 8% and far outperforming the broader equity indexes.

    The stock traded as high as $143.50, its highest intraday since Dec. 20, and was on pace to close at its best since that date.

    The CEO told the court that the $420-a-share price on the deal “was a coincidence” as it was roughly a 20% premium over Tesla’s stock price at the time, and “not a joke.”

    In certain circles, the number 420 refers to marijuana use.

    Lead defense lawyer Nicholas Porritt also asked several questions that led Musk to say he hadn’t talked to major Tesla shareholders such as Baillie Gifford and T. Rowe Price about possibly taking Tesla private. Musk also said he couldn’t recall specifics around speaking with the board about the plan.

    Firing off the now famous “funding secured” was a way to stay ahead of a soon-to-be-run Financial Times story about the Saudi fund taking a large stake at Tesla and as a way to keep all Tesla investors informed, Musk said. Moreover, he tweeted that he was “considering” the move, “not saying that it would be done,” Musk told the court.

    Musk gave brief testimony Friday before the court adjourned for the day, taking pains to make clear that his tweets are not always taken to the letter. The trial started last week and it is expected to go into February.

    “Just because I tweet something, it does not mean people believe it, or act accordingly,” Musk said on Friday to a defense attorney.

    The trial revolves around Musk’s tweets from August 2018, including one where he told his millions of Twitter followers he was “considering taking Tesla private at $420” and then added “funding secured.” The plan later fizzled out.

    Investor Glen Littleton, the lead plaintiff in the case, alleges he lost money due to the false tweets and is seeking damages.

    U.S. District Judge Edward Chen already has ruled that Musk’s tweets about taking Tesla private were not true and that Musk acted with recklessness.

    It is still up to jurors to decide, however, if the tweets were material to investors and if the falsehoods caused investor losses.

    The CEO and Tesla each were fined $20 million in September 2018 to settle civil charges around the “funding secured” tweets and Musk was stripped of his chairman role at Tesla.

    Musk and Tesla agreed to settle the charges against them without admitting to nor denying the SEC’s allegations.

    Musk’s bid to end the SEC settlement deal over the Tesla tweets was denied last year.

    Tesla shares have lost 55% in the past 12 months, compared with losses of around 9% for the S&P 500 index.
    SPX,
    +1.58%

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  • Genius Group CEO on why his company is fighting back against naked short sellers — and it’s not alone

    Genius Group CEO on why his company is fighting back against naked short sellers — and it’s not alone

    “It’s like being robbed in a library, but you can’t shout ‘Thief!’ because there are ‘Silence, please’ signs everywhere.”

    That’s how Roger Hamilton, chief executive of Genius Group Ltd.
    GNS,
    +55.02%
    ,
    describes the powerlessness he feels as U.S. securities rules prevent him from discussing his company’s share price, even as it comes under attack from a group of naked short sellers.

    The Singapore-based education company on Thursday announced it had appointed a former FBI director to lead a task force investigating alleged illegal trading in its stock that it first addressed in early January. 

    For context: Genius Group stock rallies more than 200% after it appoints former F.B.I. director to investigate alleged naked short selling

    The news sent the stock up a record 290% on Thursday, and it climbed another 59% on Friday. Volume of about 270 million shares traded in Thursday’s session crushed the daily average of about 634,000 — another indicator, Hamilton told MarketWatch in an interview Friday, of wrongdoing, given that the company’s float is just 10.9 million shares. “Clearly, that’s far more shares than we created,” he said.

    Genius Group has evidence from Warshaw Burstein LLP and Christian Levine Law Group, with tracking from Share Intel, that certain individuals and/or companies sold but failed to deliver a “significant” amount of its shares as part of a scheme seeking to artificially depress the stock price.

    The company is now exploring legal action and is planning an extraordinary general meeting in the coming weeks to get shareholder approval for its planned actions. These include paying a special dividend as a way to flush out bad actors and working with regulators to share information.

    Share Intel uses tracking software in real time to determine exactly where there are discrepancies in the market and where brokers are opening large positions, Hamilton said. The software can measure the number of shares that are being naked shorted and has found multiple instances where significant amounts of fake shares were being created, said Hamilton.

    Naked short selling is illegal under Securities and Exchange Commission rules, but that hasn’t stopped the practice, which Hamilton said affects far more companies than is generally known.

    In regular short trading, an investor borrows shares from someone else, then sells them and waits for the stock price to fall. When that happens the shares are bought cheaper and returned to the prior owner, with the short seller pocketing the difference as profit.

    In naked short selling, investors don’t bother borrowing the stock first and simply sell shares with a promise to deliver them at a later date. When that promise is not fulfilled, it’s known as failure to deliver.

    By repeating that process again and again, bad actors can generate massive profits and manipulate a stock’s price lower, with an ultimate goal of driving a company to bankruptcy, at which point all the equity is wiped out and the naked shorts no longer need to be covered.

    Hamilton said the evidence gathered by Genius Group shows a great deal of the illegal activity is happening on U.S. exchanges, but there’s also activity happening off-exchange and involving dark pools.

    The company is fighting back “because we want this to stop,” Hamilton told MarketWatch. “They’re taking value away from our shareholders. They’re predators. They’re doing something illegal, and we want it to stop, whether that means getting regulators to enforce existing regulations or put new ones in place.”

    Public companies have to have committees to monitor and report internal fraud to protect shareholders, he said. But there is no such team looking for external fraud and many retail investors see stocks being manipulated, he said.

    “Hopefully, regulations will change and regulators will see there are as many, if not more, threats from outside a company,” he said.

    Genius Group is not alone, said Hamilton. He cited among other examples Torchlight, an oil- and gas-exploration company that decided to merge with Metamaterial Inc. to thwart a naked-short-selling attack.

    The stock rose from 30 cents to $11 in the six months after the deal was completed, and the company was able to raise about $183 million through a combination of convertible debt and equity. An interview Hamilton conducted with Torchlight’s former CEO, John Brda, can be found below.

    Then there’s Jeremy Frommer, CEO of Creatd Inc.
    CRTD,
    +4.14%
    ,
    which aims to unlock creativity for creators, brands and consumers, who is behind Ceobloc, a website that aims to end the practice of naked short selling.

    “Illegal naked short selling is the biggest risk to the health of today’s public markets,” is how the site introduces its mission.

    On Friday, the stock of Helbiz Inc.
    HLBZ,
    +65.48%

    joined Genius Group in rocketing higher in high volume, after that company said it, too, was taking on naked short sellers.

    The New York–based maker of e-scooters and e-bicyles said that it was following Genius Group’s example and that it believes “certain individuals and/or companies may have engaged in illegal short selling practices that have artificially depressed the stock price.” The stock had plummeted 64% over the three months through Thursday’s close at 12.31 cents.

    Genius Group’s stock, which went public in April 2022 at $6 a share, has gained more than 600% this week. The S&P 500
    SPX,
    +1.89%

    has gained 1.1% over the same four trading sessions.

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  • Genius Group stock rallies more than 200% after it appoints former F.B.I. director to investigate alleged naked short selling

    Genius Group stock rallies more than 200% after it appoints former F.B.I. director to investigate alleged naked short selling

    The stock of a Singapore-based ed-tech and education company called Genius Group Ltd. rallied more than 200% on Thursday, after it said it appointed a former F.B.I. director to lead a task force investigating alleged illegal trading in its stock that it first disclosed in early January. 

