SEC slaps stablecoin issuer Circle with a subpoena as the agency homes in on crypto

circle
Circle.

  • The SEC has issued an “investigative subpoena” to USD coin issuer Circle Financial.
  • The subpoena was sent to Circle in July as the stablecoin backer filed for a $4.5 billion SPAC deal.
  • The SEC is asking for information on Circle’s “holdings, customer programs, and operations.”
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The Securities and Exchange Commission has issued an “investigative subpoena” to USD coin issuer Circle Financial as the agency ramps up its scrutiny of the crypto industry.

The subpoena was sent to Circle in July as the stablecoin backer filed for a $4.5 billion SPAC deal with sponsor Concord Acquisition Corp.

The regulator is asking for information on Circle’s “holdings, customer programs, and operations.”

Circle told several outlets that it was cooperating with the investigation but couldn’t comment on specifics. CoinDesk first reported the subpoena on Monday.

The SEC’s interest in Circle was not made clear in the subpoena. But a potential focus could be a recent interest-bearing product called Circle Yield that the stablecoin issuer is rolling out.

Many of the SEC’s recent crypto enforcement actions have centered on the legal definition of a security. For instance, the agency’s back-and-forth with Coinbase in September over the crypto exchange’s Lend product saw the SEC threaten to sue over an unregistered securities offering.

Coinbase CEO Brian Armstrong has complained that the agency’s “sketchy” enforcement approach makes it hard for crypto companies to know what is allowed.

Circle isn’t new to dealing with the SEC. Also in July, Circle said it had set aside $10 million for a possible settlement with the agency over Poloniex, a crypto exchange and former Circle subsidiary. But in August, when the SEC formally settled with Poloniex, Circle said it was not part of the settlement deal.

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Chamath Palihapitiya among SPAC sponsors asked by senators about potential conflicts of interest

Founder/CEO of Social Capital, Chamath Palihapitiya, speaks onstage during the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on October 19, 2016 in San Francisco, California, and Senator Elizabeth Warren (D-MA) speaks during a Senate Finance Committee hearing June 8, 2021 on Capitol Hill in Washington, D.C.
Senator Elizabeth Warren (D-MA) and Founder and CEO of Social Capital, Chamath Palihapitiya.

Chamath Palihapitiya, once dubbed the “SPAC King,” and five other blank-check company sponsors were asked by Senator Elizabeth Warren and three other Democratic legislators about conflicts of interest and business practices that disadvantage retail investors.

The letters pointed to the alleged “range of maneuvers – some of them downright astonishing to the uninitiated – to win even when investors lose.”

“We seek information about your use of SPACs in order to understand what sort of Congressional or regulatory action may be necessary to better protect investors and market integrity and ensure a fair, orderly, and efficient marketplace,” the letters added.

Warren as well as Sens. Sherrod Brown, Tina Smith, and Chris Van Hollen sent identical individual letters dated September 22 to Palihapitiya, co-founder and CEO of The Social+Capital Partnership; Michael Klein, founder of M. Klein & Associates; Stephen Girsky, managing partner at VectoIQ; Tilman Fertitta, chairman and CEO of Fertitta Entertainment; Howard Lutnick, chairman and CEO of Cantor Fitzgerald; and David Hamamoto, CEO and chairman of DiamondHead Holdings.

The senators said they expect a response by October 8.

SPACs, or special purpose acquisition companies, are shell companies that list with the aim of merging with private companies and taking them public. Several major companies such as Virgin Galactic and DraftKings have debuted via SPACs.

Touted as a faster and cheaper alternative for companies to go public compared to the traditional IPO, they have garnered support from Wall Street heavyweights as well as pop icons and professional athletes. But they also require fewer disclosures than IPOs do.

SPACs, which have been around for decades, rocketed to prominence last year with the trend accelerating in 2021. Year-to-date SPAC issuance has far outpaced full-year 2020 totals.

