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  • American Casino and Resort Company Pays $7 Million Penalty to Resolve Criminal FCPA Charges

    Federal Issues

    On January 17, Nevada-based gaming and resort company agreed to pay the DOJ nearly $7 million to resolve FCPA charges with a non-prosecution agreement (NPA) in connection with payments from 2006 to 2009 totaling almost $6 million to a business consultant to promote its brand in China and Macau. The company admitted that the payments were made “without any discernable legitimate business purpose,” that its executives had knowingly and willfully failed to implement adequate internal accounting controls to ensure that the payments were legitimate, and that it failed to prevent the false recording of those payments in its books and records, continued to make the payments even after warnings from its finance staff and an outside auditor, and terminated the finance department employee who raised those concerns.

    The $7 million criminal penalty is a 25-percent discount from the bottom of the U.S. Sentencing Guidelines fine range. In announcing the NPA, the DOJ credited the company for its full cooperation in the investigation, including conducting a thorough internal investigation and voluntarily providing evidence and information to the DOJ, and its extensive remedial measures, including expanding its compliance and audit programs and making significant personnel changes. The DOJ found particularly notable that the company no longer employs or is affiliated with any of the individuals implicated in the investigation and hired a new general counsel and new heads of its internal audit and compliance functions.

    In an unusual move, the DOJ’s announcement comes several months after the company resolved similar FCPA claims with the SEC in related proceedings last April. There the SEC filed a cease and desist order against the company and the company agreed to pay a civil penalty of approximately $9 million. The SEC alleged that the company violated the FCPA’s internal controls and books and records provisions in connection with more than $62 million in payments to a consultant operating in China and Macau who did not properly document how the money was used. The company had consented to the SEC’s order without admitting or denying the charges. Previous FCPA Scorecard coverage of the company’s SEC settlement can be found here.

    Federal Issues Securities FCPA International SEC DOJ China

  • PA Secretary of Banking and Securities Voices Concerns About OCC FinTech Charter

    Consumer Finance

    On January 17, Secretary of the Pennsylvania Department of Banking and Securities, Robin L. Wiessmann, submitted a comment letter calling upon the OCC to give “more thoughtful deliberation about the intended and unintended consequences that will result from such an apparent departure from the OCC’s current policy and scope of supervision.” Specifically, Wiessman requested that the federal bank regulator address three concerns regarding: (i) the broad application and ambiguity of the term “fintech”; (ii) the need by the OCC to have an adequate regulatory scheme in place before approving charters; and (iii) the possible federal preemption of existing state consumer protection laws. The Secretary’s letter echoes many of the concerns raised in a recent comment letter submitted by the Conference of State Bank Supervisors (CSBS) “reiterating its opposition to the [OCC] proposal to issue a special charter for fintech companies.”

    Banking State Issues Securities OCC Fintech

  • Misleading Mortgage Investors Costs Germany's Largest Bank $7.2 Billion

    Courts

    On January 17, the Department of Justice (DOJ) announced a $7.2 billion settlement with Germany’s largest lender, resolving federal civil claims that a German global bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. Under the terms of the settlement agreement, the bank must pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and must provide $4.1 billion in consumer relief. The DOJ described the settlement as “one of the largest FIRREA penalties ever paid.”

    As a part of the settlement, the bank acknowledged misleading investors in the packaging, securitization, marketing, sale, and issuance of RMBS. Pursuant to the agreement, an independent monitor will determine whether the bank has satisfied its consumer relief obligations. In connection with the settlement, the DOJ released an appendix containing credit and compliance due diligence results from a selection of the bank’s RMBS, along with a list of the RMBS at issue. The settlement— described by the DOJ as “one of the largest FIRREA penalties ever paid”—does not release any individuals from potential criminal or civil liability. The bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.