    The stock was last up 264% to mark its biggest-ever one-day percentage gain. Volume of 197.76 million shares traded crushed the 65-day average of just 634,17. Genius Group
    GNS,
    +290.29%

    also said it would issue a special dividend to shareholders to help expose the wrongdoing and is considering a dual listing that would make illegal naked short selling more difficult.

     The task force will be led by Timothy Murphy, a former deputy director of the F.B.I. who is also on the board. It will include Richard Berman, also a Genius Group Director and chair of the company’s Audit Committee, and Roger Hamilton, the chief executive officer of Genius Group.

    “The company has been in communication with government regulatory authorities and is sharing information with these authorities to assist them,” the company said in a statement.

    Genius Group said it has proof from Warshaw Burstein LLP and Christian Levine Law Group, with tracking from Share Intel, that certain individual and/or companies sold but failed to deliver a “significant” amount of its shares as part of a scheme seeking to artificially depress the stock price.

    It will now explore legal action and will hold an extraordinary general meeting in the coming weeks to get shareholder approval for its planned actions.

    On the Genius website, Hamilton explains what the company, which went public in 2022, thinks happened.

    Genius’ IPO priced at $6 a share in April of 2022, he wrote in a blog. The company, which aims to develop an entrepreneur education system, then completed five acquisitions of education companies to build out its portfolio and reported more than 60% growth in its last earnings report.

    Analysts at Diamond Equity assigned it an $11.28 stock price target, while Zacks assigned it a $19.20 stock price target.

    “By all measures, we believed we were doing all the right things to justify a rising share price,” said Hamilton.

    The company then announced two funding rounds totaling $40 million to grow its balance sheet to more than $60 million, yet its stock fell to under 40 cents, or less than 25% of the cash raised and less than 20% of its net assets.

    “This didn’t happen gradually,” the executive wrote. “It happened in two month intervals from our IPO, in June, August, October and December. Each time, over a period of a few days, massive selling volume that was a multiple of our float (As most of our shares are on lock up, only around 4 million are tradeable) was sold into the market, making our share price drop by 50% or more.”

    The company has since drawn on Wes Christian, a short-selling litigator from Christian Levine Law Group, who has helped it understand how naked short selling works, and then Share Intel helped find the proof that that’s what has happened.

    Individuals or groups get together and sell shares in a target company that they don’t own, with the aim of getting the share price to fall 50% in a short period. They use small-cap firms that have low buying volume, allowing them to scare off buyers.

    “The broker doesn’t bother to find shares to borrow,” said Hamilton. “They simply sell shares they don’t have and after a few days book them as FTDs (failure to deliver) or hide them as long sales instead of short sales. The people who bought the shares have no idea they bought a fake share, and suddenly there’s plenty more shares in the market than there should be.”

    If these groups sell 6 million shares from $12 to $6 each, and then buy back over two months at under $6, they double their money. That allows them to make up to $30 million out of thin air. They can then repeat the whole process a few months later.

     “If they don’t buy back all the shares, they simply leave them as FTDs or hide them in offshore accounts,” he wrote. “At no point do they need to put up any cash to make this happen, as they’re making money from the moment they start selling fake shares.”

    The ultimate goal is to push a company into bankruptcy, where the equity will be wiped out, meaning they never have to cover the short position on the fake shares.

    By issuing a special dividend, Genius is hoping to find who is responsible, as all brokers are forced to disclose to the Depository Trust & Clearing Corp. (DTCC) how many shares their clients hold and how many dividends will be paid. Theoretically, that should expose the oversold shares and dishonest brokers will be forced to cover their position, said Hamilton.

    In practice, dishonest brokers will not declare the fake shares and just pay the dividend out of their own pockets.

    “If you issue a dividend that isn’t straight cash—such as a spinoff of a company so you are issuing shares, or a blockchain based asset, then the brokers can’t do that are a forced to either cover or be exposed,” he wrote.

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  • Crypto lender Genesis latest to file for bankruptcy as crypto contagion continues to spread

    Crypto lender Genesis latest to file for bankruptcy as crypto contagion continues to spread

    Embattled crypto lender Genesis announced that it had filed for bankruptcy late Thursday, the latest firm to be taken amid a widespread rout among crypto companies driven by plunging prices and charges of fraud at major players like FTX.

    Genesis, which froze customer withdrawals in November following the collapse of FTX, filed for Chapter 11 bankruptcy protection in federal court in Manhattan for its lending units, saying it was the best way for it to achieve “an optimal outcome for Genesis clients.”

    “While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim, Genesis’ interim chief executive, in a statement on the company’s website.

    According to its bankruptcy filing, Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion and had over 100,000 creditors. The firm said it had about $150 million in cash on hand to support its operations during restructuring.

    Among those creditors is Gemini, the crypto exchange founded by twin brothers Cameron and Tyler Winklevoss in 2014, that had $900 million of its customers’ money tied up with Genesis.

    Genesis was the main partner of Gemini’s “earn” program, in which its retail investors received payments for allowing their crypto assets to be loaned out to others. 

    Cameron Winklevoss welcomed Genesis’ bankruptcy filing, saying it would provide Gemini a better venue for getting its clients’ money back.

    “We will use every tool available to us in the bankruptcy court to maximize recovery for Earn users and any other parties within the bankruptcy court’s jurisdiction,” he wrote in a post on Twitter.

    Both Genesis and Gemini were charged by the Securities and Exchange Commission last week with illegally selling securities to investors through the Earn program. 

    Genesis and its parent company, Digital Currency Group, had said they were seeking outside investment to help bolster the books and pay customers back in the months before filing for bankruptcy.

    As part of its restructuring, Genesis said it would seek to possibly sell the company and also continue to look for additional investment.

    Shares of bitcoin
    BTCUSD,
    +0.12%

    were little changed at just above $20,000. There have been some concerns that the announcement of another crypto bankruptcy could unravel a recent recovery for the No. 1 cryptocurrency, up 25% so far in 2023. That puts it back above levels seen before FTX imploded last November.

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  • SEC charges ex–McDonald’s CEO Easterbrook for making false statements relating to his 2019 ouster

    SEC charges ex–McDonald’s CEO Easterbrook for making false statements relating to his 2019 ouster

    The Securities and Exchange Commission said Monday it has filed charges against Stephen J. Easterbrook, former chief executive of McDonald’s Corp., for making “false and misleading” statements to investors about the circumstances that led to his ouster in November 2019.

    The agency has also filed charges against McDonald’s for “shortcomings” in its public disclosures relating to Easterbrook’s severance agreement.

    McDonald’s
    MCD,
    -0.55%

    fired Easterbrook for exercising poor judgment and violating company policy by engaging in an inappropriate personal relationship with a McDonald’s employee. However, the separation agreement struck with the executive concluded that his termination was without cause, allowing him to retain substantial equity compensation that would have been forfeited in other circumstances.

    “In making this conclusion, McDonald’s exercised discretion that was not disclosed to investors,” the SEC said in a statement.

    In July 2020, McDonald’s discovered in an internal probe that Easterbrook had engaged in other, undisclosed relationships with employees. Those findings were not disclosed prior to Easterbrook’s termination, in the knowledge that they would influence the board’s decision making, according to the SEC.

    “When corporate officers corrupt internal processes to manage their personal reputations or line their own pockets, they breach their fundamental duties to shareholders, who are entitled to transparency and fair dealing from executives,” said Gurbir S. Grewal, the SEC’s director of the division of enforcement. 

