Month: January 2025

(Westlaw) A New York widow can keep her $650,000 home, after a bankruptcy judge set aside a tax lien sale as a fraudulent transfer.

In re Miranda, No. 23-73373; Miranda v. TLB 2019 LLC, Adv No. 23-8068, 2025 WL 242232 (Bankr. E.D.N.Y. Jan. 17, 2025).

U.S. Bankruptcy Judge Alan S. Trust of the Eastern District of New York on Jan. 17 granted Sonia Miranda’s motion for summary judgment, finding that she did not receive reasonably equivalent value from the sale of her home to pay $1,841 in taxes.

Property transfer

In December 2000, Miranda and her late husband bought their home in the village of Mineola, New York, Judge Trust’s opinion said.

A tax lien was placed on Miranda’s home after she failed to pay property taxes for tax years 2018 and 2019 totaling $1,841.

TLB 2019 LLC purchased the tax lien at a public auction conducted by the village.

In May 2021, TLB notified Miranda that she could lose her home if she did not redeem it within six months.

On Feb. 7, 2022, the village delivered a treasurer’s deed conveying the property, which had an assessed value of about $650,000, to TLB.

Two days later, TLB sued Miranda in New York’s Nassau County Supreme Court, seeking a declaration that it owned the property.

The state court granted the requested relief following Miranda’s default.

A subsequently obtained eviction order gave Miranda until Aug. 15, 2023, to vacate the property.

Miranda filed a Chapter 13 petition Sept. 12, 2023, before being evicted.

After the Chapter 13 trustee declined to seek avoidance of the transfer of Miranda’s property, the debtor filed an adversary complaint, followed by a summary judgment motion, seeking to avoid it under Section 548(a)(1)(B), 11 U.S.C.A. § 548(a)(1)(B).

That section allows transfers of a debtor’s property occurring on or within two years before the bankruptcy filing to be set aside if the transfer left the debtor insolvent and the debtor did not receive reasonably equivalent value in return.

Transfer avoided

TLB acquired title to Miranda’s home “based exclusively on mechanically applied administrative requirements,” Judge Trust said.

When the state court entered a default judgment in TLB’s favor, it did not rule on the fairness of the value paid to Miranda, he added.

In BFP v. Resolution Trust Corp., 511 U.S. 531 (1994), the U.S. Supreme Court held that the price paid at a properly conducted foreclosure sale is reasonably equivalent value for purposes of Section 548.

“But this tax deed transfer was an administrative act without judicial oversight,” Judge Trust said.

“Miranda did not have the protections of market forces as did the debtor in BFP,” nor the protections of judicial oversight, he noted.

The judge concluded that Miranda received less than reasonably equivalent value for her home as a matter of law.

The transfer was avoidable under Section 548 because there was no dispute that it occurred within two years before Miranda’s bankruptcy filing and left her unable to pay her debts, which is how Bankruptcy Code Section 101(32), 11 U.S.C.A. § 101(32), defines “insolvent.”

Judge Trust said Miranda’s Chapter 13 plan must provide for satisfaction of the tax lien plus interest.

The judge rejected TLB’s request that it be compensated for Miranda’s occupancy of the property after it was awarded title.

“TLB cannot be awarded use and occupancy for Miranda’s use of the property after TLB took title based on a fraudulent transfer,” Judge Trust said.

Roy Lester of Lester Korinman Kamran & Masini PC in Garden City, New York, represented Miranda.

Jeff Morgenstern in Carle Place, New York, represented TLB.

By David J. Light, Esq.

(Westlaw)

•A Republican president and Congress are expected to be more supportive of digital assets than the current administration.

•There is a reasonable chance that legislation creating a regulatory framework for cryptocurrencies will advance.

•Under Republican SEC chair nominee Paul Atkins, the SEC is expected to be less aggressive in enforcement in the crypto field and favor a more strategic approach.

•Banking regulators may reverse Biden-era policies that deterred banks from providing custodial and other services to crypto participants.

•The digital assets sector could see increased capital markets activity due to a more accommodating regulatory environment.

The incoming Trump administration and Republican-controlled Congress are likely to bring significant — and for industry participants, welcome — changes in the digital assets space.

Political efforts on behalf of cryptocurrencies were well organized and well funded this cycle, with crypto super PACs pouring record amounts into political races. These efforts focused heavily on Republican and key Democratic candidates, with the goal of seating more lawmakers expected to support efforts to bring much-needed regulatory clarity to digital assets.

Many anticipate pro-crypto policies and a lighter enforcement touch from the incoming administration.

Those political efforts appear to have paid off. Reports indicate that nearly 300 pro-crypto candidates from both sides of the aisle were elected to the House and Senate, and bitcoin prices have climbed to record highs in the wake of the election — a signal that many anticipate pro-crypto policies and a lighter enforcement touch from the incoming administration.

