Allocators Condemn UK Regulator’s Plan to Limit Investor Approvals

As it stands, shareholders must assent to M&A or related-party deals. But the FCA wants to ease listing requirements to stem companies decamping to New York exchanges.

Institutional investors, including CalPERS and CalSTRS, are opposing the British financial regulator’s proposal to eliminate investor approval on company financial moves.

The U.K. Financial Conduct Authority’s plan would strip requirements for a shareholder OK on “significant transactions,” such as for mergers and acquisitions and for related-party transactions, in which company officers or other affiliated people may benefit from the business’s financial moves.

The London-based International Corporate Governance Network, a watchdog group, and the Washington, D.C.-headquartered Council of Institutional Investors, along with a large group of allocators, have criticized the plan, saying it would weaken shareholder protections.

The latest objection to the FCA initiative came from the New Zealand Superannuation Fund ($42.8 billion) on Friday. In a statement posted on LinkedIn, the fund knocked the FCA plan as potentially endangering U.K. “corporate governance standards and shareholder protections.” The New Zealand fund, which joined an ICGN protest petition, argued that “investors have used [U.K. listing rules] as a gold standard when commenting on other markets’ governance and listing requirements, as well as in their direct engagement with companies.”

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In addition to the New Zealand fund, 52 allocators and organizations have signed the anti-FCA petition, including the California Public Employees’ Retirement System, California State Teachers’ Retirement System and New York City Retirement Systems from the U.S.; the National Employment Savings Trust and Church of England Pensions Board from the U.K.; and the British Columbia Investment Management Corp. from Canada.

The FCA plan is aimed at making Britain’s “listing regime more accessible, effective, and competitive,” according to an agency statement. “The proposals could entail an increased possibility of failures, but the changes set out would better reflect the risk appetite the economy needs to achieve growth.”

The FCA plan has several other provisions to streamline the process for companies going public. The agency could not be reached for further comment.

The London Stock Exchange has suffered from U.K. companies departing for New York exchanges, which enjoy far greater access to capital and liquidity. Software maker Arm Holdings PLC and plumbing supplier Ferguson PLC are two recent examples of major departures from London: Arm went to Nasdaq in 2023, and Ferguson to the New York Stock Exchange in 2022.

In the U.S., public corporations typically must seek investor approval for M&A deals and related-party transactions (of more than 5% of net tangible assets), such as a corporate lease on a building owned by the CEO’s brother.

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Tags: British Columbia Investment Management Corporation, CalPERS, CalSTRS, Church of England Pensions Board, Council of Institutional Investors, Financial Conduct Authority, International Corporate Governance Network, London Stock Exchange, M&A, National Employment Savings Trust (NEST), New Zealand Superannuation Fund, related-party transactions

The founders of a purported blockchain technology conglomerate have been charged by the Securities and Exchange Commission and law enforcement with running a pyramid and Ponzi scheme that bilked investors worldwide of nearly $2 billion.

According to the SEC’s complaint, Xue Lee, also known as Sam Lee, and Brenda Chunga, who went under the sobriquet Bitcoin Beautee, promoted “membership” packages for HyperFund, which promised “exorbitant passive returns, supposedly derived in part from HyperFund’s crypto asset mining operations.”

For example, the SEC alleged, HyperFund promised investors returns of 0.5% to 1% per day, with the prospect of tripling their initial investment within 600 days. HyperFund also implemented a pyramid scheme-like referral system to reward existing members for recruiting new investors, according to the SEC’s allegations.

“HyperFund, however, was a pyramid and Ponzi scheme,” the SEC complaint states. “HyperFund had no real source of revenue other than funds received from investors, and defendants had no basis for the promised returns.”

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Chunga was allegedly one of HyperFund’s top promoters and the face of its U.S. presence, recruiting investors through online seminars and videos that focused on investors’ purported ability to make money via daily passive rewards and through so-called “accelerated” rewards if they wrangled others to join. Chunga allegedly received more than $3.7 million from the platform and directly from investors, which she used to fund “extravagant personal expenses” and help recruit others by showing off what she made from the HyperFund, the SEC said.

Because HyperFund’s membership packages were offered and sold as investment contracts, they are considered securities under federal securities laws, according to the SEC. However, the membership packages were offered and sold without registration and without qualifying for any exemption from registration.

“As alleged in our complaint, Lee and Chunga attracted investors with the allure of profits from crypto asset mining, but the only thing that HyperFund mined was its investors’ pockets,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement. “This case illustrates yet again how noncompliance in the crypto space facilitates schemes where promoters capitalize on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws.”

Lee and Chunga were charged with violating the registration and anti-fraud provisions of federal securities laws. The SEC is seeking permanent injunctive relief, conduct-based injunctions preventing the two from participating in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains, prejudgment interest and civil penalties.

Chunga agreed to settle the charges and to be permanently enjoined from future violations of the charged provisions and certain other activity and to pay disgorgement and civil penalties to be determined at a later date by the court. The settlement is subject to court approval, while the charges against Lee will be litigated.

In a parallel action, the office of the U.S. attorney for the District of Maryland charged Lee and Chunga with conspiracy to commit securities fraud and wire fraud.

Chunga pleaded guilty to both charges and admitted she personally received at least $3 million in fraud proceeds from her participation in the alleged fraud. She will be required to pay restitution in the full amount of the victims’ losses, which the parties agree is at least $3 million, but could be significantly higher, according to the U.S. attorney’s office. Chunga also faces a maximum penalty of five years in prison.

If convicted, Lee faces a maximum sentence of five years in federal prison for each count of conspiracy to commit securities fraud and wire fraud.

“The defendants are charged with defrauding investors to the tune of $1.89 billion,” Acting Assistant Attorney General Nicole Argentieri, of the Department of Justice’s Criminal Division, said in a statement. “With our partners in Homeland Security Investigations and IRS Criminal Investigation, we are committed to uncovering sophisticated frauds involving cryptocurrency and digital assets and bringing those who perpetrate them to justice.”