TFU | Sept. 25 – Oct. 1

Leading Off

The SEC established a new internal unit dedicated to digital currency-related crimes and brought its first charges for ICO-related fraud; Overstock’s t0 unit is developing an SEC-compliant platform for trading ICO-issued coins; Deloitte suffered a data breach that exposed information on high-profile clients; a consortium of Japanese banks is developing a national digital currency; South Korea banned ICOs; and SoFi’s Chief Technology Officer became the latest executive to announce that she will leave the firm.

The Week in Review…

The SEC creates new cyber unit…  The Securities and Exchange Commission (SEC) established an internal unit dedicated to policing “violations involving distributed ledger technology and initial coin offerings.” The unit will especially target “misconduct [on] the dark web” and will be led by Robert A. Cohen, “former co-chief of the [SEC]’s market abuse unit.”

…and brings first charges for ICO-related fraud.  The SEC also brought its first two ICO-related actions against “a diamond and a real estate . . . scheme” for “defrauding investors [by] selling unregistered securities and coins.”

Overstock prepares SEC-compliant ATS for ICO coins.  Overstock’s t0 unit is building an Alternative Trading System (ATS) that will allow users to trade digital tokens issued in ICOs on a SEC-compliant platform. The t0-based trading platform will work with financial services firms RenGen to provide market making expertise and SaftLaunch to provide AML and KYC capabilities.

Deloitte suffers data breach.  The global accounting and consulting firm was hacked, exposing “sensitive corporate data . . . and company plans of several of its clients,” including “some of the world’s biggest banks [and] multinational companies.” The breach was first discovered in March, but Deloitte’s systems “may have been compromised starting as early as October 2016.

Japanese banks work toward national digital currency…  A consortium of Japanese banks led by Mizuho Financial Group “has won support from the country’s central bank and financial regulator to launch the J Coin,” a national digital currency that would be “convertible into yen on a one-to-one basis, operating via a smartphone app and using QR codes to be scanned in stores.”

…and the FSA grants new digital currency exchange licenses.  Japan’s Financial Services Authority (FSA) approved its first digital currency exchanges, granting 11 new licenses. One of the licensees was BitFlyer, one of the world’s largest such exchanges. Following China’s shutdown of crypto-exchanges, Japan has become the world’s largest market for bitcoin trading.

Korea bans ICOs.  South Korea’s Financial Services Commission (FSC) joined China in outlawing the controversial form of fundraising. “[ICOs are] a situation where money has been flooded into an unproductive and speculative direction,” said FSC vice chairman Kim Yong-beom.

SoFi CTO to leave firm.  Chief Technology Officer and VP of Engineering June Ou, the wife of former CEO Mike Cagney, said she plans to leave the company, and will be SoFi’s fourth senior executive to depart in the past several months. Ms. Ou’s announcement follows Cagney’s recent departure after several reports of “improper behavior toward women” while CEO.

Debating fintech regulation.  At The Economist’s Finance Disrupted conference, former SEC Chairman Arthur Levitt, a SoFi advisor and member of PFG’s Board of Advisors, discussed the challenges facing fintech firms. In addition to reputational risks, Levitt noted that fintech firms must often overcome regulations that create “unnecessary” impediments.

On the SEC’s hacking disclosure.  The New York Times’ Peter Henning challenges the agency’s response to its cyber breach, arguing that it has not been transparent enough in its disclosure and remediation efforts. “[The SEC] has pursued enforcement cases for companies that fail to disclose or update information,” Henning notes, “[and] could use a dose of its own medicine.”

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