On the campaign trail, President-elect Donald Trump branded himself the pro-crypto candidate, announcing his intentions to transform the U.S. into the “crypto capital of the world.” And in December 2024, he nominated Paul Atkins, a former member of the Securities and Exchange Commission (SEC), to replace current Chair Gary Gensler, who pursued an enforcement agenda at the agency that many saw as anti-crypto.

Many players — both “crypto-native” and traditional financial companies and others — are eagerly waiting to see exactly what these political shifts will mean. Although it remains too early to predict with certainty, we highlight below key areas where we expect to see the most dramatic impacts.

New key players

Paul Atkins. President-elect Trump’s pick for SEC chair served as a Republican commissioner at the agency from 2002 to 2008, during which time he expressed caution before seeking to regulate new areas. He is generally viewed as pro-crypto, based on a number of factors, including:

•Atkins’ recent work in the digital asset space.

•His reputation as a critic of overregulation and regulation by enforcement.

•His ties to Republican commissioners Hester Peirce and Mark Uyeda, both of whom served as counsel to Atkins during his former SEC stint and have been outspoken critics of the SEC’s current approach to crypto.

•While it remains to be seen how Atkins will engage on crypto-related topics, many in the industry expect an emphasis on clearer industry guidance coupled with a lighter and more focused enforcement touch.

David Sacks. Also in December 2024, President-elect Trump named Sacks, a venture capitalist and former PayPal executive, as the White House artificial intelligence (AI) and crypto czar. While Sacks is generally seen as pro-innovation and a supporter of the crypto sector, some industry participants were hoping for a crypto czar with a stronger track record favoring digital assets.

There was also some disappointment in the sector that this position will include AI rather than be devoted solely to digital assets. It remains to be seen how Sacks will allocate his focus between AI and crypto, and how much power he will wield within the administration — including whether he will drive policy or simply serve in a coordination role.

New push for crypto legislation

It is expected that a new presidency will inject fresh life into efforts to enact laws to address the current legal uncertainty surrounding digital assets.

During the last Congress, the House passed the Financial Innovation and Technology for the 21st Century Act (FIT 21) to establish a regulatory framework for digital assets and allocate jurisdiction between the SEC and the Commodity Futures Trading Commission (CFTC). While FIT 21 does not give the industry everything it wants, it represents the most significant effort by Congress to date.

Overall, FIT 21 divides digital assets between “restricted digital assets” subject to SEC jurisdiction and “digital commodities” subject to CFTC jurisdiction. How assets are allocated depends, in part, on:

•The degree of decentralization of the digital asset’s blockchain-based network or application.

•Whether the digital asset was acquired in connection with capital-raising or a secondary-market transaction.

•Whether the asset is held by the issuer or an unaffiliated third party.

In general, the act is seen as limiting the jurisdiction of the SEC, since while the initial offering of a digital asset would be subject to disclosure and other requirements, once its blockchain network or application is deemed decentralized and functional, regulatory treatment — including that relating to trading — would be under the purview of the CFTC.

With Republicans controlling both chambers of Congress, a bill favorable to the sector has a reasonable chance of passing.

Meanwhile, members of the House Financial Services Committee have sought to broker stablecoin legislation that would be acceptable to both parties. With growing bipartisan support for such a bill, there is a good chance Congress will enact such legislation during the next administration.

Finally, there is renewed interest in creating a bitcoin strategic reserve. Wyoming Republican Sen. Cynthia Lummis has sponsored the Bitcoin Act, which would create a strategic bitcoin reserve for the U.S., along with a structured bitcoin purchase program.

However, the concept has also drawn criticism in many quarters, including that bitcoin is too volatile for such a reserve, is not interest-bearing and would distort the overall crypto landscape by favoring bitcoin. At this stage, it is too early to assess whether the Lummis proposal will gain any traction.

Decreased SEC enforcement

President-elect Trump campaigned on the promise of revamping the SEC. Although a less assertive enforcement approach is expected, the parameters will depend on the new chair’s leadership. Under the last Trump administration, for example, there was a fierce defense of the SEC’s registration provisions, even in cases that involved pure “failure to register” claims and no allegations of fraud.¹

Increased banking activity

We expect federal banking and other financial regulators to revisit Biden-era policies and approaches to digital asset activities.

Since 2021, the banking agencies have essentially frozen banks from engaging in custody and other pursuits by issuing interpretations that require them to obtain supervisory nonobjection. This has led to criticisms that an “Operation Choke Point 2.0” exists for the crypto industry, with regulators applying pressure on banks to “de-bank” controversial crypto-related business.

The rescission of these interpretations, as well as the likely reversal of SEC Staff Accounting Bulletin No. 121 — which requires crypto assets to be reported as both an asset and a liability on a custodian’s balance sheet — would mark a significant regulatory shift. It also could portend additional industry-friendly changes for the sector, which the president-elect has pledged to protect from regulatory “persecution.”²

Increased capital markets activity

The possibility of increased regulatory clarity, coupled with tailwinds of sustained investor interest, broader institutional adoption and increased venture capital funding, is likely to drive a significant rise in related capital markets activity, including IPOs.

