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  • Final judgment entered in alleged misappropriated funds suit

    Courts

    On September 19, the U.S. District Court for the District of Southern Florida granted final judgment against an individual to resolve SEC allegations regarding her involvement in a company that allegedly fraudulently misappropriated funds from investors. As previously covered by InfoBytes, the SEC’s complaint claimed that the individual was employed by the company and was the wife of a chief executive officer who falsely represented to many Venezuelan-American investors that the company would use their funds to finance payday loans through the offer and sale of “safe and secured or guaranteed” promissory notes. The complaint noted that the defendant “received at least $1.2 million of [the company’s] investor funds for no apparent legitimate business purpose,” in violation of the federal securities laws or any regulation or order issued under such laws, as set forth in the Bankruptcy Code. According to the order, the defendant must pay $994,000 in disgorgement and $83,000 in interest.

    Courts Securities Enforcement Fraud Bankruptcy Code

  • 11th Circuit says one-year statutory notice period cannot be varied

    Courts

    On August 26, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a district court’s summary judgment in favor of a bank after determining that the plaintiff-appellants’ claim for statutory repayment is not time-barred. Plaintiffs (Venezuelan citizens residing in Venezuela) maintained personal and commercial bank accounts at a Florida branch of the bank. According to the plaintiffs, a bank employee changed the email account associated with the bank accounts to a new fraudulent email. Identity thieves were later able to bypass security measures on the account, gave correct answers to security questions, and sent documents with signatures that matched ones the bank had on file, resulting in roughly $850,000 being transferred out of one of the accounts. Plaintiffs contended they were locked out of their accounts and struggled to contact the bank for months without success. After eventually regaining access to their accounts, plaintiffs discovered the stolen money and sued for a variety of claims, including fraud, negligence, and breach of contract. They also claimed that the bank was required to refund them for the fraudulent wire transfers under Florida Statutes § 670.202. The bank argued, among other things, that the plaintiffs’ claims were time-barred because they failed to notify the bank about the alleged fraud within 30 days of receiving a bank statement. Plaintiffs responded that the Florida Statutes provide a one-year time period to notify a bank of an unauthorized wire transfer and stated that the time-period could not be modified by agreement. The district court entered summary judgment for the bank, concluding “that the one-year period was modifiable and that the parties had modified it.” The district court also determined that because the bank’s procedures were “commercially reasonable” and followed “in good faith” it was not liable to the plaintiffs to repay the wire transfers.

    On appeal, the 11th Circuit held that the plaintiffs were still within their statutory one-year notification period when they notified the bank of the fraudulent wire transfers, and rejected the bank’s argument that it could shorten the notification period to 30 days. The 11th Circuit, in rejecting the bank’s argument determined that it cannot “shift the loss of an unauthorized order to the customer during the statutorily determined period,” adding that “if the one-year statutory notice period could be varied, then banks could insist that customers sign contracts that make the time to demand a refund of a fraudulent payment a day (or even less). That would impair the account holder’s right to a refund and defeat Florida’s intent that banks—not account holders— bear the risk of a fraudulent transfer for the first year following the transfer. And there’s no limiting principle in the text for how short banks could make the statutory refund period.” Pointing out that the bank was unable to identify a limiting principal at oral argument, the appellate court concluded that “if banks could modify the one-year period, there’s no principled way to draw the line as to how short of a refund period is too short.” On remand, the 11th Circuit also instructed the district court to review whether the bank’s security procedures are “commercially reasonable.”