“This meteoric rise is concerning,” the letters said. “The SPAC process often appears to be structured to exploit retail investors to the benefit of large institutional investors such as hedge funds, venture capital insiders, and investment banks.”

The senators said industry insiders can “take advantage of ordinary investors throughout this process,” such as making “overly optimistic statements about target companies” – something not allowed in a traditional IPO route.

“Statements by SPAC sponsors to convince shareholders to vote in favor of a merger may not have to meet the same disclosure standards,” the senators added.

The concerns raised by the lawmakers aren’t the first time authorities have questioned the process of SPACs.

The US Securities and Exchange Commission, under then Acting Chair Allison Herren Lee, began an inquiry in March into Wall Street’s blank-check company craze by seeking voluntary information.

And current Chair Gary Gensler said in July the SEC was investigating major banks over conflicts of interest in the SPAC deal-making process that exploded in the past year.

Other controversies seem to follow SPACs. In August, billionaire hedge fund manager Bill Ackman’s blank check firm, Pershing Square Tontine Holdings, was sued by former SEC Commissioner Robert Jackson and Yale law professor John Morley for not operating as a SPAC.

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eToro postpones plans to go public via SPAC to the 4th quarter, citing regulatory delay

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An eToro logo is seen on a smartphone and a computer screen.

  • eToro is postponing its plans to go public to the fourth quarter, citing regulatory delays.
  • The company first announced its plans to list in March through a $10.4 billion merger with Betsy Cohen’s FinTech V SPAC.
  • The Robinhood rival has been looking to expand in the US, a region that accounts for only 12% of its users.
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Online trading platform eToro is postponing its plans to go public via blank check merger to the fourth quarter – slightly later than its initial plans to debut during the third – citing regulatory delays.

The platform told Insider via email that it has already filed its F-4 publicly and is in the final stages of comments from the US Securities and Exchange Commission. F-4 is a type of SEC filing that mandates foreign issuers to register certain securities.

Once approved, SPAC shareholders need to vote on the transaction, which takes 20 days, and then a few more days to finalize, eToro said.

“Given this timeline and where we are today, we wanted to be transparent with the market that a Q3 closing was no longer possible,” eToro told Insider. “We have been working closely with the SEC since before we publicly announced the transaction and continue to do so.”

Financial News was first to report.

The company first announced its plans to list in March through a $10.4 billion merger with Betsy Cohen’s FinTech V SPAC.

The brokerage, which competes with apps like Robinhood, has been looking to expand in the US, a region that accounts for only 12% of its users. As of the second quarter of 2021, most of eToro’s customers are in Europe, comprising 68%, followed by the Asia Pacific region at 15%.

“We are committed to expanding our crypto offering,” Yoni Assia, eToro CEO and cofounder, told Insider in August. “We’re very excited about the outsized growth that we’re seeing in America.”

In the second quarter of 2021, crypto assets drove 73% of eToro’s total trading commissions compared with 7% in the same period last year.

SPACs, shell companies that list with the aim of merging with private companies and taking them public, have exploded in popularity, and year-to-date SPAC issuance has far outpaced full year 2020 totals.

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An exchange for trading in shares of private companies is going public via $2 billion SPAC deal

Wall Street
  • Forge Global will go public in a merger with a SPAC valuing the firm at $2 billion, the WSJ reported.
  • Forge allows investors to trade shares of pre-IPO companies.

Forge Global, a firm that allows customers to trade shares of pre-IPO companies is going public in a SPAC merger with Motive Capital Corp. in a deal that values the company at $2 billion, the Wall Street Journal reported on Monday.

The deal is expected to close later in 2021, and would mark the first public listing of a marketplace for private shares. Forge expects to raise $500 million from the offering, according to the WSJ.

Forge, based in San Francisco, says it has almost 400,000 registered users, though due to Securities and Exchange Commission guidelines, individual investors must be accredited or high net worth individuals, while the rest using Forge’s platform are professional investment managers.