As the crypto economy continues to mature, we expect the convergence of regulatory developments and market enthusiasm to create robust opportunities for public listings, strategic transactions and deeper institutional engagement.³

Increased private litigation

Cryptocurrency-related securities litigation has been a trending area for several years now, driven in large part by continued regulatory uncertainty and the SEC’s pro-enforcement posture.

If SEC enforcement is de-prioritized, we expect to see an increase in private securities litigation, led by plaintiff firms that have developed expertise in the area and are currently involved in actions around the country in connection with a range of digital assets, projects and products. This increase is particularly likely if it takes time for regulatory clarity to develop and digital asset prices are volatile — two ingredients that historically have fueled private plaintiff activity.

(Westlaw) The Delaware Supreme Court has upheld a lower court ruling siding with Oracle Corp. co-founder and Chairman Larry Ellison and another director in a derivative action alleging an unfair process in the technology company’s 2016 acquisition of NetSuite Inc.

In re Oracle Corp. Derivative Litigation, No. 139-2024, 2025 WL 249066 (Del. Jan. 21, 2025).

The high court said Jan. 21 that it found no error in the Delaware Chancery Court’s decision to apply the business judgment standard of review, instead of the entire fairness standard, to the NetSuite transaction because the plaintiffs failed to show that Ellison wielded actual control over the deal.

Netsuite acquisition

Ellison founded Oracle, a technology company offering software, hardware, and cloud computing technologies, and served as its CEO until 2014, when he became the company’s chief technology officer and chairman.

Safra Catz and Mark Hurd succeeded Ellison as co-CEOs, and after Hurd died in 2019, Catz became the sole CEO, the opinion said.

Meanwhile, in March 2016, Oracle formed a special committee to negotiate a potential deal to acquire NetSuite, a technology company offering cloud-based enterprise resource planning, according to the opinion.

NetSuite accepted Oracle’s $109-per-share offer three months later, and in November 2016, 53% of NetSuite’s shares that were unaffiliated with Ellison and other Oracle and NetSuite directors agreed to tender their shares.

An Oracle stockholder sued the company, Ellison, Catz and other executives in May 2017 in a Delaware Chancery Court derivative suit alleging Ellison exerted undue influence on the deal, and that the company overpaid for NetSuite. Subsequently, the court dismissed all the defendants except Ellison and Catz from the suit.

In 2022 the Chancery Court sided with Ellison and Catz, determining the transaction was negotiated at arm’s length by a fully empowered special committee, and that Ellison did not exert an improper amount of control over the deal.

The plaintiffs appealed to the Delaware Supreme Court, saying the Chancery Court erred by applying the business judgment standard of review, rather than the entire fairness standard, to a transaction involving an alleged controlling stockholder.

Insufficient control

A stockholder who owns or controls less than 50% of a corporation’s voting power, like Ellison, who owned 28.8% of Oracle’s at the time of this transaction, is not presumed to be a controlling stockholder with fiduciary duties owed to the corporation, the high court explained.

However, a minority stockholder can be shown to be a controlling stockholder by demonstrating that they exercised “actual control,” either generally or in a specific transaction, the opinion said.

The Chancery Court determined that Ellison neither controlled Oracle’s day-to-day functions nor dictated its operations to the board. It also found that he avoided discussing the transaction with the special committee, and that Oracle’s board and management were not afraid to disagree with him, the court said.

Although the plaintiffs assert that certain facts and testimony are favorable to their arguments, the Delaware Supreme Court does not weigh evidence on appeal, it explained.

Consequently, because the plaintiffs do not argue that the Chancery Court’s “contrary factual findings on general and transactional control are clearly wrong,” their appeal on these grounds must be denied, the court concluded.

Joel Friedlander and Jeffrey M. Gorris of Friedlander & Gorris PA represented the appellant. Elena C. Norman and Richard J. Thomas of Young Conaway Stargatt & Taylor LLP represented Ellison and Catz, and Kevin R. Shannon and Berton W. Ashman of Potter Anderson & Corroon LLP represented Oracle.

By Douglas Mentes

Related articles

Related Articles from Westlaw Corporate Governance Daily Briefing:

Article: Delaware judge dismisses 2 Oracle execs from Netsuite acquisition suit 2021 CORPGDBRF 0112

Date: June 23, 2021

A Delaware Chancery Court judge has dismissed claims against two Oracle Corp. officers and directors alleging they breached their fiduciary duties in connection with the technology company’s $9.3 billion acquisition of a software firm founded by Oracle’s chairman.