    The SEC is charging Easterbrook with violating anti-fraud provisions of the SEC Securities Act of 1933 and the Securities Exchange Act of 1934. Easterbrook has consented to a cease-and-desist order and five-year officer and director bar and a $400,000 civil penalty, without admitting to or denying the charges.

    McDonald’s is charged with violating section 14(a) of the Exchange Act and Exchange Act Rule 14a-3. The fast-food giant has consented to a cease-and-desist order, without admitting to or denying SEC findings. The SEC has opted not to fine the company, as it cooperated with the agency and clawed back compensation after its probe.

    The stock was slightly lower Monday in early trades.

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  • Sam Bankman-Fried Likely to Plead Not Guilty to Fraud Charges

    Sam Bankman-Fried Likely to Plead Not Guilty to Fraud Charges

    FTX founder Sam Bankman-Fried.


    David Dee Delgado/Getty Images

    FTX founder Sam Bankman-Fried is likely to plead not guilty to fraud and other charges at his arraignment next week, according to people familiar with the matter.

    The U.S. attorney’s office for the Southern District of New York earlier this month charged Mr. Bankman-Fried with engaging in criminal conduct that contributed to the cryptocurrency exchange’s collapse, alleging that he oversaw one of the biggest financial frauds in American history. Mr. Bankman-Fried is likely to appear in person in New York to enter his plea on Jan. 3, one of the people said.

    Before his arrest, Mr. Bankman-Fried blamed the loss of customer funds on sloppy record-keeping and a bank-account issue that allowed Alameda Research, an affiliated trading firm, to cover large losses with money destined for FTX. His not guilty plea was widely expected.

    Mr. Bankman-Fried stands at odds with his associates—Caroline Ellison, the former chief executive of Alameda Research, and Gary Wang, FTX’s former chief technology officer—who both pleaded guilty to criminal offenses similar to those Mr. Bankman-Fried was charged with. Both are cooperating with federal investigators.

    The collapse of FTX and its sister trading firm Alameda have rattled the nascent world of crypto. Prosecutors allege that Mr. Bankman-Fried took billions of dollars of FTX.com customer money to pay the expenses and debts of his trading firm Alameda Research. Both companies filed for bankruptcy last month. Individual traders who entrusted FTX with their crypto are likely facing lengthy bankruptcy proceedings before they have a chance at seeing any of their funds back.

    Read the rest of this article in The Wall Street Journal.

    Write to editors@barrons.com

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  • China Regulator Says Futu, Up Fintech Violated Laws

    China Regulator Says Futu, Up Fintech Violated Laws

    China Regulator Says Futu, Up Fintech Violated Laws

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  • Thriving network of fixers preys on migrants crossing Mexico

    Thriving network of fixers preys on migrants crossing Mexico

    TAPACHULA, Mexico — When migrants arrive to the main crossing point into southern Mexico — a steamy city with no job opportunities, a place packed with foreigners eager to keep moving north — they soon learn the only way to cut through the red tape and expedite what can be a monthslong process is to pay someone.

    With soaring numbers of people entering Mexico, a sprawling network of lawyers, fixers and middlemen has exploded in the country. At every step in a complicated process, opportunists are ready to provide documents or counsel to migrants who can afford to speed up the system — and who don’t want to risk their lives packed in a truck for a dangerous border crossing.

    In nearly two dozen interviews with The Associated Press, migrants, officials and those in the business described a network operating at the limit of legality, cooperating with — and sometimes bribing — bureaucrats in Mexico’s immigration sector, where corruption is deeply ingrained, and at times working directly with smugglers.

    Fixers have always found business with those passing through the country. But the increasing numbers over the last year and Mexico’s renewed efforts to control migration by accelerating document processing without clear criteria have made the work more prominent and profitable. The result is a booming business that often preys on a population of migrants who are largely poor, desperate and unable to turn elsewhere.

    Legal papers, freedom from detention, transit permits, temporary visas: All are available for a price via the network. But even though the documents are legal and the cost can be several hundred dollars or more, migrants are at risk of arrest or return to their entry point as they make their way through the country, thanks to inconsistent policy enforcement and corrupt officials at checkpoints.

    ———

    This story is part of the ongoing Associated Press series “Migration Inc,” which investigates individuals and companies that profit from the movement of people who flee violence and civil strife in their homelands.

    ———

    Crossing through Mexico — a country plagued by drug cartels that also make millions from migrant smuggling — has long been a risk. Legal, free channels that can mitigate danger have always been available through the government. That formal process usually involved requesting asylum, even when people simply wanted documents to move legally to the U.S border.

    But the record number of migrant arrivals has wreaked havoc on the system, particularly at offices in the south.

    In the fiscal year that ended Sept. 30, U.S. authorities apprehended people crossing the southwest border 2.38 million times. That’s up 37 percent from the year prior. The annual total surpassed 2 million for the first time in August and is more than twice the highest level during Donald Trump’s presidency, in 2019.

    With more people has come more waiting, desperation and protests. In response, more than a year ago, the Mexican government loosened criteria for some temporary and transit permits, especially for migrants from countries where it would be difficult for Mexico to return them.

    But with the influx of migrant arrivals, it takes months just to get an appointment to begin the process. Amid the waits and tension, it’s tempting to pay fixers and lawyers.

    And with the U.S. Supreme Court’s decision Tuesday allowing pandemic-era asylum restrictions to remain in place until it hears arguments in February, it was unclear what kind of effects might be felt by the thousands of migrants already making their way through Mexico to the U.S. border.

    In the south, migrants going to fixers can generally choose from different packages — transit permits, temporary visas — promoted on social media and adapted to various scenarios and budgets. Farther north, options are scarce, and paying specific operators may be the only way to get out of a detention center.

    Migrants rarely report questionable practices. Most assume their payments and time are part of the price of getting to the U.S. Even when corruption is reported, authorities seldom take action, citing lack of evidence.

    In December 2018, when President Andrés Manuel López Obrador took office, he said fighting corruption was a top priority. He declared the National Immigration Institute one of Mexico’s most corrupt institutions. Yet in the past four years, only about one in every 1,000 internal investigations opened by the agency made it to the prosecutor’s office, according to data obtained through freedom of information requests.

    The National Immigration Institute did not reply to multiple requests for comment about its efforts to combat corruption, and officials there refused to be interviewed. This month, the agency said it had followed up on every recommendation issued by the internal control office as part of its commitment in the fight against corruption.

    The lack of accountability has made it easy for fixers to operate and exchange payments and information with officials.

    The Federal Institute of Public Defenders has denounced arrangements between immigration agents and private lawyers. In response, some of its officials have been harassed and intimidated, according to the agency.

    “This is never going to end because there are many high-ranking officials involved who are receiving a lot of money,” said Mónica Vázquez, a public defender from Puebla, in central Mexico. She and her colleagues believe the situation is only getting worse.

    ———

    On a fall day in Tapachula, at the border with Guatemala, 100 migrants lined up outside immigration offices, hoping for documents to cross Mexico. They soon learn the free, government-sanctioned process can take months.

    Just a few blocks away, the same papers can arrive quickly — for a price.

    For one Dominican man, it took three days and $1,700 to get a permit to travel through Mexico, he told AP. He said a lawyer brought the government-issued transit document to a house where a smuggler took him after he crossed into Mexico.

    While waiting for the lawyer, he said he suddenly feared he’d been kidnapped — nobody told him how long it would take to get the documents and he was too afraid to ask. But once payment was transferred by a friend in the U.S., papers arrived and he took a bus to Mexico City, he said.