According to the WSJ, Forge has handled $10 billion of trades in shares of 400 companies since it was founded in 2014, including Lyft, Robinhood, and Palantir before they went public. While Forge will be the first private share marketplace to go public, there are a number of other firms competing in the same space.

Earlier this year, Nasdaq announced it would spin off its private shares exchange into a separate business backed by investment from Citi, Goldman Sachs, and Morgan Stanley, among others. Other firms similar to Forge include Carta, EquityZen, and ClearList.

Motive Capital is a blank-check company backed by fintech-focused private equity firm Motive Partners. The SPAC is led by former JPMorgan executive Blythe Masters.

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The CEO of a company about to go public via SPAC is reaching out directly to Reddit as blank-check firms try new ways to keep investors interested

Reddit screen on laptop with smartphone reddit logo
  • The CEO of a food technology company is looking to answer questions from retail investors before his firm goes public via a SPAC.
  • Matt Crisp of Benson Hill announced on Reddit that his company will be answering retail questions before listing publicly.
  • The move comes as many blank check firms struggle following their IPOs or post-SPAC mergers.
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Trying to get in touch with retail investors before your company goes public? Head to Reddit’s r/SPACs channel and ask them questions directly.

That’s what Matt Crisp, CEO of Benson Hill did on Thursday. His food technology company will be going public in New York via a SPAC later this month, and he wants input from retail investors during the process.

“We want our food system to be driven by consumers for consumers, with a greater focus on transparency and inclusion. That’s why I wanted to reach out to this community directly,” Crisp said in a Reddit post.

Crisp announced that Benson Hill will be partnering with Robinhood-owned Say Technologies to respond to retail investor questions in a forum on September 17th ahead of the company’s formal listing.

“Say has done a great job partnering with some interesting companies on quarterly earnings calls, and we wanted to extend the concept to address questions during the SPAC process, too, he said. “We recognize the attention paid to SPACs these days and want to leverage the platform in a positive way – which means more transparency and direct communications with a broad range of investors,” said Crisp.

Benson Hill’s effort to go the extra mile to connect with retail investors before its SPAC listing comes as blank-check deals struggle to gain traction. 75% of the 137 deals that closed by mid-February have fallen before their initial listing price, according to data from the Wall Street Journal.

Meanwhile, SPAC shareholders’ discontent with companies is evident in the growing number of redemptions. On average, SPACs that closed in August saw 58% of shares get redeemed, according to SPAC Research data cited by DealBook.

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Billionaire investor John Paulson blasts crypto as a worthless bubble, warns SPACs are overvalued, and predicts stubborn inflation in a new interview. Here are the 14 best quotes.

John Paulson
John Paulson.

  • John Paulson said crypto is a bubble, SPACs are overpriced, and inflation is here to stay.
  • The billionaire investor outlined why interest rates could jump and the gold price might soar.
  • Paulson shot to fame after making a fortune betting on the US housing market to collapse.
  • See more stories on Insider’s business page.

John Paulson dismissed cryptocurrencies as worthless, warned the SPAC market is overvalued, and sounded the inflation alarm in the latest episode of “Bloomberg Wealth with David Rubenstein.”

The billionaire investor is best known for betting against the housing bubble and making upwards of $15 billion for himself and his clients – a wager chronicled in the book “The Greatest Trade Ever.”

Paulson reflected on his big short, explained why he’s excited about gold and credit, and offered advice to novice investors in the Bloomberg interview.

Here are Paulson’s 14 best quotes, lightly edited and condensed for clarity:

1. “Mortgage-backed securities were viewed as the safest securities next to Treasuries, and that was essentially true up until that point. What they missed was the underwriting quality had never been as poor, so the fact that they hadn’t defaulted in the past had nothing to do with whether they would default in the future.” – explaining why other investors didn’t emulate his bet against the housing market.

