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On September 21, the SEC announced a $2.4 million award to a whistleblower in connection with a successful agency enforcement action. The SEC’s press release states that the whistleblower’s “timely submission of information” led to the initiation of an investigation and enforcement action that stopped the ongoing misconduct. The redacted order determining the whistleblower award claim states that the whistleblower’s information helped SEC staff “identify key witnesses and parties and draft targeted subpoenas, which saved the staff time and resources in conducting the investigation.”
Earlier on September 17, the SEC announced a nearly $250,000 joint whistleblower award in connection with a successful agency enforcement action. According to the SEC’s press release, the whistleblowers raised their concerns internally before reporting the potential securities violations to the SEC. According to the redacted order, the claimants’ concerns prompted enforcement staff to open an investigation. The order notes, however, that while the claimants’ information identified certain parties and transactions that were ultimately subjects of the covered action, “many of their allegations did not directly relate to the Commission’s charges” in covered action, which played a role in the SEC’s determination of the appropriate award percentage.
The SEC has now paid a total of $523 million to 97 individuals since the inception of the program.
On September 21, the CFPB announced a settlement with a California-based auto-loan servicer to resolve allegations that the company engaged in unfair practices with respect to its Loss Damage Waiver (LDW) product, in violation of the Consumer Financial Protection Act. The CFPB alleged that the company engaged in unfair practices by charging certain borrowers for LDW coverage, but then failed to provide the coverage. Specifically, the LDW agreement allowed the company to suspend coverage if borrowers became 10-days delinquent on their auto loans. The company, however, continued to charge borrowers LDW premiums even though coverage was no longer being provided. The Bureau also alleged that the company assessed LDW claim-related fees that were not disclosed in the LDW contract, which the borrowers were not contractually obligated to pay.
Under the terms of the consent order, the company is required to pay more than $1.3 million in consumer redress to approximately 4,000 impacted consumers, as well as a $100,000 civil money penalty. The order also prohibits the company from “failing to provide consumers with LDW coverage, collateral protection insurance, or similar products or services for which [the company] has charged consumers” or from “charging consumers fees that are not authorized by its LDW contracts.”
On September 16, NYDFS filed a statement of charges against a debt collector for allegedly failing to honor consumers’ requests for substantiation of debt. This is the first enforcement action alleging violations of New York’s Debt Collection Regulation, 23 NYCRR Part 1, which was promulgated in 2015. New York law dictates that substantiation must be provided within 60 days after receiving a request, and specifies what documentation must be provided to substantiate the debt. Charges filed against the company allege that requests made by consumers for information proving the validity of the debt and the company’s right to collect the debt were not honored in several ways, such as failing to provide (i) any substantiation to dozens of consumers; (ii) sufficient substantiation to hundreds of consumers, for example, by omitting a complete chain of title or underlying transaction documents; and (iii) substantiation within the required timeframes. NYDFS maintains that the company’s actions violate 23 NYCRR Part 1, Section 1.4, and that such violation carries civil penalties of up to $1,000 per offense under state law. Additionally, NYDFS claims that “each failure to provide any substantiation, timely substantiation, or sufficient substantiation of debt constitutes an independent offense.” A hearing is scheduled for January 12, 2021 before a hearing officer to be appointed by the Superintendent of Financial Services.
On September 15, the CFPB filed a complaint and proposed stipulated judgment against a trust, along with three banks acting in their capacity as trustees to the trust, for allegedly providing substantial assistance to a now defunct for-profit educational institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act. The Bureau asserted that the trust owned and managed private loans for students attending the defunct institution, even though the trust “allegedly knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them.” The Bureau alleged that the defunct institution induced students to take out loans through several unfair practices, including “using aggressive tactics, and in some cases, gaining unauthorized access to student accounts to sign students up for loans without permission.” These loans, the Bureau contended, carried default rates well above what was expected for student loans. According to the Bureau, the trust was allegedly actively involved in the servicing, managing, and collection of these student loans.
If approved by the court, the Bureau’s proposed settlement would require the trust to (i) cease collection efforts on all outstanding loans owned and managed by the trust; (ii) discharge all outstanding loans owned and managed by the trust; (iii) ask all consumer reporting agencies to delete information related to the trust’s loans; and (iv) notify all affected consumers of these actions. The Bureau estimated that the total amount of loan forgiveness is roughly $330 million.