    The man spoke with AP several times before leaving Tapachula, on condition of anonymity to remain safe as he traveled north. He refused to give other details for fear of retaliation. One of his relatives confirmed to AP that he has since managed to cross into the United States and lives there now.

    He and others who travel through the country use “safe-passage” permits — the common term for some temporary documents issued by the Mexican government. Most allow the holder to leave the country through any border, including the one with the U.S.

    Lawyers and brokers advertise prices for various safe-passage papers largely via WhatsApp messages. In one such message seen by AP, options ranged from $250 paid in Mexican currency for a simple document allowing transit to $1,100 in U.S. money for more sophisticated humanitarian visas, printed with a photo and fingerprint, for temporary legal stays in Mexico.

    The broker who sent the message guarantees the papers are real government-issued documents, not forgeries. He showed AP the message on condition of anonymity because of the illegal nature of some of the work and fears for his safety and livelihood.

    Much of the money goes toward paying officials at the National Immigration Institute, according to the broker. A lawyer who independently spoke with AP confirmed details about bribes. He also spoke on condition of anonymity to protect his business and avoid legal issues.

    The lawyer said additional costs are added for middlemen — those who set up the accounts where migrants’ family or friends send payments for documents, for example.

    The immigration agency did not answer AP’s requests for comment. In previous statements, it has said officials try to avoid bribery and corruption by installing surveillance cameras in offices and encouraging people to report problems.

    The broker who spoke with AP said his contact at the National Immigration Institute is a senior official who always comes through with documents, except when transactions freeze temporarily — often when the agency is in the spotlight or in the middle of political tensions. The broker did not identify his contact to AP.

    He told AP he deals mainly with Cubans who spread the word of his services to friends and family. With his growth in earnings, he said, he decided to set up an apartment to accommodate some migrants while they wait, charging $50 a week.

    The lawyer described to AP another way to get migrants legal status in Mexico: buying a crime report from a prosecutor’s office, which can open the door to the humanitarian visa.

    Any foreigner who has been the victim of a crime is eligible to seek such a visa under Mexican law. Over the years, thousands of migrants have been kidnapped, extorted or raped while crossing Mexico. Formal complaints, however, were rare, due to fear and distrust of authorities.

    But now, reports of crime are up, along with hopes of visas.

    In all of 2021, fewer than 3,000 migrants — mostly Central Americans — reported crimes and successfully obtained humanitarian visas in Mexico. In the first 11 months of 2022, there were more than 20,000, with Cubans constituting 82%.

    Some public defenders and others in Mexico find the increase suspicious and fear some crime reports are being purchased to obtain visas. By paying someone for a report, migrants bypass the formal process of authorities requesting details and evidence.

    Juan Carlos Custodio, a public defender in Tapachula, found more than 200 Cubans processing visas as crime victims in immigration offices in nearby Huixtla one September day he dropped by for paperwork.

    He said he was surprised, so he asked some for details of the crimes and their situations. “They didn’t want to tell me,” he said. He and some colleagues fear a rise in false complaints will hamper the process for true victims.

    Asked by AP, the Chiapas state prosecutor’s office said one official was dismissed in July and an investigation was recently opened into the sale of crime reports. The office wouldn’t comment further.

    ——

    Mexico’s administration says the fight against corruption is at the top of its agenda, but few changes have come at the National Immigration Institute, especially as the flow of migrants grows.

    Generally, when there’s an allegation of corruption, immigration officials demand that employee’s resignation or simply do not renew the contract, since most are temporary workers, according to a federal official who insisted upon anonymity because the official was not authorized to speak to AP.

    Tonatiuh Guillen, who led the immigration agency at the beginning of President Andrés Manuel López Obrador’s term, said in an interview with AP that he asked for the resignation of some 400 officials suspected of wrongdoing. He said he found it the fastest way to tackle the problem given that a single investigation could take years. After he left in June 2019, some of those he asked to resign were rehired, he said.

    Of more than 5,000 internal investigations opened since 2019, five made it to prosecutors by mid-2022, data obtained through AP’s records requests show.

    There is conflicting information on how many officials have been sanctioned in that period. In December, the federal government in its freedom of information portal listed 16 officials, with no other details. But according to the agency’s internal audit office, 308 officials were suspended through August. When the immigration agency was asked directly, via freedom of information requests, it said it was just one.

    Guillén said that by the time he left, he’d already detected “widespread and worrying” practices of many middlemen and lawyers, but he said the problem could be addressed only by changing the law to eliminate its gray areas.

    After Guillén’s departure, the agency began putting retired military officers in charge of many of its state delegations — a move human rights groups criticized.

    Andrés Ramírez, chief of the Mexican Commission for Refugee Aid, the government’s agency responsible for asylum seekers and refugees, said corrupt practices such as selling documents have been on the rise since last year. At that time, he said, his office was “on the verge of collapse” after receiving 130,000 asylum applications in 2021, four times that of 2018.

    Last April, the sale of documents inside the COMAR office in Tapachula became the subject of an investigation when two complaints were filed with the Chiapas state prosecutor’s office. Four officials left the agency; the investigation is ongoing.

    Ramírez said anyone else implicated will be fired.

    “Zero tolerance,” he said in an interview with AP. “It is awful. How is it possible that people under international protection can suffer those criminal abuses from officials charged with protecting them?”

    ——

    Even when migrants buy travel documents or visas, they aren’t guaranteed safe transit. The papers may be disregarded or destroyed by the very agency that issued them.

    A 37-year-old Cuban man who spoke on condition of anonymity to protect himself and others who may be traveling through Mexico described buying his documents last year in Tapachula for $1,800, including transportation to the U.S. border.

    A few days later, he was arrested, he said, as immigration agents boarded the bus he and other migrants were traveling on when it stopped at a gas station in Puebla. He described the agents tearing up safe-passage documents.

    When he reached the immigration detention center, he said, an official told him the way things worked there: He could pay the man $1,500 to get out and be put on a bus to the border.

    The man said he refused and went on hunger strike with others. Through the intervention of United Nations officials who visited, he contacted public defender Vázquez, who helped get him released.

    The Federal Institute of Public Defenders has long complained about the way immigration agents in Puebla work. They have alleged in complaints to the National Human Rights Commission that immigration officials are working in collusion with a private law firm at the expense of migrants’ rights.

    Vázquez says the firm is run by Claudia Ibeth Espinoza, whose services are advertised on large signs in front of the Puebla center. According to Vázquez and others, firm lawyers have privileged access not only to the detention center, but also to the lists of recently detained migrants before they arrive, so they can offer their services as the only alternative to languishing for months inside.

    Espinoza denied the allegations and any wrongdoing in an interview with AP. She said she hadn’t received privileges or special treatment from immigration authorities. She confirmed that she charged migrants $500 to $1,000 for her services, though sometimes more.

    Asked if she’d ever paid an official in her job, Espinoza said: “It’s not necessary to pay an immigration official.”

    “We’re not benefiting, nor robbing, nor doing anything outside the law,” she said. “I charge because the law allows me to.”

    But a former immigration agent with knowledge of the situation in Puebla told AP about the existence of an arrangement between immigration agents and Espinoza’s firm at least in 2019 and 2020. That former agent, who spoke on condition of anonymity because of fears over safety and retribution, said legal procedures were violated and requirements skipped to quickly release some migrants who paid.

    Another former agent who spoke independently to AP and worked in Puebla also described a deal between local immigration officials and Espinoza. That former agent also insisted on anonymity because of fears over safety and retribution.