2. “One of our investors called me. He said, ‘Uh, John, I just got the monthly results. I think there was a mistake, it said 66%, you meant 6.6%,’ and I said, ‘ No, it was 66%.’ He goes, ‘That’s impossible, I’ve invested with Soros, with Tudor Jones, with everyone. No one’s been up 66% in a year. How can you be up 66% in a month?’ I said, ‘Well, that’s what happened.'” – Paulson’s funds ended up returning close to 800% for the year in 2007.

3. “There’s a perception in the market that this inflation is transitory. Investors bought the Fed line that it’s just temporary due to the restart of the economy and it’s eventually gonna subside. Our viewpoint is the markets are currently too complacent regarding inflation. We have inflation coming well in excess of what the current expectations are.”

4. “The area that’s most mispriced today is credit. If inflation doesn’t subside, interest rates will catch up and bonds will fall, and various options strategies could offer very high returns.”

5. “As inflation picks up, people try and get out of fixed income, try and get out cash. The logical place to go is gold, especially if it starts to rise in inflationary times. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply-and-demand imbalance causes gold to rise, and the more it rises – it sort of feeds on itself. It has the potential to go parabolic.”

6. “If inflation does prove to be higher than expectations, that will result in both higher gold prices and higher interest rates. If you get those two happening at the same time, we could set up positions that could return 25- or 50-to-1.”

7. “We went through probably the worst financial crisis imaginable with COVID, in which the entire economy shut down. If it wasn’t for the very aggressive policies of the Fed and the Treasury, we could have dove into a deep recession. But by providing all the monetary and fiscal stimulus that they did, they really minimized the downturn, resulting in a very rapid recovery.”

8. “The SPAC market is overvalued. It’s not quite a bubble but it clearly shows elements of a frothy market, there’s just too much liquidity. Investing in SPACS, on average, will be a losing proposition.” – discussing the outlook for special-purpose acquisition companies.

9. “I wouldn’t recommend anyone invest in cryptocurrencies. They’re a bubble, a limited supply of nothing. There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount. They will eventually prove to be worthless. Once the exuberance wears off or liquidity dries up, they will go to zero.”

10. “There’s unlimited downside in crypto. It’s just too volatile to short. Even though I could be right over the long term, in the short term, bitcoin went from $5,000 to $45,000 – I would be wiped out on the short side.”

11. “Invest in areas that you know well. Anyone can be lucky in a particular investment, but that’s not a long-term strategy. If you invest in areas that you don’t know, ultimately you’re not going to do well. Concentrate on particular areas that you know better than other people, and that’s what gives you an advantage to succeed in investing.”

12. “They look for get-rich-quick schemes and they buy based on stories. They chase investments that are going up, but ultimately those investments deflate and they lose money.” – highlighting a common mistake among newbie investors.

13. “The best investment for an average individual is to buy their own home.” – Paulson emphasized that homeowners generally see their properties grow in value over time, boosting their return on investment.

14. “Do what you’re passionate about. You can be successful in music, dance, medicine, physics, math – the important thing is you pursue a career in what you’re naturally passionate about. That will improve your odds of achieving success.”

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A SPAC sell-off has destroyed $75 billion in value over the past 6 months as interest in blank-check deals shrivels

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Chinese career agencies promise to help students land top-tier internships

  • SPAC deals are falling from grace as $75 billion of value has evaporated in just six months, according to the Wall Street Journal.
  • Some 75% of the 137 deals that closed by mid-February have fallen below their initial listing price.
  • SPAC investors’ discontent is evident in growing redemptions – cashing in on their right to pull out.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

SPAC deals are swiftly falling from grace as $75 billion of value has evaporated in just six months, according to a Wall Street Journal report.

The collective value of 137 deals that closed by mid-February has plunged 25% since the start of the year, totalling $75 billion in lost value, according to the Journal, citing a Dow Jones Market Data analysis. Some 75% of the deals have fallen below their initial listing price – a marked contrast to the salad days of SPACs when prices would almost always go up.

That compares unfavorably to the Renaissance IPO ETF, which tracks the fortunes of recent IPOs and which lost 12% during the same period. Both trailed the broader S&P 500, gaining about 20% year-to-date.