    Courts Mortgages Securities DOJ False Claims Act / FIRREA

  • Chilean Chemical Company Settles FCPA Charges With SEC and DOJ

    Federal Issues

    On January 13, Chilean chemical and mining company agreed to pay nearly $30.5 million to resolve criminal and civil FCPA charges in connection with payments to politically-connected individuals in Chile. The company admitted that, from at least 2008 to 2015, it made approximately $15 million in payments to Chilean politicians, political candidates, and individuals connected to them.  Many of the payments violated Chilean tax law and/or campaign finance limits and were not supported by documentation.  Rather, the company made many of these payments to third-party vendors associated with the politically-connected individuals based on fictitious contracts and invoices for non-existent services.  The company falsely recorded many of these payments in its books and records.

    The company agreed to a three-year deferred prosecution agreement (DPA) with the DOJ, including a $15,487,500 criminal penalty, and agreed to retain an independent compliance monitor for two years.  The criminal penalty reflected a 25 percent discount from the low end of the U.S. Sentencing Guidelines fine range due to the company’s full cooperation and substantial remediation.  The company also agreed to pay a $15 million penalty to the SEC pursuant to an Administrative Order Instituting Cease-and-Desist Proceedings to settle the SEC’s charges that the company violated the books and records and internal controls provisions of the FCPA.

    This settlement demonstrates the jurisdictional-reach of the U.S. government in enforcing the FCPA.  The Chilean company with no U.S. operations, agreed to settle both the SEC’s and DOJ’s charges even though the entirety of the conduct occurred outside of the United States and was committed by foreign nationals.  The only tie to the United States referenced in the SEC and DOJ settlement papers is that the company is registered with the SEC as a foreign private issuer (its Series B shares have been listed on the NYSE since 1993).

    Federal Issues Securities Criminal Enforcement FCPA SEC DOJ DPA

  • Medical Device Company Reaches Second FCPA Settlement in the Span of Five Years

    Federal Issues

    On January 18, a Texas-based medical device company admitted wrongdoing and agreed to pay approximately $6 million to the SEC to settle FCPA books and records and internal controls charges in connection with improper payments made by its Brazilian subsidiary to doctors through third parties. In related non-FCPA proceedings, the company also agreed to pay a $8.25 million penalty to resolve various accounting violations. Each of the four former executives consented to accounting-related SEC orders without admitting or denying the findings. Filing of each can be found here, here, here, and here.

    According to the Administrative Order Instituting Cease-and-Desist Proceedings, the company’s Brazilian subsidiary employed third-party commercial representatives and distributors to make improper payments to doctors employed at government-owned hospitals to induce them to use the company’s products, thereby increasing sales.  The company also improperly recorded revenue, leading to the related accounting charges.

    In settling with the SEC, The company has now resolved two separate FCPA cases in the span of five years.  In 2012, the company resolved FCPA actions with both the SEC and DOJ in connection with bribes paid to Mexican officials by its Mexican subsidiary.  Given the prior corruption and internal controls issues, the SEC found that the company failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments.  The company agreed to hire a compliance consultant for one year.

    Federal Issues Securities FCPA SEC

  • American Multinational Food Company and British Multinational Confectionery Company Settle FCPA Charges with SEC for $13 Million Related to India Chocolate Factory

    Federal Issues

    On January 6, the British company and the American multinational food company, agreed to pay $13 million to settle the SEC’s allegations related to an agent’s interactions with Indian officials regarding a chocolate factory in India. The charges relate to payments made by the British company’s India unit in 2010 to a local agent who provided consultation services and dealt with Indian governmental officials to obtain clearances and licenses to increase production at the British company’s Baddi plant. The SEC alleged, and both companies neither admitted nor denied, that the British company violated the books and records and internal controls provisions of the FCPA.

    According to the SEC, the British company failed to perform appropriate due diligence on the agent and to monitor the agent’s actions, creating a risk that payments could be used for improper purposes. While the agent submitted invoices claiming that he prepared various license applications, the SEC claimed that these license applications were actually prepared by the British company’s other employees. The SEC noted in its decision that the American company had completed its own internal investigation that led to the British company ending its relationship with the agent and that the American company both cooperated with the SEC’s investigation and undertook “extensive remedial actions with respect to [the British company].”