    Espinoza filed complaints against Vázquez for defamation and extortion; both are under investigation. Espinoza reiterated to AP that the allegations of Vázquez , her colleagues and others are false: “If the Institute of Public Defenders doesn’t know how to do its job on immigration issues, it’s not the fault of private lawyers,” she said.

    The federal immigration institution also denounced Vázquez and said she damaged the agency by filing an injunction for 300 migrants. But she said someone else did so in her name and has countersued.

    Vázquez said she’s rejected proposals to make deals with officials because she suspects they want bribes. She said the public defenders’ office has become a target because it’s seen as taking business from others — she cites restricted access to the detention center as retaliation, as well as anonymous threatening phone calls and intimidating messages.

    She said that when detainees opt for free representation from public defenders, they’re sometimes punished by immigration authorities — forced to go without food or showers.

    “It seems like every office has its discretionary powers,” she said, and that leaves migrants more vulnerable.

    Immigration officials have refused to answer questions about allegations of corruption in Puebla.

    From 2020 to 2021, when the public defender’s office began denouncing irregularities and privileges linked to Espinoza’s firm, retired Gen. José Luis Chávez Aldana was in charge of the Puebla immigration office. According to online public records, he was transferred in September 2021 to a similar role in another state.

    The agency did not answer questions about whether he is still employed or under investigation. Chávez Aldana did not reply to AP requests for comment.

    David Méndez, who was appointed head of the immigration office in Puebla at the beginning of 2022, acknowledged irregularities when he started his role but said he did not file complaints because he didn’t have proof.

    He said he tried to “close the information leaks” with new rules and made agreements to promote public defenders. But after six months, Méndez was transferred, then left the federal government. He wouldn’t discuss why.

    Vázquez said she has filed three complaints with the National Human Rights Commission denouncing the practices in Puebla, the last one in August 2022. The commission told AP that two complaints have been closed and one remains open, but it would not explain its findings. Vázquez said she has not been informed, either.

    Puebla’s office is now run by the man who was second in command during Chávez Aldana’s period.

    —-

    Back at Mexico’s border with Guatemala, more migrants arrive daily. Most pass unseen, crossing the country crammed into semitrailers. Others take selfies with the “Welcome to Mexico” sign visible just after stepping onto Mexican territory. Then, they turn themselves over to authorities, with hopes of obtaining safe-passage documents.

    One October day south of Tapachula, on the bank of the Suchiate River separating Mexico from Guatemala, immigration agents registered some 200 migrants, mostly Venezuelans, at one entry point. They were all given expulsion orders, but also told they could exchange those documents for transit permits if they made it to a small town about 185 miles (300 kilometers) north, San Pedro Tapanatepec.

    It’s not clear why authorities chose an out-of-the-way place for what became a massive migrant camp. The immigration agency did not answer AP’s request for comment about the decision.

    Thousands of migrants waited there, in a constant churn of arrivals and departures. More than 190,000 people passed through from the end of July through November, federal data show. By mid-December, the immigration agency suddenly announced the closing of the camp with no explanation. Migrants vanished from the town in a matter of days.

    While the camp was open, some people said they spent days in detention in Tapachula before getting there; others said they were released immediately. Some were released for free, others after paying up to $500 to a lawyer.

    For Luilly Ismael Batista, it was the latter. The Dominican man said a friend recommended the lawyer who got him freed after nine days.

    “A friend went out with my credential; the lawyer called me on the loudspeaker,” he said. The agents “let me go, but I had to give my passport and credentials to the lawyer as a guarantee to pay him when I was free.”

    Later, he paid $300 for transportation and a guide to bypass about 10 immigration checkpoints on the way from Tapachula to San Pedro Tapanatepec. “They moved us in all kinds of vehicles, vans, cabs, motorcycles,” Batista said.

    He said he got on a bus heading north with his transit permit and no money left. He didn’t know how he would reach the U.S. border.

    “I will sell my phone, I will sell my watch, I will sell whatever,” he told AP. “God will help us, he will bless us, and we will continue to move forward.”

    It ended up being his last message to AP. His cellphone number no longer works.

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  • FTX co-founder Gary Wang, ex-Alameda CEO Caroline Ellison plead guilty to federal charges

    FTX co-founder Gary Wang, ex-Alameda CEO Caroline Ellison plead guilty to federal charges

    On the same day that that the Bahamas extradited FTX co-founder and former CEO Sam Bankman-Fried to the U.S. to face criminal charges, two former executives at FTX and Alameda Research pleaded guilty Wednesday to federal fraud charges.

    Caroline Ellison, 28, the former chief executive of Alameda Research — the crypto trading company founded by Bankman-Fried — and Zixiao (Gary) Wang, 29, co-founder of crypto platform FTX and its former chief technology officer, were charged for their roles in contributing to the crypto platform’s collapse.

    The pair each faced decades-long prison sentences if convicted, and pleaded guilty to charges that included wire fraud, securities fraud and commodities fraud in exchange for leniency. In a video Wednesday night, U.S. Attorney Damian Williams of the Southern District of New York said both were cooperating in the continuing investigation into FTX and Bankman-Fried.

    Williams added that Bankman-Fried, 30, was in FBI custody and will appear in court in “as soon as possible,” and suggested more charges in the FTX case could be forthcoming.

    “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” Williams said. “We are moving quickly and our patience is not eternal. … and we are far from done.”

    In a parallel action, the Securities and Exchange Commission on Wednesday also charged Ellison and Wang “for their roles in a multiyear scheme to defraud equity investors in FTX.”

    According to the SEC complaint, Ellison helped manipulate the price of FTX-issued crypto token FTT, which served as collateral for undisclosed loans from FTX customers’ assets to Alameda. In addition, the SEC alleges Bankman-Fried misled customers by falsely claiming FTX was a safe trading platform with strict risk-mitigation measures.

    The SEC claims Wang created software code to allow Alameda to divert FTX customers’ funds, and that Ellison used those funds for Alameda’s trading activity.

    “As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop up the value of their house of cards,” SEC Chair Gary Gensler said in a statement. “We further allege that Ms. Ellison and Mr. Wang played an active role in a scheme to misuse FTX customer assets to prop up Alameda and to post collateral for margin trading. When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag. Until crypto platforms comply with time-tested securities laws, risks to investors will persist. It remains a priority of the SEC to use all of our available tools to bring the industry into compliance.”

    Bankman-Fried was arrested in the Bahamas last week after he was indicted by U.S. federal prosecutors, who allege he played a key role in the collapse of FTX, diverting billions of dollars of customer assets and defrauding investors, customers and lenders.

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  • FTX founder Sam Bankman-Fried extradited to U.S. to face criminal charges

    FTX founder Sam Bankman-Fried extradited to U.S. to face criminal charges

    NASSAU, Bahamas — Bahamian authorities said Wednesday that former FTX CEO Sam Bankman-Fried has been extradited to the United States, where he faces criminal charges related to the collapse of the cryptocurrency exchange.

    Bahamas’s attorney general’s office said that Bankman-Fried would be leaving for the United States later Wednesday, noting he had waived his right to challenge the extradition.

    Reporters on the scene witnessed Bankman-Fried leaving a Magistrate Court in Nassau in a dark SUV earlier Wednesday. The vehicle was later seen arriving at a private airfield by Nassau’s airport, from which he is expected to be flown to the United States. He is due to land in New York and will likely appear in front of a U.S. judge on Thursday.