(Westlaw) The US Court of Appeals for the Third Circuit and the US District Court for the Southern District of New York (SDNY) issued noteworthy opinions in two separate actions between the SEC and major crypto platform Coinbase:

• Coinbase, Inc. v. Securities and Exchange Commission (2025 WL 78330 (3d Cir Jan. 13, 2025)) (see Coinbase, Inc. v. Securities and Exchange Commission (Third Circuit Opinion)).
• Securities and Exchange Commission v. Coinbase, Inc. (2025 WL 40782 (SDNY Jan. 7, 2025)) (see Securities and Exchange Commission v. Coinbase, Inc. (SDNY Opinion and Order)).

Coinbase, Inc. v. Securities and Exchange Commission (Third Circuit Opinion)

On January 13, 2025, the Third Circuit issued an opinion in Coinbase, Inc. v. Securities and Exchange Commission holding that the SEC must explain its rationale for refusing to articulate a clear and consistent position about when a digital asset is a security and consequently subject to federal securities laws.

Background

In July 2022, Coinbase petitioned the SEC to propose new rules addressing how and when digital assets qualify as securities subject to existing securities laws. Nine months after Coinbase issued its petition, Coinbase petitioned the Third Circuit for a writ of mandamus ordering the SEC to act on Coinbase’s request (see Legal Update, Updated: Coinbase Files Mandamus Action to Compel SEC to Write Crypto Regulations). The SEC ultimately denied Coinbase’s request, and Coinbase petitioned the Third Circuit to:

• Review the SEC’s decision.
• Order the SEC to institute a notice-and-comment rulemaking proceeding to explain its denial of Coinbase’s petition.

In support of its petition to the Third Circuit, Coinbase argued that the SEC’s order denying Coinbase’s petition for rulemaking was arbitrary and capricious because:

• The SEC’s decision to apply the securities laws to digital assets in enforcement actions constitutes a significant policy change that presumptively requires rulemaking.
• The emergence of digital assets removes a fundamental factual predicate underlying the entire existing regulatory framework – that compliance by all potential market participants is possible.
• The SEC’s explanation for its decision was conclusory and insufficiently reasoned.

Outcome

The Third Circuit disagreed with the Coinbase’s first two arguments, finding that:

• The SEC was not presumptively required to engage in notice-and-comment rulemaking, and the Third Circuit was not persuaded that the SEC categorically lacks discretion to regulate digital assets through adjudication or individualized enforcement actions.
• Coinbase’s workability concerns are not fundamental changes in the factual predicates underlying the existing securities-law framework.

However, the Third Circuit agreed with Coinbase’s argument that the SEC’s order denying Coinbase’s petition was insufficiently reasoned because:

• A single sentence disagreeing with the main concerns of a rulemaking petition is conclusory and does not provide the Third Circuit with any assurance that the SEC considered Coinbase’s workability objections, nor does it explain how it accounted for them.
• The SEC’s order did not adequately explain which other regulatory efforts it is prioritizing or why; it only cited all of its ongoing rulemakings, which is insufficient.
• Although the SEC is correct as a general matter that it may justifiably decide to proceed by incremental rulemaking or adjudication before undertaking more comprehensive action, the SEC still must explain a decision in a way that allows the Third Circuit to understand and defer to the SEC’s reasoning.

In the order, the Third Circuit states that if an agency denies a petition for rulemaking, the agency must adequately explain the facts and policy concerns it relied on and such factual explanation must have some basis in the record.

The Third Circuit concluded that the appropriate remedy was to remand to the SEC for a sufficiently reasoned disposition of Coinbase’s petition. According to the Third Circuit, it would be improper to order the SEC to institute notice-and-comment rulemaking because the interests at stake in this matter are primarily economic and do not present the unusual or compelling circumstances required to justify such an order.

Securities and Exchange Commission v. Coinbase, Inc. (SDNY Opinion and Order)

On January 7, 2025, the SDNY issued an opinion in Securities and Exchange Commission v. Coinbase, Inc. granting Coinbase’s motion for interlocutory appeal.

Background

On June 6, 2023, the SEC filed a complaint against Coinbase alleging that:

• Coinbase’s business of intermediating transactions in cryptocurrency amounts to the operation of an unregistered brokerage, exchange, and clearing agency in violation of federal securities laws.
• Coinbase acts like a traditional securities intermediary by, among other things, soliciting customers, recruiting new investors, displaying promotional and market information useful for trading crypto-assets, holding customer funds and crypto-assets, and providing services that enable customers to place various types of orders and settle their trades while charging fees for trades executed through its platform.

(see Legal Update, SEC Charges Crypto Exchange Coinbase with Registration Failures).

