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Volume XII, Number 225

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Cadwalader Cabinet: Sanctions Syllabus

 

CRS Summarizes U.S. and European Sanctions on Russia

The Congressional Research Service ("CRS") reviewed the sanctions imposed on Russia by the United States and other Western nations in response to Russia’s invasion of Ukraine.

The researcher summarized the various financial and trade sanctions:

SWIFT Sanctions

The Society of Worldwide Interbank Financial Telecommunication (“SWIFT”), the system used for cross-border payment messaging, is removing certain Russian banks from the network to make it more “difficult for them to process cross-border payments.” CRS noted, however, that not all Russian banks had been removed from SWIFT to allow “continued payments for European imports of Russian natural gas.”

Central Bank and Sovereign Debt Sanctions

The G-7 countries are freezing Bank of Russia assets in their jurisdictions. CRS researchers estimated that about half of the approximately $630 billion in Russian foreign reserve holdings could be frozen. Additionally, the researchers described sanctions that restrict Russia’s access to Western capital markets and ability to process transactions in U.S dollars - with a notable exception for energy-related transactions.

Export Controls

CRS researchers considered the U.S. Department of Commerce’s Bureau of Industry and Security notice of a new rule that would block the export of certain technologies to Russia, including goods made in foreign countries with “controlled U.S. technology.” The researchers asserted that the new rule targeted technologies used by the Russian military and was not all-encompassing, allowing for certain exceptions like consumer electronics.

CRS researchers concluded that these sanctions would likely result in (i) a run-on Russian banks, (ii) disruption to Russian capital markets, and (iii) depreciation of the Russian currency along with inflation. CRS noted that Western economies would also be negatively affected because of their reliance on Russian energy and commodities like wheat, metals, and chemical gases.

MSRB Extends Period for Remote Office Inspections

The MSRB voted to amend MSRB Rule G-27 ("Supervision"), to allow dealer firms to conduct office inspections remotely. The extension runs until December 31, 2022. The relief was otherwise set to expire June 30, 2022.

The MSRB stated that when conducting remote inspections, a dealers should (i) amend its written supervisory procedures to provide for remote inspections, (ii) be confident that its remote office inspections are effective, and (iii) maintain the required records for all offices that had inspections conducted remotely and for any offices where the dealer determines a need for frequent monitoring.

SEC Sues Adviser for Operating a Cherry-Picking Scheme

The SEC sued an investment advisory firm and its principal for operating a multi-year cherry-picking scheme.

According to the SEC Complaint, filed in U.S. District Court, Eastern District of Pennsylvania, from January 1, 2011, through December 31, 2015, the principal of the firm traded securities through the firm’s master trading account and observed the performance throughout the day. The SEC alleges that the principal then disproportionately allocated securities that performed profitably to herself as securities decreased in value to clients. The securities allocated from the firm’s master trading account to the principal’s and her family’s accounts increased in value by more than 2%, or over $1 million, while the securities that were allocated from the firm’s master trading account to the principal’s clients decreased by over $1 million, or over 1.3%.

The Complaint charged the firm and its principal for violations of the antifraud provisions of the SEA Section 10(b) ("Position limits and position accountability for security-based swaps and large trader reporting"), and Rule 10b-5 ("Employment of manipulative and deceptive devices") thereunder, SA Section 17(a)("Fraudulent interstate transactions"), and IAA Sections 206(1) and 206(2) ("Prohibited transactions by investment advisers"). It also charged the firm for violation of IAA Section 206(4), and Rule 206(4)-7 ("Compliance procedures and practices"), thereunder, and charged the principal for aiding and abetting those violations under IAA Section 209(f)(Aiding and abetting").

The SEC seeks (i) injunctive relief, (ii) disgorgement of all funds the principal received from her illegal conduct with prejudgment interest, and (iii) payment of civil penalties by the firm and its principal.

Primary Sources:

  1. CRS: Russia’s Invasion of Ukraine: New Financial and Trade Sanctions

  1. SEC Complaint: SEC v. Marguerite Cassandra Toroian and Bell Rock Capital, LLC

  2. SEC Charges Delaware-Based Investment Adviser and Its Principal with Conducting a Fraudulent "Cherry-Picking" Scheme

 

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 61
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