    “The Bahamas has determined that the provisional arrest, and subsequent written consent by (Bankman-Fried) to be extradited without formal extradition proceedings satisfies the requirements of the (extradition treaty between the U.S. and the Bahamas) and our nation’s Extradition Act,” said Bahamian Attorney General Ryan Pinder, in a statement.

    Bahamian authorities arrested Bankman-Fried last week at the request of the U.S. government. U.S. prosecutors allege he played a central role in the rapid collapse of FTX and hid its problems from the public and investors. The Securities and Exchange Commission said Bankman-Fried illegally used investors’ money to buy real estate on behalf of himself and his family.

    The 30-year-old could potentially spend the rest of his life in jail.

    Bankman-Fried was denied bail Friday after a Bahamian judge ruled that he posed a flight risk. The founder and former CEO of FTX, once worth tens of billions of dollars on paper, had been held in the Bahamas’ Fox Hill prison, which has been has been cited by human rights activists as having poor sanitation and as being infested with rats and insects.

    Once he’s back in the U.S., Bankman-Fried’s attorney will be able to request that he be released on bail.

    Bankman-Fried was one of the world’s wealthiest people on paper, with an estimated net worth of $32 billion. He was a prominent personality in Washington, donating millions of dollars toward mostly left-leaning political causes and Democratic political campaigns. FTX grew to become the second-largest cryptocurrency exchange in the world.

    He has said that he did not “knowingly” misuse customers’ funds, and said he believes his millions of angry customers will eventually be made whole.

    At a congressional hearing last week, the new FTX CEO John Ray III, who is tasked with taking the company through bankruptcy, bluntly disputed those assertions: “We will never get all these assets back,” Ray said.

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  • Wells Fargo ordered to pay $3.7 billion for alleged mismanagement of auto loans, mortgages and deposit accounts

    Wells Fargo ordered to pay $3.7 billion for alleged mismanagement of auto loans, mortgages and deposit accounts

    The Consumer Financial Protection Board on Tuesday said it is requiring Wells Fargo & Co. to pay $3.7 billion as a result of alleged widespread mismanagement of auto loans, mortgages and deposit accounts.

    The CFPB said Wells Fargo “repeatedly misapplied loan payments, wrongfully foreclosed on homes and illegally repossessed vehicles, incorrectly assessed fees and interest, charged surprise overdraft fees, along with other illegal activity affecting over 16 million consumer accounts.”

    Wells Fargo
    WFC,
    -2.01%

    has been ordered to pay more than $2 billion in redress to consumers in addition to a $1.7 billion civil penalty for legal violations.

    “Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank,” the CFBP said.

    Wells Fargo did not admit wrongdoing as part of the settlement.

    Wells Fargo CEO Charlie Scharf said the settlement marks an “important milestone in our work to transform the operating practices of Wells Fargo and to put these issues behind us.”

    As a result of the settlement, the CFPB will terminate a 2016 consent order, Wells Fargo said.

    The settlement will also provide clarity and a path forward for termination of a 2018 consent order and will underscore that the CFPB “recognizes recent acceleration of efforts,” the bank said.

    “The CFPB recognized that since 2020, the company has accelerated corrective actions and remediation, including to address the matters covered by today’s settlement,” the bank said in a statement.

    Wells Fargo warned it will book an operating-loss expense of $3.5 billion, or $2.8 billion net of tax, when it reports fourth-quarter results on Jan. 13.

    “Wells Fargo has made significant progress in strengthening its risk and control infrastructure over the past several years,” the bank said.

    Jefferies analyst Ken Usdin said in a research note that the CFPB action marks a “positive step in the regulatory improvement process” for Wells Fargo.

    But he said Wells Fargo’s plan to book a fourth-quarter operating loss of $3.5 billion does not mean that the bank’s accrual for probable and estimable losses (RPL), which it discloses every quarter, will go to zero.

    “We would hope that probable and estimated losses would decline somewhat after [the fourth quarter] given the magnitude of today’s settlement,” Usdin said. “[Wells Fargo’s] separate announcement that it will book $3.5 billion of operating losses in [the fourth quarter] suggests that only some of the CFPB-specific settlement was already reserved for. But this sizable [fourth-quarter] number also means that [Wells Fargo] has been booking losses for other actions along the way that are still open-ended.”

    Scharf has been CEO of Wells Fargo since late 2019 and has been focusing on bringing the megabank into regulatory compliance.

    While an asset cap has remained in place for Wells Fargo since 2018 as punishment for its phony-accounts scandal, other regulatory matters are now in the rear-view mirror.

    In December 2021, the Office of the Comptroller of the Currency (OCC) terminated a consent order issued in 2015 regarding add-on products that the bank sold to retail banking customers.

    A CFPB consent order issued in 2016 regarding the bank’s retail practices expired in 2021, and a 2015 consent order from the OCC regarding Wells Fargo’s bank-secrecy and anti-money-laundering compliance was terminated in January 2021.

    Finally, a CFPB consent order issued in 2015 regarding claims that the bank violated the Real Estate Settlement Procedures Act expired in January 2020.

    Shares of Wells Fargo fell 0.3% on Tuesday. The stock is down 13.1% in 2022, compared with a 19.6% loss by the S&P 500
    SPX,
    +0.10%
    .

    Also read: Fed banking supervisor eyes ‘holistic’ review of bank regulations while doubling down on protections they offer

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  • New FTX CEO says lax oversight, bad decisions caused failure

    New FTX CEO says lax oversight, bad decisions caused failure

    WASHINGTON — Sam Bankman-Fried, founder and former CEO of the failed cryptocurrency exchange FTX, helped 1,500 Bahamian investors remove $100 million from their accounts while other customers around the world were locked out of the exchange, according to the company’s new CEO, who testified before a House committee Tuesday

    FTX CEO John Ray III, who has guided dozens of companies, including Enron, through bankruptcy restructuring, called FTX’s collapse one of the worst business failures he has seen — a “paperless bankruptcy,” fueled by an “unprecedented lack of documentation.”

    For nearly four hours, without a break, Ray told lawmakers about the lack of oversight and financial controls that he discovered since taking over FTX a month ago. He found a loan where Bankman-Fried was both the issuer and the recipient. There were expenses approved by emoji. FTX didn’t have accountants. For record-keeping, employees used QuickBooks, pre-packaged software typically used by small and medium-sized businesses, to manage FTX’s finances.

    “Nothing against QuickBooks,” Ray said. “It’s a very nice tool, just not for a multibillion-dollar company.”

    At its peak, FTX’s market value topped $30 billion.

    Notably absent from the hearing before the House Financial Services Committee was Bankman-Fried, who was arrested in the Bahamas just hours before he was scheduled to testify. The arrest was made at the request of the U.S. government, which on Tuesday announced criminal charges against Bankman-Fried including wire fraud and money laundering.

    The timing of Bankman-Fried’s arrest frustrated many committee members. Republican Rep. William Timmons, of South Carolina, called the timing “bizarre” and added that, as a former prosecutor, he couldn’t imagine why any prosecutor wouldn’t want “hours of congressional grilling for the target of an investigation” to help make a case.

    FTX filed for bankruptcy protection on Nov. 11, when the firm ran out of money after the cryptocurrency equivalent of a bank run. The collapse of crypto’s second-largest exchange has garnered worldwide attention, and prompted worries in the crypto industry that the pain could become widespread. Ray estimated that about $8 billion of customer funds are missing.