Coinbase filed a motion for a judgment on the pleadings, pursuant to which the SDNY concluded that certain transactions involving crypto assets qualified as investment contracts within the SEC’s regulatory purview. Coinbase then filed a motion to certify an order for interlocutory appeal under 28 U.S.C. § 1292(b), which allows a district court to certify an order for interlocutory appeal where it finds that:

• Such order involves a controlling question of law as to which there is substantial ground for difference of opinion.
• An immediate appeal from the order may materially advance the ultimate termination of the litigation.

Even if the above criteria are met, district courts have unfettered discretion to deny certification of an order for interlocutory appeal of other factors counsel against it, such as docket congestion and the system-wide costs and benefits of allowing the interlocutory appeal.

Outcome

The SDNY certified Coinbase’s order for interlocutory appeal because it agreed that a controlling question of law had arisen in the case regarding the reach and application of the test established by the Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (see Practice Note, Determining Whether Digital Assets Are Securities). Specifically, the SDNY found the issue ripe for interlocutory appeal because:

• It is a pure question of law as it can be decided by an appellate court quickly and cleanly without having to study the record.
• Reversal on this question would significantly affect the course of litigation and would materially advance the ultimate termination of the litigation.
• It has precedential value for many other cases.
• There is a substantial ground for difference of opinion because:
  • conflicting authority exists regarding the application of the Howey test to crypto assets; and
  • the application of the Howey test to crypto assets raises a difficult issue of first impression for the US Court of Appeals for the Second Circuit.

The SDNY clarified that it does not appreciate and will not co-sign Coinbase’s efforts to “cast aspersions on” the SEC’s approach to crypto assets, but the conflicting decisions on an important issue such as this one necessitate the guidance of the Second Circuit.

(Reuters) – The U.S. Consumer Financial Protection Bureau announced on Friday it had fined credit reporting bureau Equifax $15 million for failing to sufficiently investigate consumer disputes of its credit reports.

The bureau said Equifax ignored consumer documents and evidence submitted alongside disputes, allowed previously flagged inaccuracies to return to credit reports, and relied on flawed software code, leading to inaccurate credit scores.

A spokesperson for Equifax did not immediately respond to a request for comment.

Under the settlement, Equifax agreed to pay $15 million into the CFPB’s victim relief fund and fix its dispute resolution processes.

(Reuters Breakingviews) -When a chief executive unveils a big merger, the fretting begins. Concerns about a repeat of disasters like AOL-Time Warner or Bayer-Monsanto immediately spring to mind. It’s a particular concern for 2025 as steadier interest rates and laxer antitrust enforcement augur a resurgence of chunky M&A. When acquisitions reach $10 billion or more, however, the worst fears of shareholders are often confirmed, with a handful of instructive exceptions.

There was some $660 billion of mega-deals last year according to LSEG, a small uptick from 2023 but far short of the more than $1 trillion in 2019 and 2015. Over the past five years, whoppers have accounted for about a fifth of total deal activity, down from the 27% over the previous half-decade. Blue-chip bosses probably will take advantage of the improving conditions to catch up.

Central banks in the United States and Europe are slashing borrowing costs, which should help debt-funded dealmaking. And buoyant markets will further encourage corporate bosses and their boards. The S&P 500 Index and MSCI All-Country World Index are up 25% and 18%, respectively, from 12 months ago.

Competition authorities also seem poised to ease up on their recent aggression. U.S. President-elect Donald Trump’s nominee to run the Federal Trade Commission, Andrew Ferguson, has promised to end outgoing Chair Lina Khan’s “war on mergers,” according to Punchbowl News. The changing approach might give the green light to deep-pocketed deal-makers such as Exxon Mobil, Comcast and Google parent Alphabet. In Brussels, new anti-monopoly czar Teresa Ribera wants the European Union’s rules to “evolve” so that companies can bulk up. It’s no wonder investment bankers anticipate a busy year.

There’s less for shareholders to cheer, however, based on a Breakingviews analysis of 60 transactions since 2020 where both the acquirer and target were publicly listed and the deal was worth at least $10 billion, including debt. The sample starts with payments processor Worldline’s $10 billion acquisition of French peer Ingenico five years ago and ends with the $23 billion takeover of Marathon Oil by ConocoPhillips announced last May. In each case, the buyer’s total shareholder return, including reinvested dividends, was measured from the day before the deal’s disclosure and compared to the equivalent performance of a relevant industry index over the same period.

The results are dispiriting. Three-quarters of buyers trailed their sector benchmark. The median acquirer lagged its industry index by 5 percentage points, in annualized total return terms, while the mean underperformance was 7 percentage points, dragged down by conspicuous flops like Teladoc Health’s $18.5 billion 2020 purchase of Livongo Health and the 2021 union of Discovery and Warner Media. The entertainment conglomerate has delivered a minus 30% annualized return since the last trading day before announcing their merger, compared with minus 13% for LSEG’s United States Broadcasting Total Return Index [.TRXFLDUSTBCST], implying a 17 percentage point drag in annual terms.

