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  • SEC issues $40 million in whistleblower awards

    Securities

    On January 20, the SEC announced whistleblower awards totaling over $40 million to four individuals for providing information and assistance in three separate covered actions. According to the first redacted order, the SEC awarded approximately $37 million to two joint whistleblowers for providing evidence and ongoing assistance throughout the investigation, in addition to helping Commission staff identify information that contributed to the success of the action. According to the second redacted order, the SEC awarded approximately $1.8 million to an individual who provided information that prompted Commission staff to open the investigation. Additionally, the whistleblower continued to provide assistance by participating in interviews and giving additional documents. In the third redacted order, the SEC awarded approximately $1.5 million to a whistleblower for providing new information for Commission staff’s investigative strategy and significantly contributing to the success of the action. In addition, the whistleblower provided substantial and ongoing assistance by helping the Commission staff identify issues.

    The SEC has awarded approximately $1.2 billion to 245 individuals since issuing its first award in 2012.

    Securities SEC Whistleblower Enforcement Investigations

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  • Collection agency must pay $100,000

    On January 10, the Connecticut Department of Banking (Department) issued an order against a California-based collection agency (respondent) for failing to request a hearing within the prescribed time period after a notice regarding submission of certain information was sent by the Department. According to the order, the Department sent the respondent an information request and after requesting additional time to supply the information, the respondent notified the Department that it was voluntarily surrendering its license to collect in Connecticut. However, the respondent still failed to submit the requested information, which the state said is mandatory before it would consider the surrender of the respondent’s license. The Department ordered the respondent to cease and desist from violating Section 36a-17(e) of the Connecticut General Statutes and to pay a $100,000 civil money penalty. The Department also revoked the respondent’s license to act as a consumer collection agency in Connecticut.

    Licensing State Issues Connecticut State Regulators Enforcement

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  • States reach $1.2 million settlement with MLOs over fraudulent SAFE Act education certifications

    State Issues

    On January 18, the Conference of State Bank Supervisors (CSBS) announced that 441 mortgage loan originators (MLOs) have agreed to pay approximately $1.2 million to settle allegations that they falsely claimed to have completed annual mortgage education programs required under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The enforcement action, which included the participation of 44 state agencies from 42 states, targeted a mortgage education scheme offered by a California-based company and its owner that provided false certificates claiming that MLOs took mandatory eight-hour continuing education courses as required for licensure under state and federal law. (See additional background information on the enforcement action here.) The states’ investigation—led by the California Department of Financial Protection and Innovation—revealed that the owner allegedly, in some instances, completed online education courses on behalf of the MLOs, and in other instances “granted course credit to [MLOs] who had enrolled in his approved course but who neither attended the course nor completed the required coursework necessary to receive course credit.” Administrative enforcement actions have been taken against the company, the owner, and members of the owner’s family. The settling MLOs have agreed to surrender their licenses for three months, pay a $1,000 fine to each state that is a signatory to the consent order in which the MLO holds a license, and take pre-licensing and continuing-education courses before petitioning or reapplying for an MLO endorsement or license. CSBS noted that MLOs implicated in the investigation that did not sign a consent order will face further enforcement actions with their appropriate state financial regulator for additional disciplinary action against their MLO licenses.

    State Issues Licensing State Regulators Enforcement Mortgages Mortgage Origination SAFE Act DFPI

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  • Fed issues cease and desist order against California bank

    On January 18, the Federal Reserve Board issued a cease and desist order against two California-based bank holding companies (companies) and their jointly-owned bank, due to “additional safety and soundness deficiencies at the Bank, including with respect to unsecured loans,” following the termination of a February 2021 written agreement. According to the Fed’s order, “the Bank is currently operating without a permanent Chief Executive Officer, and Chief Financial Officer, and a sufficient number of board members, which are vital to the safe and sound operations of the Bank in light of the numerous remedial requirements of the Written Agreement.” The order requires, among other things, that the bank, within 60 days, submit written lending and credit administration policies and procedures and retain an independent third party to assess the adequacy of the bank’s compensation governance, policies, procedures, and internal controls. The order imposes no financial penalty.