    Some customers in the Bahamas, where FTX was based, were able to recover some money, Ray said. That’s because the Bahamian government and Bankman-Fried agreed to let them get their money out of FTX while customers in other countries were blocked from doing so, Ray said.

    Ray, who took over FTX on Nov. 11, told the committee that the problems at FTX were a cumulation of months or even years of bad decisions and poor financial controls.

    “This is not something that happened overnight or in a context of a week,” he said.

    However, Ray didn’t answer numerous questions about what regulations could have stopped the collapse of FTX. Instead, he focused on how unusual FTX was — having no board of directors, having no real structure that prohibited money invested by consumers in FTX to be shifted to Bankman-Fried’s hedge fund Alameda Research for other investments or lavish purchases, without the original investors’ knowledge.

    In his prepared remarks, Ray painted a picture of a company acting with little to no oversight.

    “FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets,” Ray said.

    In interviews since FTX filed for bankruptcy protection, Bankman-Fried acknowledged that the company lacked proper financial controls and corporate governance, but denied any fraud had been committed.

    U.S. prosecutors and financial regulators disagreed with that assessment. An indictment unsealed Tuesday charged Bankman-Fried with a host of financial crimes and campaign finance violations, alleging he played a central role in the rapid collapse of FTX and hid its problems from the public and investors. The Securities and Exchange Commission said Bankman-Fried illegally used investors’ money to buy real estate on behalf of himself and family.

    Ray’s comments supported those allegations.

    “This is just old fashion embezzlement, taking money from others and using it for your own purposes,” he said. “This is not sophisticated at all.”

    A lawyer for Bankman-Fried, Mark S. Cohen, said Tuesday he is “reviewing the charges with his legal team and considering all of his legal options.”

    ————

    Reporter Ken Sweet contributed.

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  • Sam Bankman-Fried has been arrested following FTX collapse. Here’s what happens next

    Sam Bankman-Fried has been arrested following FTX collapse. Here’s what happens next

    Tom Williams | CQ-Roll Call, Inc. | Getty Images

    Sam Bankman-Fried’s arrest in the Bahamas on Monday marks the beginning of a new chapter in the FTX saga, one that will pit the former crypto billionaire against the Southern District of New York.

    The indictment is expected to remain sealed until Tuesday morning. U.S. prosecutors haven’t commented, and neither the Attorney General of the Bahamas nor the Royal Bahamas Police Force would confirm the nature of the charges against Bankman-Fried.

    The New York Times reported that the charges against Bankman-Fried included conspiracy to commit wire fraud and securities fraud, as well as standalone charges of securities fraud, wire fraud and money laundering.

    The SEC has initiated a separate set of charges against Bankman-Fried, relating to “violations of our securities laws, which will be filed publicly tomorrow in the Southern District of New York,” enforcement director Gurbir Grewal said in a statement on Monday.

    A spokesperson for the SEC declined further comment.

    The charges could land Bankman-Fried in prison for decades, legal experts told CNBC. But before he ever serves time, U.S. prosecutors have to secure an extradition from the Bahamas back to New York.

    An effort to extradite

    “It is inconceivable to me that the Justice Department would have charged this case unless they were confident that they could extradite him,” Renato Mariotti, a former federal prosecutor, told CNBC.

    Mariotti anticipates an extradition will take weeks to complete.

    “The statement by the Bahamian government suggests that they’re going to cooperate,” Mariotti said.

    Read more about tech and crypto from CNBC Pro

    The U.S. and the Bahamas have had an extradition treaty in place since 1931, with the most recent iteration codified in 1990. Because Bankman-Fried hasn’t been convicted in the Bahamas yet, U.S. prosecutors had to secure an arrest warrant and provide sufficient evidence to the Bahamians that he had committed a crime.

    Extradition is the first step in a process that could take years to finish. Given the magnitude of Bankman-Fried’s alleged crimes, prosecutors and regulators will be pursuing concurrent cases around the world.

    A trial in the U.S. “may not occur for years,” Mariotti said.

    “The more that they charge, the bigger that the case is, the more time they’re going to need to get in motion,” he said. “I would say late 2023 is the earliest a trial would occur.”

    Prosecutors could argue that FTX breached its fiduciary duty by allegedly using customer funds to artificially stabilize the price of the company’s self-issued FTT coin, Mariotti said.

    Intent is also a factor in fraud cases, and Bankman-Fried insists he didn’t know about potentially fraudulent activity. He told CNBC’s Andrew Ross Sorkin at the New York Times DealBook conference that he “didn’t knowingly commingle funds.”

    “I didn’t ever try to commit fraud,” Bankman-Fried said.

    In prepared testimony for the House Financial Services committee, new FTX CEO John Ray confirmed that commingling of funds had occurred between FTX and Alameda Research, Bankman-Fried’s hedge fund.

    The risk of an FTX crypto contagion

    Other legal trouble

    Beyond the criminal charges set to be unveiled Tuesday morning, Bankman-Fried is also facing civil action, which could be brought by the SEC, the Commodity Futures Trading Commission and state banking and securities regulators, said Richard Levin, who chairs the fintech and regulation practice at Nelson Mullins Riley & Scarborough.

    The CFTC and lawmakers have begun their probes into FTX and Bankman-Fried, who told Sorkin he was down to his last $100,000.

    Shortly after Bankman-Fried’s arrest, the SEC appeared to confirm that the agency would pursue a separate set of charges from the criminal indictment.

    Lawmakers also expressed their satisfaction at Bankman-Fried’s arrest. Senator Sherrod Brown (D-Ohio), who chairs the Senate Committee on Banking, Housing, and Urban Affairs, applauded both the Justice Department and Bahamian law enforcement “for holding Sam Bankman-Fried accountable.”

    Rep. Maxine Waters (D-Calif.), the chairwoman of the House Financial Services Committee, echoed that sentiment, but expressed disappointment that Bankman-Fried was arrested before his House testimony, which was scheduled for Tuesday.

    “I am surprised to hear that Sam Bankman-Fried was arrested in the Bahamas at the direction of the United States Attorney,” Waters said in a statement.

    “[The] American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people,” Waters continued.

    Bankman-Fried had also been invited to appear before the Senate prior to his arrest. That hearing will occur on Wednesday.

    It’s unclear whether the SEC or the CFTC will take the lead in securing civil damages.

    “The question of who would be taking the lead there, whether it be the SEC or CFTC, depends on whether or not there were securities involved,” Mariotti told CNBC.

    SEC Chairman Gary Gensler, who met with Bankman-Fried and FTX executives earlier this year, has said publicly that “many crypto tokens are securities,” which would make his agency the primary regulator.

    But many exchanges, including FTX, have crypto derivatives platforms that sell financial products like futures and options, which fall under the CFTC’s jurisdiction.

    “For selling unregistered securities without a registration or an exemption, you could be looking at the Securities Exchange Commission suing for disgorgement — monetary penalties,” said Levin, who’s represented clients before both agencies.

    Investors who have lost their savings aren’t waiting. Class-action suits have already been filed against FTX endorsers, like comedian Larry David and football superstar Tom Brady. One suit excoriated the celebrities for allegedly failing to do their “due diligence prior to marketing [FTX] to the public.”

    FTX’s industry peers are also filing suit against Bankman-Fried. Failed lender BlockFi sued Bankman-Fried in November, seeking unnamed collateral that the FTX founder provided for the crypto lending firm.

    FTX and Bankman-Fried had previously rescued BlockFi from insolvency in June, but when FTX failed, BlockFi was left with a similar liquidity problem and filed for bankruptcy protection in New Jersey.

