The Morning Risk Report

Sponsored by

Good morning. A financial firm’s decision to disclose recordkeeping rule violations directly to the U.S. Securities and Exchange Commission can potentially reduce the fine it receives by a significant amount, a senior enforcement official said.

Sanjay Wadhwa, deputy director of the SEC’s enforcement division, on Wednesday detailed how the regulator assesses fines in such cases, adding that he was responding to “a critique from the defense bar” that the agency was “picking numbers at random.” The SEC’s fines have ranged between $2.5 million for one firm to up to $125 million each imposed on a number of firms over recordkeeping failures.

• The “Recordkeeping Initiative:” The U.S. securities regulator over the past few years has ramped up its enforcement against Wall Street firms’ use of forbidden messaging apps to do business. Regulators say the use of apps such as WhatsApp and iMessage to talk business undermines their ability to get the records they need for oversight.
  
   
• Factors the SEC considers: Wadhwa said the agency takes into account the size of the firm to ensure that the penalties serve as an adequate deterrent against future violations and that it uses previous settlement orders as a guide. It also weighs the scope of the violations, such as the number of individuals that communicated using forbidden messaging apps, as well as a firm’s compliance efforts to prevent off-channel communications, including the timely adoption of technological solutions.
  
   
• The most significant factor “in terms of moving the needle on penalties” is whether the firm chooses to voluntarily self-report the violations to the agency, according to Wadhwa. A firm that doesn’t self-report can still receive credit based on its cooperation during the investigation, he said.

SEC enforcement chief touts progress in Coinbase case.

A top Securities and Exchange Commission official highlighted a federal court’s favorable decision in the lawsuit regulators filed against Coinbase Global last year and scolded the broader crypto industry for trying to undermine the agency’s authority.

SEC Enforcement Director Gurbir Grewal made the remarks Wednesday at a legal conference in Washington. Grewal quoted portions of U.S. District Judge Katherine Polk Failla’s recent order allowing the SEC’s case against Coinbase to proceed.

Failla largely rejected Coinbase’s argument that regulators misapplied a seminal 1946 Supreme Court test to the crypto industry and digital-asset exchanges. That means the civil case can move to the evidence-discovery phase.

“Court after court has confirmed the federal securities laws apply equally to everyone,” Grewal said at the Practising Law Institute’s annual SEC Speaks conference. “You don’t get your own set of rules.”

• Nigeria has introduced more charges against Binance, and a U.S. company executive that it is holding in detention.
  
   
• Disney defeated activist shareholder Nelson Peltz in a bruising fight for influence in the entertainment giant’s boardroom, handing Chief Executive Bob Iger a major victory over one of Wall Street’s most aggressive investors.

Janet Yellen missed the first ‘China shock.’ Can she stop the second?

The first time Janet Yellen went to China, she was impressed.

Then the top economist in Bill Clinton’s White House, she saw an economy booming with the support of Western-style market changes. The growth was lifting millions out of poverty, and Yellen was eager to nurture closer ties in the run-up to Clinton’s state visit to China in 1998.

Now, as Yellen prepares to travel to China this week as President Biden’s Treasury secretary, that optimism has given way to a sense of alarm. A cascade of inexpensive Chinese clean-energy goods is driving down prices on global markets, threatening to snuff out American efforts to nurture a domestic clean-energy industry. In meetings in Guangzhou and Beijing, Yellen is expected to tell her Chinese counterparts to stop relying on exports to prop up their underperforming economy and instead boost their own consumer market.

• President Emmanuel Macron of France held confidential calls with President Biden and German Chancellor Olaf Scholz in February to lay the groundwork for a Paris summit that he hoped would shake up the West’s strategy in the Ukraine war.
  
   
• Stronger-than-anticipated economic activity this year hasn’t changed the Federal Reserve’s broad expectation that declining inflation will allow for interest-rate cuts this year, Chair Jerome Powell said Wednesday.
  
   
• The Israeli military said an initial investigation into a strike that killed seven aid workers in Gaza found its forces had wrongly identified their vehicles as hostile targets, as Israel responds to international condemnation and tries to contain the fallout from a hunger crisis in the enclave.

• The Israeli strike that killed seven aid workers in Gaza is the latest example of a persistent political problem for President Biden: His approach to the Israel-Hamas war has left him squeezed on both sides.
  
   
• Pepsi and Cheetos are back in stock at Carrefour stores in France, ending an impasse over grocery prices that stretched for three months between one of the world’s biggest food companies and one of Europe’s largest grocers.
  
   
• Business schools are going all in on artificial intelligence. 
  
   
• India’s unusual jobs math: More education equals a higher chance of unemployment. 
  
   
• Deepfakes have long raised concern in social media, elections and the public sector. But now with technology advances making artificial intelligence-enabled voice and images more lifelike than ever, bad actors armed with deepfakes are coming for the enterprise. Banks and financial services providers are among the first companies to be targeted.