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4th Circuit says AMG Capital does not alter FTC’s $120.2 million judgment
On November 1, the U.S. Court of Appeals for the Fourth Circuit predominantly upheld a district court’s final judgment in an FTC action involving a Belizean real estate scheme. As previously covered by InfoBytes, the FTC initiated the action in 2018 against several individuals and corporate entities, along with a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. In 2019, a settlement was reached with the Belizean bank requiring payment of $23 million in equitable relief, and in 2020, the district court ordered the defaulted defendants to pay over $120.2 million in redress and granted the FTC’s request for permanent injunctions (covered by InfoBytes here and here). Later, in 2021, the district court denied a request to set aside the $120.2 million default judgment, disagreeing with the defendants’ argument that the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC (which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement”—covered by InfoBytes here) nullified the judgment. The district court stated that the AMG Capital decision does not render judgments in the case void, and that “[i]n its Opinion rendered before the Supreme Court reached its decision, the Court considered the effect that a decision in AMG Capital adverse to the FTC might have, reasoning that: ‘this Court’s findings of fact and determinations as to liability—including contempt of court and violations of the Telemarketing Services Rule []—would not be affected by a decision in AMG.’” (Covered by InfoBytes here.)
On appeal, the 4th Circuit determined that the defendants advanced “a mixed bag of factual and legal challenges” to various contempt orders, equitable monetary judgments, permanent injunctions, and default judgments, finding that there was no abuse of discretion by the district court. While the appellate court reversed the $120.2 million judgment after finding it to be invalid under the Supreme Court’s decision in AMG Capital, it noted that because the defendants violated the FTC Act and the TSR they cannot escape the judgment. “The findings made by the district court show that [the defendant’s] Belizean business venture was dishonest to the core,” the 4th Circuit wrote. “The district court correctly surmised that this sort of deception lies at the heart of what the FTC is empowered to seek out and stop.” According to the appellate court, while “the FTC may seek injunctive relief under Section 13, the Supreme Court held in AMG Capital that it does not authorize the FTC to seek, or a court to award, ‘equitable monetary relief such as restitution or disgorgement.’” However, the defendant “latches onto this last point, claiming that the judgment in the [] case must be thrown out under AMG Capital. ... Vacating that judgment does not help [him], however, because he already has a $120.2 million judgment against him for contempt of the telemarketing injunction, and the FTC has conceded that it is not seeking $240.4 million against [him].” Essentially, AMG Capital “does not undercut the injunctive relief entered under Section 13(b), and the $120.2 million order can be upheld under the contempt judgment, so AMG does not in fact change the bottom line,” the 4th Circuit concluded.
Pennsylvania sues lead generator for facilitating telemarketers’ robocalls
On November 3, the Pennsylvania attorney general announced a lawsuit against a New York-based lead generation company that connects advertisers to potential new customers through the consumers’ personal data for allegedly causing hundreds of thousands of robocalls to be placed to consumers in the Commonwealth. The defendant, along with several of its subsidiaries, allegedly collected personal information, including phone numbers and personal information of consumers on Pennsylvania’s Do Not Call List, that was then sold to telemarketing companies. According to the complaint, the defendants allegedly engaged in deceptive and misleading business practices in connection with their lead-generation practices, by obtaining consumers’ information through various promotional opportunities without clearly disclosing that by providing their contact information, consumers were consenting to receiving telemarketing calls from hundreds of potential sellers. The complaint alleges that from 2018 to 2021, over 4.2 million Pennsylvania consumers registered their information on one of the defendants’ websites. “Under the [Telemarketing Sales Rule (TSR)], a consumer’s express agreement to accept calls delivering a prerecorded message may not be obtained by a lead generator, who is not a seller or a telemarketer. The express agreement must be obtained directly by the seller or telemarketer from the consumer,” the complaint said. Moreover, even if the defendants were not directly making the telemarketing calls themselves, assisting and facilitating the calls is itself a violation of the rules, the complaint noted.
The defendants are charged with violating several federal and state telemarketing laws, including the TSR, and Pennsylvania’s Telemarketer Registration Act (TRA) and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. The AG’s office seeks a declaration permanently enjoining the defendants from violating the telemarketing and consumer protection laws, along with civil penalties of $1,000 per violation and $3,000 per violation involving a victim age 60 or older. The suit also seeks disgorgement, costs, and a permanent bar on selling consumer data collected in violation of the TSR and TRA.