    Federal Issues Securities FCPA SEC

  • FTC Hosts Its Second Annual PrivacyCon Event

    Securities

    On January 12, the FTC hosted its second annual “PrivacyCon”—a public forum promoted by the regulator in order to “expand collaboration among leaders from academia, research, consumer advocacy, and industry on the privacy and security implications of emerging technologies.” Throughout the day, speaker panels presented research and opened the floor to discussions addressing five major topic areas: (i) the Internet of Things (IoT) and big data; (ii) mobile privacy; (iii) consumer privacy expectations; (iv) online behavioral advertising; and (v) information security. Among other things, panelists discussed the possibility of using machine learning to automatically block or permit user tracking and information collection by applications and websites based on the user’s past practices. Many panelists also examined data “leakage” from devices and the possible privacy and security issues that are raised by such leakage.

    A full version of the agenda, including links to abstracts of the research being presented, as well as a video recording of the event, is available online. Additional research not present but submitted without a request for confidential treatment is also available here.

    Securities Miscellany Privacy/Cyber Risk & Data Security

  • Prudential Regulators Issue Guidance on New Accounting Standards Governing Credit Loss Allowances

    Federal Issues

    On December 19, the Prudential Regulators have issued guidance in the form of a cover letter (OCC 2016-45; SR 16-19; FIL-79-2016) and FAQs to assist financial institutions and bank examiners interpret and apply new accounting standards applicable to estimated allowances for credit losses. Though applicable to all financial institutions, regardless of size, there are different effective dates for the new standard depending on the institutions status as a public entity and/or SEC filer. The above-referenced FAQs summarize key elements of the new accounting standard, such as effective dates, scope, and transition, while also highlighting the specific GAAP accounting provisions affected by the new standard, including: (i) purchased credit-deteriorated financial assets; (ii) held-to-maturity debt securities; (iii) available-for-sale debt securities; (iv) troubled debt restructuring; and (v) off-balance-sheet credit exposures. The guidance also outlines steps regulators have encourage financial institutions to take to prepare for the transition to the new accounting standard, including: (i) initial supervisory views on measurement methods, (ii) the use of vendors, (iii) scalability, (iv) data needs, and (v) allowance processes.

    Federal Issues Banking Securities SEC Prudential Regulators

  • Obama Signs Into Law SEC Small Business Advocate Act

    Federal Issues

    On December 16, President Obama signed into law H.R. 3784, the SEC Small Business Advocate Act of 2016. The legislation, which had broad bipartisan support in the House and Senate, establishes (within the SEC) an Office of the Advocate for Small Business Capital Formation and a Small Business Capital Formation Advisory Committee. Both the Office of the Advocate and the Advisory Committee will be tasked with the dual role of helping small businesses navigate the securities laws and advocate against the application of overly burdensome regulations to small businesses. The small-business advocate is modeled after the SEC’s office of the investor advocate, which was created under the Dodd-Frank Act as a voice for investors.

    Federal Issues Securities Dodd-Frank SEC Obama

  • N.Y. Attorney General's Office, SEC and FINRA Assess Penalties, Fines Against Securities Firm Over Dark Pool Access Disclosures

    State Issues

    On December 16, N.Y. Attorney General Eric Schneiderman announced a $37 million settlement against a major securities firm following its joint investigation with the Securities and Exchange Commission (SEC) into allegedly false statements and omissions made by the firm in connection with the marketing of its electronic order routing services, known as its “Dark Pool Ranking Model.” As explained by Attorney General Schneiderman, “Electronic order routing systems that route investor orders to various markets, including dark pools, are a part of modern equities trading, and companies that promote their routing capabilities must do so truthfully.” As part of the agreement, the firm admitted that it misled investors and violated New York State and federal securities laws; its conduct was also censured by both regulators.

    That same day, FINRA announced its decision to fine the same firm $3.25 million for failing to disclose accurate information to all clients about services and features of its alternative trading system (ATS). In Form ATS filings with the SEC, the firm represented that all ATS users would have “identical access” to the system’s services and features. However, FINRA found that some ATS users, including high-frequency traders, were provided with more information than others and received services not available to others. The firm settled without admitting or denying the charges.

    State Issues Securities FINRA SEC State Attorney General

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