By industry, CEOs in financial services and healthcare are particularly bad at mega-deals, with buyers on average trailing their relevant benchmarks by 9 percentage points and 10 percentage points, respectively, in annualized terms. Some of the medical misses, which includes pharmaceuticals, seem to be cautionary tales in overpaying. Pfizer’s $43 billion Seagen acquisition, for example, looked expensive when agreed in early 2023, and its stock has subsequently lagged the S&P 500 Pharmaceuticals and Biotechnology Index by roughly 20 percentage points, according to annualized LSEG data. The $150 billion drugmaker recently attracted the attention of pushy investor Starboard Value, whose gripes include boss Albert Bourla’s M&A track record.

The insipid stock-market reception to banking M&A also offers pause for thought. Neither Royal Bank of Canada’s$10 billion purchase of HSBC Canada in 2022, nor National Commercial Bank’s $15 billion deal with Saudi peer Samba Financial, set the world alight. Both acquirers have fallen short of their listed regional peers. It’s a bad omen for Italy’s $70 billion UniCredit as CEO Andrea Orcel mulls bids for rivals Commerzbank and Banco BPM. There are many ways to go wrong in financial services mergers, so the absence of an obvious boost in stock prices raises doubts about the risks involved.

Energy investors at least have seen buyers on average perform only slightly worse than their benchmark, helped by Chesapeake Energy’s move on Southwestern Energy a year ago to form Expand Energy. It’s early days, but the combined company’s shares have trounced those of peers so far. The value of the targeted cost savings more than justified the premium boss Nick Dell’Osso paid, Breakingviews calculated at the time. Diamondback Energy’s $26 billion purchase of Endeavor Energy Resources also has fared well by return standards.

Those exceptions, however, speak to the rarity of gigantic deals. They involved hefty synergies and stock-based components, meaning both sets of owners shared in the benefits. The dynamic tends to make price negotiations less contentious. Just as importantly, the target business models are similar to those of the new owners, meaning fund managers are essentially getting more of what they already want.

Precious few CEOs are blessed with slightly smaller versions of their own large outfits that also provide low-risk cost savings and are willing to swap shares. It’s one reason why so many of them get creative with their deal structures and overestimate the value they can create. By all means, let the buyer beware, but also be sure to beware the buyers.

(Westlaw) A New York blockchain engineer for Game Coin LLC has agreed to settle fraud charges for his role in a scheme that defrauded investors in the company’s digital token, according to the Securities and Exchange Commission.

Securities and Exchange Commission v. Zhu, No. 25-cv-54, complaint filed (M.D. La. Jan. 16, 2025).

The SEC’s complaint against Eric Zhu, filed Jan. 16 in the U.S. District Court for the Middle District of Louisiana, says the Game Coin token, GME, was sold on a platform using liquidity pools, which are pools of crypto asset pairs that may be exchanged.

According to the SEC, a person who deposits a token pair into a liquidity pool receives liquidity provider tokens, Absent safeguards, the holders of LP tokens can, without warning, withdraw liquidity from a pool, sell significant amounts of crypto assets into the pool and cause losses to investors, the SEC said. This practice is known as a “rug pull.”

High stakes

According to the complaint, two unnamed individuals formed Game Coin in August 2021 in Baton Rouge, Louisiana, with the goal to develop a marketplace for amateur athletes’ digital trading cards.

The two founders planned to promote Game Coin using GME, which would be the only currency that could be used to purchase their digital trading cards, the complaint says. They distributed GME through decentralized exchange PancakeSwap. The pair also designed a smart contract function for the tokens that included a 10% fee for any GME transaction, the SEC says.

From June to November 2021, the two individuals aggressively marketed GME, publishing a white paper and promoting it on social media, the SEC says.

They hired an advertising firm for a national campaign and claimed safeguards against “rug pulls” by claiming that the tokens were “liquidity locked,” according to the complaint.

The SEC says the two individuals hired a third person for GME distribution and website development. This third person enlisted Zhu for technical support, the complaint says.

On June 22, 2021, Zhu coded the GME smart contract, minted 100 billion tokens and burned 25 billion of them to increase the asset’s value, the SEC says.

The SEC claims that Zhu distributed 20 billion tokens to the unnamed individuals, in part for marketing purposes, and deposited the rest with Binance Coin into a pool named the GME Liquidity Pool. Zhu allegedly then transferred LP tokens to the third individual with locking instructions to prevent their withdrawal from the pool.

Pulling the rug?

On June 22, 2021, GME became available for purchase on PancakeSwap, with Zhu deploying a smart contract that charged a 10% fee on each transaction and automatically distributed the fees to various addresses, the SEC says.

Zhu allegedly retained control of 8.16 unlocked LP tokens, giving him the ability to withdraw liquidity from the GME Liquidity Pool at will, despite knowing investors expected safeguards against such actions.