SEC charges investment operation targeting Muslim community
On November 2, the SEC filed a complaint against the founder of a capital investment company, alleging that the defendant targeted Muslim investors in a multimillion dollar fraudulent scheme. According to the complaint, the defendant started the company with the intention of providing purported investment expertise to members of the New York metropolitan area’s Muslim community. The defendant allegedly “offered investors promissory notes that claimed to offer guaranteed, significant returns on investments” in the company. The SEC claimed the defendant received roughly $8 million from investors by promising that the funds would be invested in Quran-compliant investments. However, the defendant allegedly misappropriated all of the funds to either make Ponzi-like payments to investors or to be used for his own personal use, including purchasing luxury vehicles and expensive jewelry or paying gambling debts. The complaint charges the defendant with violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s announcement noted that the defendant consented to the entry of a judgment (subject to court approval) that imposes a permanent injunction and monetary relief to be determined at a later date. Concurrently, in a parallel action involving the same conduct, the DOJ announced criminal charges against the defendant who pleaded guilty to wire fraud, wire fraud conspiracy, and money laundering.
SEC awards whistleblower more than $10 million
On October 31, the SEC announced that it awarded a whistleblower more than $10 million for providing information and assistance that significantly contributed to a successful enforcement action. According to the redacted order, the whistleblower’s actions, including providing substantial information to the SEC and meeting twice with SEC staff, resulted in the return of a significant amount of money to harmed investors. “The charges in the covered action had a close nexus with the whistleblower’s allegations, which were critical to the underlying investigation,” the SEC said in the announcement, explaining that the action “illustrates how the Whistleblower Program works to benefit, via financial remediation, investors who are victimized by those who violate our securities laws.”
SEC proposes new requirements for advisors that outsource services to third parties
On October 26, the SEC proposed new oversight requirements for outsourced investment advisory services. The proposed rule, issued under the Investment Advisers Act of 1940, would prohibit registered investment advisers from outsourcing certain services and functions without conducting due diligence prior to engaging a third-party service provider. The proposed rule would apply to advisors that outsource certain “covered functions,” including services or functions necessary for providing advisory services in compliance with federal securities laws that—if not performed or negligently performed—would result in material harm to clients. Under the proposed rule, advisors would also be required to periodically monitor a third party’s performance and reassess whether it is appropriate to continue to outsource its services and functions. Additionally, the SEC is proposing corresponding amendments so that it may collect “census-type information” about third-party service providers, as well as amendments that would require advisors to maintain books and records related to the proposed rule’s oversight obligations.
SEC Chairman Gary Gensler released a statement supporting the proposed amendments. “[T]hese rules, if adopted, would better protect investors by requiring that investment advisers take steps to continue to meet their fiduciary and other legal obligations regardless of whether they are providing services in-house or through outsourcing, whether through third parties or affiliates,” Gensler said, explaining that the increased use of third-party service providers “has led staff to make several recommendations to ensure advisers that use them continue to meet their obligations to the investing public. When an investment adviser outsources work to third parties, it may lower the adviser’s costs, but it does not change an adviser’s core obligations to its clients.”
Commissioner Hester M. Peirce criticized the proposed rule, with Peirce claiming the proposal “may end up abrogating fiduciary duty and replacing it with [a] predefined approach to best interest—one not responsive to unique facts and circumstances.” She also expressed concerns related to the proposal’s potential impact on smaller advisors that may face disproportionate competitive challenges. Commissioner Mark T. Uyeda also dissented, expressing concerns over whether “there is any observable problem related to investment advisers’ oversight of service providers that necessitates the blanket imposition of specified oversight requirements.”
OFAC clarifies guidance on Russian oil price cap
On October 31, the U.S. Treasury Department’s Office of Foreign Assets Control published Russia-related frequently asked question 1094, to clarify when Russian Federation origin crude oil will be subject to a price cap announced earlier in September. As previously covered by InfoBytes, Treasury recently issued preliminary guidance on implementing a maritime services policy and related price exception for seaborne Russian oil, which is intended to establish a framework for Russian oil to be exported by sea under a capped price, as well as a ban on services for any shipments of seaborne Russian oil above the capped price. The policy, which relates to a broad range of services in connection with the maritime transportation of Russian Federation origin crude oil and petroleum products, will become effective December 5, 2022, for the maritime transportation of crude oil and on February 5, 2023, for the maritime transportation of petroleum products.
FinCEN issues statements on its lists of jurisdictions with AML/CFT/CPF deficiencies
On October 31, FinCEN announced that the Financial Action Task Force (FATF) issued public statements updating its lists of jurisdictions with strategic deficiencies in anti-money laundering (AML), countering the financing of terrorism (CFT), and countering the financing of proliferation of weapons of mass destructions (CPF). FATF’s statements include (i) Jurisdictions under Increased Monitoring, “which publicly identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, the FATF to address those deficiencies in accordance with an agreed upon timeline,” and (ii) High-Risk Jurisdictions Subject to a Call for Action, “which publicly identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the identified countries.”