The SPAC losses were particularly pronounced in green-energy deals that have attracted outsized attention from investors, including from those traditionally focused on fossil fuels.

“Air has come out of the bubble,” Roy Behren, managing member at Westchester Capital Management, told the Journal. “That’s the cost of speculating in companies that have potentially bright but uncertain futures.”

Existing SPACs that have not yet closed deals are increasingly facing a choice between bad and worse. More than 95% of SPACs that have not announced deals are trading below their initial listing price, but it is now common for deal announcements to shrink share price, according to the Journal.

SPAC investors’ discontent is evident in growing redemptions – cashing in on their right to pull out. On average, SPACs that closed in August saw 58% of shares get redeemed, according to SPAC Research data cited by DealBook.

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A-Rod’s SPAC has reportedly ended merger talks with a sports collectibles maker after it lost a licensing deal with the NBA and NFL

Alex Rodriguez
  • The SPAC backed by Alex Rodriguez has ended talks with Panini after it lost licensing deals with NBA and NFL, Bloomberg reported.
  • The SPAC, Slam Corp. had been conducting due diligence on a transaction that would value Panini at $3 billion.
  • NBA and NFL trading cards were supposed to be exclusively manufactured by Panini through 2025 and 2026.
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The blank-check company backed by retired baseball star Alex Rodriguez has ended merger talks with Panini after the sports collectibles maker lost licensing deals with the National Basketball Association and National Football League, Bloomberg first reported.

Slam Corp. had been conducting due diligence on a transaction set to value the iconic Italian sticker brand at $3 billion, Bloomberg reported in July.

The discussions, however, ended following news that sports merchandising company Fanatics had signed with leagues including the NBA, NFL, and MLB, multiple reports said.

NBA and NFL trading cards were supposed to be exclusively manufactured by Panini through 2025 and 2026. Now, the company will lose those rights to Fanatics.

In a similar move, the MLB this summer ended its long-standing partnership with Topps and agreed to a new contract with Fanatics. This led to another SPAC, Mudrick Capital Acquisition, to terminate its proposed merger with Topps in August.

Panini, named after the brothers who founded it, was established in 1961 in Modena, Italy. It made its first FIFA World Cup stickers for the 1970 soccer tournament in Mexico, making trading cards and sticker collections a part of the experience ever since. Some rare stickers can fetch high prices on the collectors’ market and at an auction.

SPACs, shell companies that list with the aim of merging with private companies and taking them public, have exploded in popularity in the past few years.

But the frenzy is also drawing the attention of regulators, who are looking into tightening the rules, particularly around projections of future earnings potential and conflicts of interest among dealmakers.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. 2021 has far outpaced that total already, with data showing 421 SPACs raising $122 billion, comprising 44% of initial public offerings.

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Forbes is going public via $630 million SPAC merger with Magnum Opus Acquisition

In this photo illustration a Forbes logo seen displayed on a smartphone.

Forbes Global Media is going public through a blank check merger with Magnum Opus Acquisition in a deal that will value the combined entity at $630 million, according to an announcement on Thursday.

The business news organization, which publishes Forbes magazine, is expected to raise approximately $600 million of gross proceeds, which comprises around $200 million of cash held in Magnum Opus’ trust account and roughly $400 million private investment in public equity, or PIPE, the announcement said.

The transaction, which is expected to close in the fourth quarter of 2021 or the first quarter of 2022, will be used to further the digital transformation push at the company.

Forbes said it will also use its fund to “convert readers into long-term, engaged users of the platform, including through memberships and recurring subscriptions to premium content and highly targeted product offerings.”

The management team at Forbes will remain in place after the deal under the leadership of CEO Mike Federle, the announcement said.

Forbes is best known for curating lists of wealthy business icons and influential leaders around the world. The brand reaches more than 150 million people and covers 76 countries.