In August 2021, the two GME founders hired technical support that identified vulnerabilities in LP token concentration, leading them to seek control of Zhu’s address containing the 8.16 unlocked LP tokens by Sept. 16, 2021, the SEC says.

The next month, Zhu withdrew GME and Binance Coin from the GME Liquidity Pool using unlocked LP tokens, the SEC says. He then sold GME back, causing a 12% price decline and investor panic, according to the commission.

The SEC says Zhu transferred approximately $553,000 worth of proceeds to an offshore crypto trading platform, leading the two GME founders to suspect a rug pull and eventually abandon the token’s promotion.

Zhu breached Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, 15 U.S.C.A. §§ 77q(a)(1) and 77q(a)(3), by engaging in interstate securities fraud, the SEC says.

He also breached Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, by engaging in deceptive practices, according to the complaint.

Without admitting or denying the charges, Zhu agreed to pay disgorgement and prejudgment interest of $672,992, and a civil penalty of $150,000, the SEC said in a Jan. 16 release.

(CryptoSlate) Solana-based Helium Network is gearing up to contest a lawsuit filed against it by the US Securities and Exchange Commission (SEC).

On Jan. 17, the SEC announced legal action against Nova Labs, the company behind the Helium Network.

The regulator claims Nova Labs violated securities laws by offering unregistered securities through its products and services. These include “Hotspots,” devices used for mining Helium’s HNT tokens, and the “Discovery Mapping” program, which rewards users with tokens in exchange for their private data.

The SEC also accuses Nova Labs of misleading investors about partnerships with well-known companies like Lime, Nestlé, and Salesforce.

According to the complaint, Nova Labs suggested these firms were active users of the Helium network, though the SEC alleges otherwise.

Helium’s response

On Jan. 19, Amir Haleem, CEO of Nova Labs, expressed confidence in the company’s ability to contest the claims.

He called the lawsuit unfounded and part of a larger pattern of enforcement targeting blockchain innovation in the US.

Haleem criticized the SEC for what he described as shifting and inconsistent arguments over the past two years. He noted that Helium has cooperated extensively with the SEC, even providing evidence of engagement with the companies mentioned in the complaint.

Haleem wrote:

“The icing on the cake is that we somehow defrauded our Series D investors, despite literally all of them telling the SEC that none of that happened. we’ve addressed this in the past, and have worked with every company on Helium mentioned in the complaint. apparently written testimonials from the companies themselves are insufficient for Gensler and his goons.”

He warned that labeling Helium Hotspots as securities could have far-reaching consequences for Decentralized Physical Infrastructure Networks (DePIN). According to Haleem, such a precedent would deter innovation and create additional risks for similar blockchain projects.

Haleem concluded:

“We’ll defend ourselves vigorously and continue the Gensler SEC’s track record of miserable losses and outright lies. not just for us, but for all DePIN projects. if Helium hotspots are securities, it puts all DePINs in danger. we won’t allow that to happen.”

(American Banker) Unless the new administration squashes it, soon banks and fintechs will need to work with the FDIC’s so-called Synapse rule, which would require them to ensure that the balances of custodial deposit accounts are accurate and reconciled on a daily basis.

“The majority of responsible, embedded finance and innovative banks are doing that today, or they’re in the process of making sure that they’re able to do that,” said Phil Goldfeder, chief executive officer of the American Fintech Council. “The fundamental responsibility of the bank partnering with a fintech company is reconciliation and ensuring that they know what money is coming and going. In bank-fintech partnerships, the buck stops with the regulated entity.”

For some smaller banks, this will be a tall order, said Konrad Alt, co-founder of Klaros Group.

“But it’s not unreasonable for regulators to expect this,” Alt said. “If you put your money in your bank, you want to be absolutely sure that your bank always knows where it is. That’s part of the deal when you give your money to a bank.”

This requirement is one of several challenges banks will need to cope with in the new year, as the ongoing dispute between Synapse and its partner banks, and approximately $65 million to $95 million of missing customer money, cast a shadow on bank-fintech partnerships.

The need for daily reconciliation

Banks’ core systems track most transactions that happen throughout the institution — in mobile and online banking, branches, ATMs and more — on a daily basis. Most U.S. banks use core systems from FIS, Fiserv and Jack Henry. (The three companies did not respond immediately to requests for interviews.)

To synchronize these systems with fintech partners’ daily transaction ledgers, a small cottage industry has emerged: companies that offer technology that can sit on top of a bank’s current core platform to track transactions to and from fintech partners. Treasury Prime, Unit and the now-bankrupt Synapse are all in this category.

Treasury Prime says it has been doing daily reconciliation between banks and fintechs for seven years. It connects directly with banks’ core systems and has active integrations with FIS, Fiserv, Jack Henry and COCC cores, according to Jeff Nowicki, chief banking officer. These integrations allow for real balancing between the end user accounts and “for benefit of” accounts with backing deposits, he said.

