Archives for September 14, 2018

New York sues U.S. to stop fintech bank charters

NEW YORK (Reuters) – New York state’s top banking regulator on Friday sued the federal government to void its decision to award national bank charters to online lenders and payment companies, saying it was unconstitutional and put vulnerable consumers at risk.

FILE PHOTO: A woman looks at her phone as she passes by a Lending Club banner on the facade of the the New York Stock Exchange December 11, 2014. REUTERS/Brendan McDermid/File Photo

Maria Vullo, superintendent of New York’s Department of Financial Services, called the July 31 decision by the Office of the Comptroller of the Currency to let financial technology companies, or fintech firms, obtain charters “lawless, ill-conceived, and destabilizing of financial markets.”

She said New York could best regulate those markets, but the OCC decision left consumers “at great risk of exploitation” by weakening oversight of predatory lending, allowing the creation of more “too big to fail” institutions, and undermining the ability of local banks to compete.

“The OCC’s reckless folly should be stopped,” Vullo said in her complaint filed in the U.S. District Court in Manhattan.

OCC spokesman Bryan Hubbard said in an email that the regulator, part of the U.S. Department of Treasury, would vigorously defend its authority to grant national charters to qualified companies “engaged in the business of banking.”

Vullo’s complaint joins a slew of litigation from regulators in Democratic-controlled or -leaning states challenging Trump administration policies.

FILE PHOTO: The Daniel Patrick Moynihan U.S. Federal Courthouse is pictured in the Manhattan borough of New York, NY, US, August 26, 2014. REUTERS/Carlo Allegri/File Photo

It seeks a declaration that the OCC exceeded its authority under the National Bank Act and violated the Constitution’s 10th Amendment by usurping state powers.

The fintech industry includes such companies as the online lenders LendingClub Corp and OnDeck Capital Inc, and the cryptocurrency exchange Coinbase.

Fintech firms have long pushed for national bank charters to let them operate nationwide without needing licenses in every state, a process they say can impede growth and boost costs.

Treasury Secretary Steven Mnuchin has said easing regulation of newer financial companies can “encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”

But critics believe granting national bank charters to fintech firms, including those that do not hold deposits, could shield unscrupulous companies from state oversight.

Vullo oversees more than 2,200 banks, financial services companies and insurers with about $7 trillion of total assets.

“Financial centers like New York, which have developed comprehensive and well-functioning regulatory bodies, should not needlessly bear the harmful brunt of an overreaching federal agency,” the complaint said.

The case is Vullo v. Office of the Comptroller of the Currency et al, U.S. District Court, Southern District of New York, No. 18-08377.

Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy and Bernadette Baum

Cryptocurrency project Tezos to launch main network next week: document

NEW YORK/ZURICH (Reuters) – The Tezos cryptocurrency project is preparing to launch the long-awaited main version of its network that underpins a new virtual token on Monday, according to a message seen by Reuters from Ryan Jesperson, the president of a Swiss foundation that promotes the initiative.

FILE PHOTO – Tezos co-founder Kathleen Breitman speaks during the Crypto + ICO Summit cryptocurrency conference in Duebendorf, Switzerland March 28, 2018. REUTERS/Arnd Wiegmann

The Tezos Foundation raised $232 million in July 2017 to build the network and issue a new type of cryptocurrency to its backers in one of the largest-ever initial coin offerings, and launched an initial version of the network one year later after months of delays.

The Tezos Foundation plans to transition the network to a mainnet, or a more complete version, on Monday, according to Jesperson’s message. A foundation representative did not provide comment in time for publication.

That launch would mark an achievement in a project hobbled by internal infighting and delays. Tezos still faces litigation in the United States and the threat of increased regulatory scrutiny of the nascent cryptocurrency sector.

A high-profile feud between project founders Arthur and Kathleen Breitman and former foundation president Johann Gevers was followed by Gevers stepping down in February. He was replaced by Jesperson, one of the project’s contributors.

Since Tezos’s problems were first detailed by Reuters in October, several class-action lawsuits have been filed in the United States against the project’s organizers alleging the fundraiser violated federal securities laws and defrauded investors.

    In February, the U.S. Securities and Exchange Commission denied a public information request from David Silver, a lawyer representing some of the class-action plaintiffs, seeking information on Tezos, saying doing so could interfere with an investigation or enforcement activities.

The Tezos fundraiser was structured as a donation, though some contributors say they believed it was an investment. If deemed a securities offering, the new cryptocurrency might fall under the remit of the SEC.

The Reuters investigation published in October also found that Arthur Breitman, a French citizen registered with the Financial Industry Regulatory Authority (FINRA) in the United States, had not reported any outside business activity while working at Morgan Stanley in 2014 and 2015 when he was developing and pitching Tezos.

In April, FINRA suspended Breitman from associating with broker-dealers for two years, part of a settlement to resolve allegations that he made false statements about his side venture while working at Morgan Stanley.

Reporting by Anna Irrera and Brenna Hughes Neghaiwi; Editing by Meredith Mazzilli