    Courts State Issues Fraud Appellate Eleventh Circuit Privacy, Cyber Risk & Data Security

  • Payday lender to pay $39 million in alleged misappropriated funds suit

    Courts

    On June 29, the U.S. District Court for the District of South Florida granted final judgment against a Florida-based payday loan company and an individual (collectively, “defendants”), resolving SEC allegations that the company fraudulently misappropriated funds from investors. According to the complaint, the SEC claimed that the defendants falsely represented to many Venezuelan-American investors that the company would use their funds to finance payday loans through the offer and sale of “safe and secured” promissory notes. However, the complaint noted that “the proceeds [the company] generated from its consumer loan business were woefully insufficient to cover principal and interest payments to investors,” and had been offered in violation of registration and anti-fraud provisions of the Securities Act and Exchange Act. The complaint also noted that the individual allegedly misappropriated $2.9 million for personal use and authorized the transfer of $3.6 million to friends and relatives for no apparent legitimate business purpose. According to the order, the company: (i) is permanently restrained and enjoined from violating sections of the Securities Act and Exchange Act; (ii) must pay $30.3 million in disgorgement; and (iii) must pay $2 million interest on disgorgement and a $7 million civil penalty. The individual is jointly liable for more than $4.6 million in disgorgement.

    Courts Securities Payday Lending Securities Act Securities Exchange Act SEC Enforcement

  • OFAC amends Venezuela-related general license

    Financial Crimes

    On July 7, the U.S. Treasury Department’s Office of Foreign Assets Control issued Venezuela-related General License (GL) 40A, which authorizes certain transactions involving the exportation or reexportation of liquefied petroleum gas to Venezuela that would otherwise be prohibited by Executive Order (E.O.) 13884, as incorporated into the Venezuela Sanctions Regulations. (Covered by InfoBytes here.) Effective July 7, G.L. 40A replaces G.L. 40, which was issued in July 2021.

    Financial Crimes OFAC Department of Treasury Of Interest to Non-US Persons Venezuela OFAC Sanctions OFAC Designations

  • OFAC issues Covid-related general licenses and FAQs

    Financial Crimes

    On June 10, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Syria General License (GL) 21AVenezuela GL 39A, and Iran GL N-1, “Authorizing Certain Activities to Respond to the Coronavirus Disease 2019 (COVID-19) Pandemic.” Each GL authorizes certain Covid-19-related transactions through June 17, 2023. Additionally, OFAC updated Frequently Asked Questions regarding the purposes of the GLs and provided clarifying information.

    Financial Crimes Of Interest to Non-US Persons OFAC Covid-19 Iran Venezuela Syria OFAC Sanctions OFAC Designations

  • OFAC reaches settlement with Puerto Rican bank to resolve Venezuela sanctions violations

    Financial Crimes

    On May 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $225,937 settlement with a Puerto Rican bank for allegedly violating the Venezuela Sanctions Regulations. According to OFAC’s web notice, the bank allegedly processed 337 transactions totaling $853,126 on behalf of two low level employees of the Government of Venezuela (GoV). The apparent violations allegedly resulted from the bank’s maintenance of four personal accounts operated by these two employees that should have been blocked by Executive Order (E.O.) 13884 (which blocks property and interests in property of the GoV, including “‘any person owned or controlled, directly or indirectly,’ by the GoV, and ‘any person who has acted or purported to act directly or indirectly for or on behalf of’ any such entity”). OFAC stated that the two GoV individuals also did not meet the criteria for authorized transaction exemptions under General License 34A and found that the bank failed to identify the customers for 14 months following the issuance of E.O. 13884.

    In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that (i) the bank maintained documentation showing that the two individuals were low-level GoV employees but delayed identifying them; and (ii) the bank has more than $61 billion in assets. OFAC also considered various mitigating factors, including that the bank (i) took remedial action to ensure compliance with OFAC sanctions; (ii) created more robust sanctions-related procedures; (iii) developed additional resources and guidance in connection to sanctions alert review and disposition; (iv) added staff to oversee OFAC sanctions matters; (v) reviewed policies and procedures for identifying, reviewing, and reporting transactions that violate OFAC’s regulations; and (vi) enhanced its sanctions screening trainings. The bank also voluntarily self-disclosed the apparent violations to OFAC and cooperated with OFAC’s investigation.