FinCEN’s announcement also informed members that FATF added Burma to the list of High-Risk Jurisdictions Subject to a Call for Action, and advised jurisdictions to apply enhanced due diligence proportionate to the risks. Moreover, U.S. financial institutions should continue to refer to existing FinCEN and Office of Foreign Assets Control guidance on engaging in financial transactions with Burma. Removed from the list of jurisdictions subject to increased monitoring are Nicaragua and Pakistan. With respect to high-risk jurisdictions subject to a call for action — the Democratic People’s Republic of Korea and Iran — “financial institutions must comply with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, for North Korean or Iranian financial institutions,” FinCEN said, adding that “[e]xisting U.S. sanctions and FinCEN regulations already prohibit any such correspondent account relationships.”
FinCEN renews and expands real estate GTOs
On October 26, FinCEN renewed and expanded its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in certain counties within the following major metropolitan areas: “Boston; Chicago; Dallas-Fort Worth; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; Seattle; the District of Columbia, Northern Virginia, and Maryland (DMV) area; as well as the City and County of Baltimore; the County of Fairfield, Connecticut; and the Hawaiian islands of Honolulu, Maui, Hawaii, and Kauai.” FinCEN also expanded the geographic coverage of the GTOs to counties encompassing Houston and Laredo, Texas, after the agency—in conjunction with law enforcement partners—identified the regions as presenting greater risks for illicit finance activity through non-financed purchases of residential real estate. The purchase amount threshold remains set at $300,000 for residential real estate purchased in the covered areas, with the exception of the City and County of Baltimore for which the purchase threshold is $50,000. The renewed GTOs take effect October 27 and end April 24, 2023. The effective period for the newly added areas begins on November 25.
FinCEN FAQs regarding the GTOs are available here.
OFAC sanctions individuals and entities connected to Russia’s corruption in Moldova
On October 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders 13818 and 14024 against nine individuals and 12 entities in an attempt to counter the Russian Federation’s “persistent malign influence campaigns and systemic corruption in Moldova.” Included among the sanctioned persons are “oligarchs widely recognized for capturing and corrupting Moldova’s political and economic institutions and those acting as instruments of Russia’s global influence campaign, which seeks to manipulate the United States and its allies and partners, including Moldova and Ukraine,” OFAC said in the announcement. Notably, the designations also include a former Moldovan government official “who engaged in state capture by exerting control over and manipulating key sectors of Moldova’s government, including the law enforcement, electoral, and judicial sectors.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license. Additionally, OFAC warned that financial institutions and other persons that engage in certain transactions or activities with the sanctioned persons may themselves be exposed to sanctions or be subject to an enforcement action.
EU Court of Justice says controllers of personal data must take reasonable steps to inform third parties when consumer consent is withdrawn
On October 27, the European Court of Justice (ECJ) held that controllers of personal data must take reasonable steps to inform other controllers when a data subject withdraws consent. The decision stems from a request made by a subscriber to a Belgian telecommunications provider to not have his information included in the public telephone directories and directory inquiry services published by the company and other third parties. The controller pulled the subscriber’s information from the public record, but re-added the information to the directories after it received an update to the subscriber’s data that was not noted as being confidential. The subscriber submitted multiple requests for his data to be removed and submitted a complaint with the Belgian Data Protection Authority. The Data Protection Authority ordered the company to take remedial action and fined it €20,000 for infringing several provisions of the General Data Protection Regulation (GDPR). The controller appealed, “arguing that the consent of the subscriber is not required for the purposes of the publication of his or her personal data in the telephone directories, rather the subscribers must themselves request not to be included in those directories under an ‘opt-out’ system. In the absence of such a request, the subscriber concerned may in fact be included in those directories.” The Data Protection Authority contended, however, that the privacy and electronic communications directive “requires the ‘consent of subscribers’ within the meaning of the GDPR in order for the providers of directories to be able to process and pass on their personal data.”
The Brussels Court of Appeal referred questions to the ECJ for a preliminary ruling after determining that there are no specific rules “concerning the withdrawal by a subscriber of his or her statement of wishes or of that ‘consent.’” The ECJ determined that controllers of personal data must get consumers’ informed consent before publishing their information in a public directory. Further, the ECJ determined that such consent can be extended to any subsequent processing of data by third parties, provided the data is processed for the same purpose to which the consumer consented. However, consumers can withdraw consent at any time, and controllers are required to make reasonable efforts to notify third parties, including search engine providers, that are making use of that subscriber’s information of the withdrawal. Notably, the ECJ concluded that if various controllers rely on the single consent of a data subject, “it is sufficient, in order for that person to withdraw such consent, that he or she contacts any one of the controllers.”