    Bank Regulatory Federal Reserve Cease and Desist Enforcement California

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  • CFPB bans payment processor for alleged fraud

    Federal Issues

    On January 18, the CFPB filed a proposed stipulated judgment and order to resolve a complaint filed last year against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Act and its implementing rule, the Telemarketing Sales Rule. As previously covered by InfoBytes, the CFPB alleged that the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau claimed, stating that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. 

    If approved by the court, the defendants would be required to pay a $500,000 civil penalty, and would be permanently banned from participating in or assisting others engaging in payment processing, consumer lending, deposit-taking, debt collection, telemarketing, and financial-advisory services. The proposed order also imposes $54 million in redress (representing the total amount of payments processed by the defendants that have not yet been refunded). However, full payment of this amount is suspended due to the defendants’ inability to pay.

    Federal Issues CFPB Enforcement Telemarketing Elder Financial Exploitation Payment Processors CFPA Unfair Telemarketing Sales Rule Deceptive UDAAP Consumer Finance

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  • DOJ announces $7.9 million FCA settlement with student loan contractor

    Federal Issues

    On January 14, the DOJ announced a $7.9 million settlement with a contractor that serviced student loans for lenders under the Federal Family Education Loan Program to resolve allegations that it violated the False Claims Act by submitting or causing the submission of false claims to the Department of Education. According to the settlement agreement, from 2006 to 2016, the contractor allegedly knowingly failed to make required financial adjustments to borrower accounts and improperly treated some borrowers as eligible for military deferments, which resulted in incorrect reporting to the Department of Education and losses to the United States. The settlement press release noted that the contractor paid $1.4 million to the Department of Education under a remediation plan to partially resolve the allegations and received a credit for that payment under the settlement agreement.

    Federal Issues DOJ Student Lending False Claims Act / FIRREA Enforcement Department of Education

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  • FTC alleges UDAP violations by credit report provider

    Federal Issues

    On January 13, the FTC announced a proposed order to be entered into with a business credit report provider (respondent) alleging that the respondent engaged in deceptive and unfair practices. According to the FTC’s complaint, the respondent failed to provide businesses with a clear, consistent, and reliable process to fix errors in their credit reports even though the respondent was selling those businesses products that purported to help them improve their reports. The FTC’s complaint also alleged that the respondent’s telemarketers deceptively pitched another service to businesses and falsely claimed that the businesses had to purchase the service for the respondent to complete the business’s credit profile. In addition, the respondent allegedly did not disclose to businesses that the service’s subscription is automatically renewed each year, nor did it properly disclose other renewal practices that led to increasing costs. Under the terms of the proposed order, the respondent would be required to, among other things: (i) comply with specific periods of time within which to promptly investigate and correct errors; (ii) inform businesses of the results of their investigations; (iii) provide businesses with free access to the revised information; and (iv) either delete the disputed information or perform a reinvestigation of the information to confirm its accuracy when a business informs the respondent of incorrect information in its report. Additionally, the proposed order would require the respondent to provide refunds to certain businesses that purchased its service products between April 2015 and May 2020, and to provide opportunities for many current customers to cancel their services and obtain refunds.

    Federal Issues FTC Enforcement UDAP Credit Report Deceptive

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  • States reach $1.85 billion settlement with student loan servicer

    State Issues

    On January 13, a coalition of attorneys general from 38 states and the District of Columbia reached a $1.85 billion settlement with one of the nation’s largest student loan servicers, resolving allegations that it engaged in misconduct when servicing student loans. The settlement, subject to court approval, brings to an end multistate litigation and investigations into the allegations that the servicer steered borrowers into costly forbearances and expensive repayment plans rather than helping borrowers find affordable income-driven repayment (IDR) plans. The servicer denies violating any consumer financial laws or causing borrower harm, as stated in a separate press release, but has agreed to maintain servicing practices to support borrower success.

