Minimum Competence - Daily Legal News Podcast
Minimum Competence
Thurs 5/4 - SEC Real Time Hedge Fund Reporting, Indictment for Wire Fraud Ring, Starbucks Union Problems, Goldman Sued Relating to SVB, and more

Thurs 5/4 - SEC Real Time Hedge Fund Reporting, Indictment for Wire Fraud Ring, Starbucks Union Problems, Goldman Sued Relating to SVB, and more

We have the SEC approving a new near real-time hedge fund reporting rule, a grand jury indictment for a huge wire fraud ring, Starbucks union problems, Goldman caught up in SVB-related suit and more.

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The US Securities and Exchange Commission (SEC) has approved a new rule that requires hedge funds to share significant investment losses with regulators in near real-time. This marks a significant shift for an industry that is known for its secrecy and is expected to create more administrative work for businesses. Previously, funds have had to report positions in quarterly public filings. The SEC has announced amendments that require large hedge fund advisers and private equity fund advisers to file current reports in the event of certain reporting events that could indicate significant stress or investor harm. 

Large hedge fund advisers must file reports within 72 hours of events such as extraordinary investment losses, significant margin and default events, and terminations or material restrictions of prime broker relationships. 

Private equity fund advisers must file reports on a quarterly basis within 60 days of the fiscal quarter end for events such as the removal of a general partner or certain fund termination events. Large private equity fund advisers must also report information on clawbacks and provide additional information on their strategies and borrowings on an annual basis. 

The rule is part of a campaign by SEC Chair Gary Gensler to scrutinize private investments funds and to get a handle on swift-moving events that may pose systemic risks. Industry groups have expressed concerns that the requirement to quickly report major events will pose its operational challenges and may result in even shorter deadlines. However, some have applauded the SEC’s move. The final rule also requires large firms with at least $2 billion in assets under management to provide more data about their strategies, use of leverage, and a general partner’s performance compensation. Separately, the SEC approved changes to increase the data that public companies must disclose about their stock buyback programs.

Big Hedge Funds Face New 72-Hour Deadline to Report Losses (3)

SEC Adopts Amendments to Enhance Private Fund Reporting

A federal grand jury in Los Angeles has indicted 14 defendants for their participation in a years-long scheme to steal millions of dollars from American consumers’ bank accounts. The indictment alleges that the defendants were members and associates of a racketeering enterprise that unlawfully debited money from the bank accounts of unknowing U.S. consumer-victims. The enterprise obtained identifying and banking information for victims and created shell entities that claimed to offer products or services, such as cloud storage. The enterprise then executed unauthorized debits against victims’ bank accounts, which it falsely represented to banks were authorized by the victims. To conceal and continue conducting unauthorized debits, the enterprise’s shell entities also generated “micro debits” against other bank accounts controlled and funded by or for the enterprise. Co-conspirator Harold Sobel was previously convicted for his role in the scheme and sentenced to 42 months in prison.

The indictment charges the defendants with racketeering conspiracy and wire fraud, and they face a maximum penalty of 20 years in prison for racketeering conspiracy and, if applicable, 30 years in prison for each count of wire fraud. The Department of Justice urges the regular checking of bank, credit card, and other financial statements and contacting financial institutions if an unrecognized charge is seen, as well as reporting any fraudulent debits identified to law enforcement. The USPIS is investigating the case, and the Consumer Protection Branch, in conjunction with the USPIS, is pursuing wrongdoers who disguise the unlawful nature of business activities by, among other methods, artificially lowering financial account return rates. 

Network of Transnational Fraudsters Indicted for Racketeering in Scheme to Steal Millions from American Consumers’ Bank Accounts | OPA | Department of Justice

Starbucks is set to appear in front of a US appeals court in Cincinnati, Ohio to argue that a lower court was wrong to reinstate seven employees who had been fired for leading union organizing efforts at a Memphis café. The company's lawyers are expected to say that the Memphis workers were fired for breaching safety policies rather than for anti-union reasons. Starbucks has previously denied accusations of union busting and claims that it offers competitive wages, benefits and rights under federal labor law. The case in Memphis is one of many disputes arising from a nationwide union campaign at the company. More than 540 complaints have been filed with the labor board, accusing the firm of illegal labor practices. Starbucks is also appealing a February ruling that ordered it to cease and desist from disciplining or firing employees at a café in Ann Arbor, Michigan. The company has been union-free for decades but almost 300 Starbucks cafés in the US have unionized since late 2021.

Starbucks pushes appeal in Memphis union case; US labor tactics scrutinized | Reuters

Goldman Sachs has been named as a defendant in a securities class action lawsuit related to SVB Financial Group's share offerings in 2021 and 2022. The lawsuit alleges that the offer documents contained material misstatements and omissions. The complaint asserts claims under the federal securities laws and seeks compensatory damages in unspecified amounts. The lawsuit was filed on April 7 in the U.S. District Court for the Northern District of California. On March 17, SVB Financial Group filed for a court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets, days after its former unit Silicon Valley Bank was taken over by U.S. regulators. The loss on the portfolio was the reason SVB, a technology-focused lender which did business as Silicon Valley Bank, attempted a $2.25 billion stock sale earlier that month using Goldman Sachs as an adviser. Financial stocks have lost billions of dollars in value in the aftermath of the collapse of Silicon Valley Bank and Signature Bank and saw nervous depositors flee to larger 'too-big-to-fail' institutions with their capital.

Goldman Sachs named as defendant in SVB-related class action lawsuit | Reuters

Speaking of SVB…

Federal Reserve Chair Jerome Powell criticized the leadership of Silicon Valley Bank (SVB) and blamed poor management for the bank's collapse, which he described as an isolated instance caused by poor judgment. SVB, a bank popular with technology startups and venture capitalists, collapsed earlier this month after failing to raise cash, which led to panicked depositors withdrawing their funds. Powell stated that the bank grew too quickly, exposed itself to significant liquidity risk and interest rate risk, and didn't hedge that risk. The bank's collapse is the second-largest bank failure in U.S. history. Powell declined to elaborate on his view of what went wrong at SVB or address whether Fed regulators could have prevented the bank's failure. Powell assured investors and ordinary bank customers that SVB's problems were unusual and don't reflect systemic problems with the country's banks. Many Americans have qualms about banks, with nearly two-thirds of Democrats and half of Republicans saying they want more regulation of the finance industry, according to a new AP-NORC poll. SVB and Signature Bank had lobbied for Congress to loosen bank regulations five years ago, shielding midsize lenders, including SVB, from annual Fed "stress tests" to gauge their health and other government oversight. Shareholders in SVB have filed a class-action lawsuit against its parent company, CEO Greg Becker, and Chief Financial Officer Daniel Beck, alleging that the company failed to disclose the risk that rising interest rates could disrupt its business.

Silicon Valley Bank leaders "failed badly," Fed Chair Jerome Powell says - CBS News

Minimum Competence - Daily Legal News Podcast
Minimum Competence
The idea is that this podcast can accompany you on your commute home and will render you minimally competent on the major legal news stories of the day. The transcript is available in the form of a newsletter at