Magnum Opus Acquisition is a blank-check firm led by CEO Jonathan Lin. It is sponsored by L2 Capital, a private investment firm.

Forbes is just the latest media organization to go public. In June, Buzzfeed agreed to go public, also via SPAC acquisition.

SPACs, shell companies that list with the aim of merging with private companies and taking them public, have exploded in popularity in the past few years.

This method is typically done in lieu of an IPO or a direct listing and has garnered support from Wall Street heavyweights as well as pop icons and professional athletes.

But the frenzy is also drawing the attention of regulators, who are looking into tightening the rules, particularly around projections of future earnings potential and conflicts of interest among deal makers.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. Over halfway through 2021 alone, data already show 414 SPACs that have raised $121 billion, comprising 44% of initial public offerings.

The past few months however have seen a slight cooling off in the market, as first-day trading spikes that were common in the space earlier this year evaporate.

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The lawyers making money behind the scenes of emerging fields like crypto, cannabis, and the influencer economy

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Lawyers are in the background of every emerging industry, drafting contracts and interpreting laws.

  • Entrepreneurs are making billions of dollars in emerging industries like cannabis and crypto.
  • Lawyers are behind the scenes, inking deals, and navigating ever-changing regulatory landscapes.
  • Insider tracked down the most powerful attorneys shaping the highest growth industries.
  • See more stories on Insider’s business page.

19 crypto and blockchain-focused lawyers who are inking deals, fighting lawsuits, and navigating fast-evolving regulations

Digital assets have boomed over the past decade, moving from a niche hobby to a mainstream investment. Big names like MassMutual, MicroStrategy, and Tesla have bought Bitcoin; PayPal and Square’s CashApp have made it easy to buy crypto with the tap of a finger; and major financial players like BNY Mellon and Visa and Mastercard have said they’re planning to offer custody and transaction services for certain digital assets.

Meanwhile, lawyers have been riding the wave, helping clients reimagine finance while avoiding lawsuits, scandals, and enforcement actions.

Read the full story here.

The top law firms putting together blockbuster cannabis deals worth billions

As more states legalize recreational cannabis use, companies are scrambling to capture new markets and scale up. But cannabis is still federally illegal in the US, and that’s where lawyers come in.

Insider pulled the 10 largest cannabis-industry deals worldwide since the start of 2020, including M&A, capital raises, and debt financing, and pinpointed which law firms worked on them.

Read the full story here.

The top lawyers who work with YouTube, TikTok, and Instagram creators

Social media isn’t just an idle pastime: it fuels a $15 billion influencer industry. As digital creators eat up more attention in entertainment, law firms that once focused on representing TV and movie stars are now chasing after YouTubers and TikTokers.

To better understand how influencers are transforming entertainment law, Insider compiled a list of the leading law firms that represent digital creators across YouTube, Instagram, and other social-media platforms.

Read the full story here.

The bankers, brokers, and big money transforming litigation finance from a lawyer’s hustle to a multibillion-dollar asset class

Commercial litigation funding, in which investors advance money to businesses for the costs of lawsuits, is booming. Litigation funders now have $11.3 billion invested or ready to invest in US commercial litigation, according to a recent estimate by Westfleet Advisors.

Insider spoke to dozens of funders, lawyers, and finance professionals to learn the names of lawyers and companies transforming the industry.

Read the full story here.

The top lawyers, advisors, salespeople behind the SPAC boom

SPACs raised more than $80 billion in 2020, more than five-times the previous year’s total. Insider spoke with more than a dozen people in the industry to identify the biggest lawyers and bankers behind the SPAC boom.

Read the full story here.

18 immigration lawyers who help tech startups land top talent from abroad

Immigration lawyers hold the keys to a startup’s No. 1 competitive advantage: its people. They help growing companies hire the best talent from anywhere, steering them through a daunting US immigration system that places higher scrutiny on startups than big corporations. Insider reporters identified the top immigration attorneys helping startups and their founders secure work visas.

Read the full story here.

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