    Under the terms of the settlement, the servicer has agreed to cancel more than $1.7 billion in private student loan balances owed by roughly 66,000 borrowers. An additional $95 million in restitution payments of about $260 each will also be sent to approximately 357,000 federal student loan borrowers, and the servicer will also pay approximately $142.5 million to the signatory AGs. The settlement also requires the servicer to make several reforms, including explaining the benefits of IDR plans and offering estimated income-driven payment options to borrowers prior to placing them into deferment or discretionary forbearance. The servicer is also required to notify borrowers about the Department of Education’s Public Service Loan Forgiveness limited waiver opportunity (covered by InfoBytes here), implement changes to its payment-processing procedures to limit certain fees for late payments or entering forbearance status, and improve communications informing borrowers of their rights and obligations.

    State Issues State Attorney General Enforcement Settlement Student Lending Student Loan Servicer

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  • OFAC reaches $5.2 million settlement with Hong Kong company for apparent Iranian sanctions violations

    Financial Crimes

    On January 11, the U.S. Treasury Department’s Office of Foreign Assets Control announced a $5.2 million settlement with a Hong Kong, China-based company for allegedly processing certain transactions related to goods of Iranian origin through U.S. financial institutions in violation of the Iranian Transactions and Sanctions Regulations (ITSR). According to OFAC’s web notice, from August 2016 through May 2018, certain company employees violated company-wide policies and procedures by causing the company to purchase Iranian-origin goods from a supplier in Thailand for resale to buyers in China. Under the terms of the trading arrangement, the company made 60 separate U.S. dollar payments from its bank in Hong Kong to the Thai supplier’s banks in Thailand, transferring a total of $75.6 million. Each of these payments were allegedly “processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks.” Due to the noncompliant employees’ misconduct, the funds transfer instructions omitted references to Iran. As a result, U.S. financial institutions were unable to flag the transfers as violating the ITSR, which would have “caused them to reject and report each of these U.S. dollar denominated funds transfers.”

    In calculating the settlement amount, OFAC considered the following aggravating factors: (i) the noncompliant employees omitted Iranian country of origin references from all relevant transactional documents over a period of two years, despite knowing and having been advised repeatedly that this conduct violated the ITSR and company policy; (ii) the noncompliant employees “had actual knowledge about the [supplier’s] relation to Iran”; (iii) the company’s actions conferred significant economic benefits to Iran, specifically with respect to Iran’s petrochemical sector; and (iv) the company “is a sophisticated offshore trading and cross-border trade financing company with ready access to experience and expertise in international trade, investment, financing, and sanctions compliance.”

    OFAC also considered various mitigating factors, including that (i) the company repeatedly reminded noncompliant employees not to make U.S. dollar payments in connection with Iran-related business transactions; (ii) senior management and compliance personnel were unaware of the violations due to the concealment of the information internally; (iii) the company has not received a penalty notice from OFAC in the preceding five years; and (iv) the company voluntarily self-disclosed the apparent violations, cooperated with OFAC’s investigation, and has undertaken significant remedial measures to ensure sanctions compliance.

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury OFAC Sanctions OFAC Designations Settlement Enforcement Hong Kong Iran

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  • SEC issues multiple whistleblower awards

    Securities

    On January 10, the SEC announced that it awarded whistleblowers nearly $4 million for providing information and assistance in two separate investigations. According to the first redacted order, the whistleblower, who reported internally prior to reporting to the SEC, provided significant new information during an existing investigation that alerted the SEC to misconduct occurring overseas and permitted SEC staff to develop an efficient investigative plan to discover the full extent of the violations. The whistleblower received approximately $2.6 million. In the second redacted order, the SEC issued approximately $1.5 million to joint whistleblowers for providing substantial ongoing assistance throughout the investigation, such as by consulting telephonically with SEC staff and providing information about key witnesses, which led to the success of the investigation.

    Earlier on January 6, the SEC announced that it awarded a whistleblower nearly $13 million for providing information and assistance that led to an investigation and successful SEC enforcement action. According to the redacted order, the whistleblower voluntarily provided original information to the Commission by meeting in person and helping SEC staff understand the mechanics of the fraudulent scheme, which enabled the Commission to stop an ongoing fraud, minimize investor losses, and return tens of millions of dollars to harmed investors.

    The SEC has awarded approximately $1.2 billion to 241 individuals since issuing its first award in 2012.

    Securities SEC Whistleblower Enforcement Investigations

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