    Bankman-Fried has also been sued in Florida and California federal courts. He faces class-action suits in both states over “one of the great frauds in history,” a California court filing said.

    The largest securities class-action settlement was for $7.2 billion in the Enron accounting fraud case, according to Stanford research. The possibility of a multibillion-dollar settlement would come on top of civil and criminal fines that Bankman-Fried faces.

    FTX testimony this week is going to be very telling, says CEO of Bitfury Group, it sounds like a scheme

    A life behind bars

    If the DOJ were able to secure a conviction, a judge would look to several factors to determine how long to sentence him.

    Based on the size of the losses, if Bankman-Fried is convicted on any of the fraud charges, he could be behind bars for years — potentially for the rest of his life, said Braden Perry, a partner at Kennyhertz Perry who advises clients on anti-money laundering, compliance and enforcement issues.

    But the length of any potential sentence is hard to predict, said Perry, who was previously a senior trial lawyer for the CFTC, FTX’s only official U.S. regulator.

    Federal sentencing guidelines follow a numeric system to determine the maximum and minimum allowable sentence, but the system can be esoteric. The scale, or “offense level,” starts at one, and maxes out at 43.

    A wire fraud conviction rates as a seven on the scale, with a minimum sentence ranging from zero to six months.

    But mitigating factors and enhancements can alter that rating, Perry told CNBC.

    “The dollar value of loss plays a significant role. Under the guidelines, any loss above $550 million adds 30 points to the base level offense,” Perry said. FTX customers have lost billions of dollars.

    “Having 25 or more victims adds 6 points, [and] use of certain regulated markets adds 4,” Perry said.

    That means Bankman-Fried could be facing life in federal prison, without the possibility of supervised release, if he’s convicted on just one of the offenses that prosecutors will reportedly pursue.

    If convicted, his sentence could be reduced by mitigating factors.

    “In practice, many white-collar defendants are sentenced to lesser sentences than what the guidelines dictate,” Perry said. Even in large fraud cases, that 30-point enhancement previously mentioned can be considered punitive.

    By way of comparison, Stefan Qin, the Australian founder of a $90 million cryptocurrency hedge fund, was sentenced to more than seven years in prison after he pleaded guilty to one count of securities fraud.

    Roger Nils-Jonas Karlsson, a Swedish national accused by the United States of defrauding over 3,500 victims of more than $16 million, was sentenced to 15 years in prison for securities fraud, wire fraud and money laundering.

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  • FTX’s Sam Bankman-Fried is arrested in Bahamas, charges pending in U.S.

    FTX’s Sam Bankman-Fried is arrested in Bahamas, charges pending in U.S.

    Sam Bankman-Fried, founder of the cryptocurrency exchange FTX, which faced a colossal collapse this year, was arrested in the Bahamas on Monday, and is facing criminal charges in the United States, according to a Bahamian official.

    The Attorney General of the Bahamas, through spokesman Latrae Rahming, posted a statement on Twitter detailing the arrest. Bankman-Fried, commonly known as SBF, lives in the Bahamas, where the cryptocurrency exchange was also based.

    “SBF’s arrest followed receipt of formal notification from the United States that it has filed criminal charges against SBF and is likely to request his extradition,” the statement reads.

    The U.S. Attorney for the Southern District of New York later tweeted that his office had filed a sealed indictment, which led to the arrest.

    “We expect to move to unseal the indictment in the morning and will have more to say at that time,” Damian Williams said in a tweet from the office’s official Twitter account.

    The Securities and Exchange Commission and the Justice Department are investigating the company, and the New York Times reported last week that Manhattan-based federal prosecutors are investigating whether Bankman-Fried steered prices of cryptocurrencies TerraUSD and Luna to benefit FTX and his Alameda hedge fund. The former chief executive of FTX was expected to testify remotely in front of a House Financial Services Committee panel on Tuesday.

    FTX, one of the largest cryptocurrency exchanges in the world, filed for bankruptcy protection in November, and Bankman-Fried resigned as CEO. The new CEO of FTX, John J. Ray III, is expected to testify in front of members of Congress on Tuesday, and in prepared remarks released Monday, he said that Bankman-Fried’s management of FTX was an “utter failure” that lacked any level of financial control.

    MarketWatch staff writer Robert Schroeder contributed to this article.

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  • FTC sues to block Microsoft’s $69 billion acquisition of game giant Activision Blizzard

    FTC sues to block Microsoft’s $69 billion acquisition of game giant Activision Blizzard

    The Federal Trade Commission on Thursday sued Microsoft Corp. to block its $69 billion deal to buy Activision Blizzard Inc.

    The acquisition, which would be Microsoft’s
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    +1.07%

    largest and the biggest ever in the video gaming industry, would “enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business,” the FTC claimed.

    “Microsoft has already shown that it can and will withhold content from its gaming rivals,” Holly Vedova, director of the FTC’s Bureau of Competition, said in a statement. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”

    FTC members pointed to Microsoft’s record of “acquiring and using valuable gaming content to suppress competition from rival consoles,” including its acquisition of ZeniMax, parent company of Bethesda Softworks.

    Microsoft President Brad Smith indicated the software giant will fight the lawsuit. In a statement, he said Microsoft has “been committed since Day One to addressing competition concerns.”

    “While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court,” Smith said.

    Activision CEO Bobby Kotick, in a statement, said the suit “sounds alarming, so I want to reinforce my confidence that this deal will close. The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.”

    Still, In recent weeks Microsoft has taken steps to demonstrate to regulators its acquisition of Activision would not give it an unfair advantage in the gaming market. On Tuesday, Microsoft said it would bring the “Call of Duty” franchise to Nintendo Co.’s
    7974,
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    Switch, a rival of Microsoft Xbox, and Microsoft has said it would make Call of Duty available on rival Sony Group Corp.’s
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    PlayStation.

    “It’s a bad idea,” Geoffrey Manne, president of the International Center for Law and Economics, said of the FTC’s lawsuit vs. Microsoft. “There may be markets in which some activities of some of these large tech companies cause concerns, but when they are expanding into new markets or enhancing competition in markets where they aren’t leaders, we should be encouraging them, not threatening them with lawsuits.”

    The government’s action in administrative court marks the first serious regulatory threat to Microsoft’s business in more than two decades, when the Justice Department brought a landmark antitrust lawsuit against the software giant that took years and was settled in 2002. Since then, Microsoft had sidestepped antitrust scrutiny and Smith in particular has focused the glare on its tech rivals Amazon.com Inc.
    AMZN,
    +2.24%
    ,
    Apple Inc.
    AAPL,
    +1.19%
    ,
    Alphabet Inc.’s
    GOOGL,
    -0.94%

     
    GOOG,
    -0.89%

    Google, and Facebook parent company Meta Platforms Inc.
    META,
    +1.26%
    .

    Read more: Microsoft’s shadowy presence in antitrust push is angering the rest of Big Tech

    Shares of Microsoft are up 1% in trading Thursday. Activision’s
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    -1.33%

    stock is down 1.5%.

    The FTC’s lawsuit comes the same day it is heading to court in San Jose, Calif., in what is expected to be a three-week trial to bloc Meta’s $300 million acquisition of VR fitness app maker Within.

    The trial is likely to showcase an intriguing look at the agency’s ability to stifle alleged anticompetitive conduct using largely untested legal theories at a time when Congress is sitting on tech antitrust legislation.

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