The company also maintains a separate FBO account for each fintech, rather than commingling accounts as Synapse did. It provides a bank console with views at the individual end-user level and at aggregate program levels, updated several times a day, Nowicki said.

Some people (mostly vendors of blockchain technology) think distributed ledgers would be a good answer to the reconciliation issue. Over the years, banks have made many attempts to share distributed ledgers (colloquially known as blockchains). But most have fallen apart over issues of control and not wanting to share data with competitors.

Future of banking as a service

One question about the future of banking as a service is whether or not the current regulatory crackdown will continue.

“I can’t think of a time when a particular corner of the banking system has been so thoroughly papered with enforcement actions,” Alt said. “It’s unusual by historical standards, and it’s obviously had a huge impact on these banks and a pretty big impact on their fintech partners.”

Some bankers and fintechs are hopeful this will change under the new administration, which is likely to be more friendly to nontraditional financial businesses, like fintechs and their partner banks. But Alt, who was formerly the second-ranking executive at the Office of the Comptroller of the Currency, pointed out that enforcement actions typically don’t start with the leaders of regulatory agencies.

“You don’t start out as an agency head saying I want to bring an action against Bank X,” said Alt. “What happens is your supervisory staff and legal team work together to develop findings and propose an appropriate order. By the time it works its way up to senior levels of the agency, it’s a well-documented case, and unless a staff member has committed a very clear error, which doesn’t often happen, intervening to stop a well-documented enforcement action from going forward means taking a ton of political risk.”

Alt expects to continue to see a disproportionate level of enforcement activity in banking as a service for at least another couple of years.

“It’s clear that the regulators have got a well-founded belief at the staff level that many of the banks in this space don’t manage risks very well,” Alt said. “That’s a bona fide, old-fashioned safety and soundness problem that these agencies are well within bounds to worry about.”

Yet because of the Republican administration coming in, Klaros has been fielding calls from community bankers who are thinking about dusting off plans to get into or expand banking-as-a-service activity.

“If they’re asking us for advice, we would say there might well be opportunity there,” Alt said. “But unless you’re prepared to invest, and you have the capital to invest in building really strong risk management and compliance, it is probably not a great idea. You will end up out over your skis, and you will eventually get into trouble.”

Most community banks are not flush with cash, Alt pointed out.

Banks are also becoming more cautious about choosing fintech partners, especially fintechs that are the subject of an enforcement order.

“Why would you take on that additional scrutiny?” Alt said. “Why would you bring in a new fintech partner that’s clearly got a regulatory target on its back? It’s just going to invite more regulatory scrutiny of your own risk management skills.”

On the other side of the equation, fintechs are getting choosier about their bank partners, too.

A handful, including Block, Brex, Mercury, Relay, Rho and Stripe, recently joined the Coalition for Financial Ecosystem Standards.

“We’ve seen a need on the fintech side for increased clarity and better standards on how fintech-bank partnerships operate right now,” said Mercury’s chief counsel, Robert Gonzalez.

Written rules are sparse in this area, he noted. And when banks receive guidance from their regulators, that guidance is not communicated to fintechs openly, he said.

“Because of the confidential supervisory information rules, the banks are receiving the guidance from their examiners, and then they have to play this game of telephone to the fintechs to get the fintechs to make changes on how they do things, without telling them exactly why or what the regulator said or what the discussion was about,” Gonzalez said.

The Coalition for Financial Ecosystem Standards is like a SOC II standard for fintechs, Gonzalez said. The group will agree on compliance standards for fintechs.

“Once this is up and running, there’ll be a mechanism to audit fintechs against those requirements, and someone could be CFES certified,” Gonzalez said. “So as a bank partner, if you’re going to work with a fintech, you know this fintech has passed some universally accepted, industry-leading benchmarks.”

(Westlaw). Interactive Brokers LLC has agreed to pay more than $2.2 million in fines to resolve allegations by the Financial Industry Regulatory Authority that it failed to restrict customers that engaged in a prohibited trading practice.

The settlement announced Dec. 30 resolves allegations that IB’s surveillance system did not monitor cash accounts for “free-riding” in options over more than seven years.

Free-riding is the act of buying securities in a cash account and selling them before the purchase settles and payment becomes due. Under Regulation T of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 220.8, broker-dealers must require a customer that has engaged in free-riding to pay for securities it purchases on the trade date, rather than the settlement date, FINRA said.

The self-regulator alleged that IB used an automated system to monitor cash accounts for free-riding since October 2015.

The system, however, was not programmed to surveil options trading, and IB failed to detect more than 4.2 million free-riding transactions through December 2022, FINRA said.

The error allowed more than 20,000 customers to avoid restrictions for free-riding violations, according to the self-regulator.

IB updated its system in early 2023 and issued restriction notices to customers who had engaged in free-riding in the previous 90 days, FINRA said.