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Morgan Stanley is under investigation by the Justice Department, the SEC and other federal agencies regarding allegations that it failed to properly vet high-risk clients in its wealth management division,  potentially leading to money laundering and other financial crimes. According to the Wall Street Journal, the Bank opened accounts to remain open despite links to suspected terrorism, corruption, and sanctions violations. One example, was a woman claiming billions in assets and to be a Romanian princess opened multiple accounts and was approved for $100 million low interest loan. Morgan Stanley, however, had failed to perform a background check, verify the woman’s source of funds or complete an enhanced due-diligence review. In 2022, Morgan Stanley presented a fix it plan to the Fed,  placing various types of restrictions on at least 10 categories of clients and shutting down thousands of accounts between the second and fourth quarters of 2023. https://www.wsj.com/finance/banking/morgan-stanley-wealth-management-investigation-f317c71d?mod=hp_lead_pos7

Chief Integrity Officer of Archer Daniels Midland Co. (ADM), Ben Bard, will leave the company for ongoing accounting and financial issues and for personal reasons. This follows the departure of ADM’s CFO, Vikram Luthar, earlier this year due to accounting discrepancies. The U.S. Justice Department investigated ADM’s finances and even issued subpoenas to current and former employees. Last week, ADM said they would mend past financial transactions between its business segments. Bard, an ADM employee since 2014, will remain with the company for several months to support the transition of his duties. https://www.wsj.com/articles/adm-compliance-boss-to-depart-as-the-company-faces-accounting-problems-c2cb81c9?mod=hp_minor_pos11

In January 2023, short-selling firm, Hindenburg Research, released a report that accused India’s Adani Group and its founder, Gautam Adani, of stock manipulation. This led to a massive $140 billion drop in market value. It was later revealed that New York Hedge fund Kingdon Capital funded the short position on Adani, earning $22 million and Hindenburg receiving 25% of the profit. This scenario raised concern about “activist short selling” where researchers collaborate with hedge funds to target potential fraud. While some believe these efforts help uncover market fraud, critics argue they can manipulate markets by fueling fear and uncertainty. This practice of short selling has come under major scrutiny, with the SEC and DOJ investigating undisclosed financial agreements between short-sellers and hedge funds. https://www.ft.com/content/8b3261c9-f42f-4896-a2cb-89b83f4d2b6d

Mike Lynch, founder of Autonomy, was acquitted in June 2023 of defrauding Hewlett-Packard (HP) during the $11.1 billion sale of his company. The case spanned over a decade and was centered on accusations that Lynch inflated Autonomy’s value, but his defense successfully argued HP’s mismanagement was to blame. Months later, Lynch and his lawyer, Christopher Morvillo, tragically died while celebrating their legal victory in August 2023 when their yacht sank in Sicily. Lynch, once a prominent tech leader who struggled with legal battles, had planned to return and to advocate for the tech investment industry. https://www.nytimes.com/2024/11/16/business/mike-lynch-yacht-sinking.html

This past September, the Department of Justice announced that it updated its corporate compliance guidelines. They have put emphasis on the importance of incorporating emerging technologies like Artificial Intelligence (AI) into compliance efforts. Companies are now expected to assess the risks AI presents to their business and compliance programs. They are also expected to leverage its potential benefits. Further, prosecutors may not look favorably at companies when there is a disparity between its use of data and technology in the business, compared to its use in the compliance function. https://www.wsj.com/articles/justice-department-pushes-companies-to-consider-ai-risks-116cfcf7?mod=risk-compliance_feat2_new-rules_pos1

Jay Newman’s 2022 novel “Undermoney” is inspired by his time at hedge fund Elliott Management. The plot reflects his role in Elliott’s legal battles over Argentina’s defaulted debt, using aggressive tactics to force Argentina into a settlement. Parallel to the novel, an Israeli private investigator, Amit Forlit, was under investigation by U.S. authorities for allegedly hacking Argentine officials’ emails to help Elliott’s case. Neither Elliott nor Newman have been charged with wrongdoing, but they are investigated for whether they knew about Forlit’s actions. Newman, who left Elliott Management in 2016, denies any illegal conduct and defends the novel as fictional, although it closely reflects his career in high-stakes finance. The book has sparked controversy, especially within Elliott Management. Staffers were not to bring the book into the office or discuss it with clients. https://www.wsj.com/finance/investing/hacking-elliott-argentina-debt-ae0b8c45

Governments around the world have realized how open and susceptible state-level officials are to foreign lobbying efforts. https://foreignpolicy.com/2024/09/30/eric-adams-new-york-turkey-china-linda-sun-foreign-lobbying-state-capitals/

When Generally Accepted Accounting Principles (GAAP) became the standard, it was designed for objective reporting. Now, GAAP favors short-term metrics that benefit equity speculators. Founder of Third Avenue Management, Marty Whitman, argues that GAAP overshadows crucial factors for long-term corporate wealth, such as asset management and capital market access. In his argument, Whitman identifies the four factors involved in corporate wealth creation: free cash flow, earnings, asset redeployment, and capital market access, but states that GAAP has neglected asset redeployment and capital market access. The article also highlights how GAAP’s strictness can impact investment analysis. Ultimately, Whitman advocates for also understanding a company’s assets and liabilities rather than solely relying on short-term metrics. https://www.lewisenterprises.blog/p/a-gaap-in-understanding?publication_id=663484&post_id=150332674&isFreemail=false&r=2gv2&triedRedirect=true

When legislators passed Anti-money-laundering (AML) rules, they intended to modernize the AML landscape. Banks hoped the rules would be less burdensome and allow more flexibility on how to allocate their resources. But just last week, TD Bank agreed to pay $3 billion in penalties and limit its U.S. growth for failing to properly monitor and prevent cash deposits by Chinese criminals. This comes after the U.S. Treasury Department proposed new rules that would require banks to formalize the practice of conducting periodic risk reviews and to incorporate a set of national priorities into their AML programs. So far, industry groups argue that these proposed rules add unnecessary burden rather than increase the effectiveness of the existing framework.  https://www.wsj.com/articles/u-s-anti-money-laundering-laws-are-outdated-regulators-are-struggling-with-how-to-modernize-them-d2304942?mod=risk-compliance_lead_story

Neobanks in the UK face significant challenges when it comes to generating profitable income. Starling Bank, a British bank located in England, grew to 3.16 million customers and £452.8 million in revenue from 2016 to 2023. Recently, the Financial Conduct Authority (FCA) levied fines  £28.96 million on the bank for failings related to its anti-money laundering (AML) program. According to FCA Joint Executive Director of Enforcement, Therese Chambers, “Starling’s financial sanction screening controls were shockingly lax.” In 2021, Starling agreed to a requirement which restricted it from opening new high-risk accounts, but failed to comply and opened over 54,000 accounts for high-risk customers between September 2021 and November 2023. An FCA review revealed that Starling had internal systemic issues, including lack of AML expertise, failure to monitor compliance effectively, and even poorly managed business loans during COVID-19. https://www.ft.com/content/962772d4-e738-4575-af59-f25483ae8581