    Providing context for the settlement, OFAC stated that this action “demonstrates the importance of financial institutions conducting timely due diligence…following the issuance of new sanctions prohibitions.”

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC Enforcement Settlement OFAC Sanctions OFAC Designations Puerto Rico Venezuela

  • OFAC sanctions North Koreans and issues Venezuela general license

    Financial Crimes

    On May 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13382 against one individual, two banks, and a trading company connected to the Democratic People’s Republic of Korea’s (DPRK) development of weapons of mass destruction (WMD) and ballistic missile programs and to the U.S.-designated DPRK national airline. According to OFAC, the U.S. is “committed to seeking dialogue and diplomacy with the DPRK but will continue to address the threat posed by the DPRK’s unlawful WMD and ballistic missile programs to the United States and the international community.” As a result of the sanctions, all property and interests in property of the sanctioned individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC noted that its regulations generally prohibit U.S. persons from participating in transactions with the designated person, including transactions transiting the U.S. OFAC’s announcement further warned that any foreign financial institution that knowingly facilitates significant transactions or provides significant financial services for any of the designated individuals or entities may be subject to U.S. correspondent account or payable-through account sanctions.

    The same day, OFAC issued Venezuela- related General License 8J, which authorizes certain transactions involving Petróleos de Venezuela, S.A. (PDVSA) that were previously prohibited under prior Executive Orders to the extent such transactions and activities are “necessary for the limited maintenance of essential operations in Venezuela or the wind down of operations in Venezuela for certain entities,” among other things.

    Financial Crimes Department of Treasury OFAC Of Interest to Non-US Persons SDN List OFAC Sanctions OFAC Designations North Korea Venezuela

  • OFAC amends Ukraine-related general licenses and publishes FAQs

    Financial Crimes

    On January 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 13Q, “Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or Other Holdings in GAZ Group,” which replaces and supersedes GL 13P. (Covered by InfoBytes here.) Additionally, OFAC issued GL 15K, “Authorizing Certain Activities Involving GAZ Group,” which replaces and supersedes GL 15J. Both licenses were extended through April 27. OFAC also published seven Ukraine-related FAQs.

    Financial Crimes OFAC Department of Treasury Of Interest to Non-US Persons Ukraine

  • OFAC issues amended Venezuela-related general license and FAQ and other notices

    Financial Crimes

    On January 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License (GL) 5I, which supersedes GL 5H and authorizes certain transactions otherwise prohibited under Executive Orders 13835 and 13857 related to, or that provide financing for, dealings in the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or after January 20, 2023. Concurrently, OFAC updated a Venezuela-related frequently asked question regarding GL 5I. Additionally, OFAC amended the definition of “applicable schedule amount” contained in appendix A to 31 CFR part 501​. The amendment became effective January 21.

    Financial Crimes Department of Treasury OFAC Of Interest to Non-US Persons Petroleos de Venezuela Venezuela

  • OFAC published FAQs on Belarus, Ukraine-/Russia-related, and Venezuela-related sanctions programs

    Financial Crimes

    On January 7, the U.S. Treasury Department’s Office of Foreign Assets Control published a new FAQ 956 regarding Belarus, Ukraine-/Russia-related, and Venezuela-related sanctions programs, which prohibit U.S. persons from dealing in certain new debts (such as bonds, loans, drafts, loan guarantees, or letters of credit) of certain identified persons in these countries. The FAQ provides additional guidance on how OFAC views modifications to pre-existing loans, contracts, or other agreements to replace LIBOR as the reference rate. According to the FAQ, “[l]oans, contracts, or other agreements that use LIBOR as a reference rate that are modified to replace such benchmark reference rate will not be treated as new debt for OFAC sanctions purposes, so long as no other material terms of the loan, contract, or agreement are modified.”

    Financial Crimes OFAC LIBOR Department of Treasury OFAC Sanctions Belarus Ukraine Russia Of Interest to Non-US Persons

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