Conflict Minerals Rule, Bitcoin, Venezuela: Compliance

A U.S. Securities and Exchange Commission rule requiring companies to disclose whether any “conflict minerals” are used in their products violates the free-speech rights of manufacturers, an appeals court held.

The rule was part of the 2010 Dodd-Frank Act overhauling regulations of securities markets and applied to certain minerals, including gold, tin, tungsten and tantalum, mined in Democratic Republic of the Congo and neighboring countries. It was intended to help ensure that use of the minerals didn’t benefit armed groups responsible for violence in the region.

The rule went beyond disclosure that’s merely factual and non-ideological, U.S. Circuit Judge A. Raymond Randolph, wrote for the majority of a three-judge panel yesterday at the U.S. Court of Appeals in Washington.

“It requires an issuer to tell consumers that its products are ethically tainted” and leaves a company unable to use its free-speech right to dispute that assessment by remaining silent, Randolph wrote. “By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”

Judith Burns, a spokeswoman for the SEC, said the agency is studying the ruling.

The case is National Association of Manufacturers v. U.S. Securities and Exchange Commission, 13-5252, U.S. Court of Appeals for the District of Columbia (Washington).

Compliance Action

Ex-Bitcoin Foundation’s Shrem Indicted After Plea Talks

Charlie Shrem, a prominent bitcoin supporter, was charged with trying to launder more than $1 million in the virtual currency in a case tied to the illicit online bazaar Silk Road.

Shrem’s indictment followed plea-bargaining talks with federal prosecutors in Manhattan. Shrem, the former vice chairman of the Bitcoin Foundation, and Robert Faiella, who the U.S. said operated an underground bitcoin exchange called “BTCKing,” are accused of engaging in a scheme to sell bitcoins to users of Silk Road for illegal purchases.

Shrem, who was also the chief executive officer of bitcoin exchange company BitInstant, and Faiella were first arrested in January and have been free on bail. They are charged with two counts of operating an unlicensed money-transmitting business, money-laundering conspiracy and willfully failing to file suspicious activity reports with banking authorities, according to the April 10 indictment.

The case is the latest to be brought by Manhattan U.S. Attorney Preet Bharara’s office stemming from a probe of Silk Road, a black market bazaar.

Shrem intends to plead not guilty when he’s arraigned in two weeks before U.S. District Judge Jed Rakoff in Manhattan, according to his lawyer, Marc Agnifilo. David Braun, a laywer for Faiella, declined to comment on his client’s case.

The case is U.S. v. Faiella, 14-cr-00243, U.S. District Court, Southern District of New York (Manhattan).

Ex-Direct Access Officers Charged in Venezuelan Bribe Scheme

The former chief executive officer of Direct Access Partners LLC and a former partner at the New York-based broker-dealer were charged with operating a bribery scheme involving Venezuela’s state bank.

Benito Chinea, the former CEO, and Joseph DeMeneses were charged with conspiracy, money laundering and violating the Foreign Corrupt Practices Act and the Travel Act, in a 15-count indictment unsealed yesterday in Manhattan federal court. The two men pleaded not guilty and were each released on $1 million bond.

Chinea and DeMeneses are accused of paying millions of dollars in kickbacks to Maria de los Angeles Gonzalez de Hernandez, a vice president of finance at Banco de Desarrollo Economico y Social de Venezuela, in exchange for the bank’s bond-trading business.

Direct Access former Senior Vice President Tomas Alberto Clarke Bethancourt and Ernesto Lujan, a former managing partner, pleaded guilty in the scheme in August. Both agreed to cooperate with prosecutors in a bid for leniency when they’re sentenced.

Gonzalez pleaded guilty in November. She’s also cooperating with the government.

The case is U.S. v. Chinea, 14-cr-00240, U.S. District Court, Southern District of New York (Manhattan).

In the Courts

Wells Fargo Securities Lending Suit Settled on Eve of Trial

Wells Fargo & Co. settled a lawsuit over claims it mismanaged institutional investors’ collateral received as part of its securities lending program, lawyers for both sides told a judge as a trial was close to starting.

Three union retirement plans sued the lender in 2010. Jury selection was scheduled to start yesterday in St. Paul, Minnesota, when the attorneys instead announced publicly before U.S. District Judge Donovan Frank that they’d reached an accord. The terms weren’t disclosed.

The trial would have been the third for San Francisco-based Wells Fargo over its program of temporarily lending an institutional investor’s holdings to a third party in exchange for collateral that the bank invests with the objective of producing a profit for its client.

The bank lost a $30.1 million jury verdict in 2010 then won a trial over an $8.2 million claim last year.

Frank scheduled a June 5 hearing at which the parties will present a detailed settlement proposal to him for preliminary approval.

The case is City of Farmington Hills Employees Retirement System v. Wells Fargo Bank NA, 10-cv-04372, U.S. District Court, District of Minnesota (St. Paul).

Comings and Goings

Former CFTC Commissioner Bart Chilton will join DLA Piper today as a senior policy adviser in Washington, the law firm said in e-mailed statement.

Chilton left the Commodity Futures Trading Commission last month after almost seven years of pushing for limits on oil and natural gas speculation and curbs on high-frequency trading.

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