This settlement is the third reached by the Bureau in relation to the defunct institution’s private loan programs. In 2019, the defunct institution reached a settlement with the Bureau (covered by InfoBytes here), which required the payment of a $60 million judgment. Additionally, the Bureau entered into another settlement in 2019 with a different company that managed student loans for the defunct institution’s students, which required the loan management company to comply with similar requirements as the trust (covered by InfoBytes here).
On September 11, the CFTC filed a complaint in the U.S. District Court for the Southern District of Texas against four individuals accused of operating a purported multi-level marketing scheme involving the solicitation of nearly $100,000 in customer funds that were to be used to speculate in cryptocurrency. The CFTC alleged that the defendants violated the Commodity Exchange Act by, among other things, creating the false illusion that their business employed “master traders” with years of cryptocurrency trading experience, that customers’ earnings would increase based on the amount of their deposits, and that customers who made referrals would receive bonuses. Additionally, the defendants posted misleading trade statements online that failed to “accurately reflect the Bitcoin trading purportedly undertaken by [the d]efendants and led certain customers to believe they were earning significant amounts of money from [the d]efendants’ trading of Bitcoin on their behalf.” The CFTC further claimed that when customers tried to unsuccessfully withdraw their funds, the defendants would first claim their website or smartphone app were experiencing technical problems, but then eventually stopped responding to the customer requests. The CFTC seeks to enjoin the defendants’ allegedly unlawful acts and practices, to compel compliance with the Commodity Exchange Act and CFTC regulations, and to further enjoin the defendants from engaging in any commodity interest-related activity. In addition, the CFTC seeks civil monetary penalties, restitution, trading and registration bans, and other statutory, injunctive, or equitable relief as the court may deem necessary and appropriate.
On September 14, the SEC announced a more than $10 million award to a whistleblower in connection with a successful agency enforcement action. According to the SEC’s press release, the whistleblower’s information and assistance “were of crucial importance” to the action. The redacted order on the whistleblower award claim states that (i) the whistleblower provided “extensive and ongoing assistance,” which included “identifying witnesses and helping staff understand complex fact patterns and issues”; (ii) the SEC used the information to “craft its initial document requests” and create its investigation plan; and (iii) the whistleblower “made persistent efforts to remedy the issues, while suffering hardships.”
On September 11, the SEC announced charges against five Atlanta-based individuals for allegedly promoting unregistered and fraudulent initial coin offerings (ICOs) owned by one of the defendants, a film producer, who promised investors he would build a digital streaming platform and a digital-asset trading platform. Two companies controlled by the film producer that conducted the ICOs were also charged. According to the SEC’s complaint, the film producer, among other things, allegedly misappropriated the funds raised in the ICOs, transferred and sold certain tokens to generate an additional $2.2 million in profits, and engaged in manipulative trading to artificially inflate the price of other tokens. The SEC charged the film producer with violating the registration, antifraud, and anti-manipulation provisions of the federal securities laws. The other defendants were charged with various securities violations, including violating registration, antifraud, and anti-touting provisions for their roles in promoting, offering, selling, or conducting the ICOs. The complaint seeks injunctive relief, disgorgement, and civil monetary penalties, as well as an officer-and-director bar against the film producer and certain prohibitions against the other defendants.
The SEC’s press release noted that it had entered into proposed settlements subject to court approval with several of the defendants except for the film producer, which would require three of the defendants to each pay a $25,000 penalty and subject them to “conduct-based injunctions prohibiting them from participating in the issuance, purchase, offer, or sale of any digital asset security for a period of five years.” An order reached with another defendant—who neither admitted nor denied the findings—imposes a $75,000 civil monetary penalty and bans the defendant from participating in the offering or sale of digital-asset securities for at least five years.
On September 10, the DOJ announced a Servicemembers Civil Relief Act (SCRA) settlement with a Florida-based towing and storage company, resolving allegations that the company auctioned cars owned by active duty servicemembers without first obtaining a court order. According to the complaint, filed on the same day as the settlement, the DOJ initiated the investigation into the company after “becoming aware of a complaint” by a U.S. Navy Lieutenant whose car was towed while he was deployed abroad. The DOJ asserts that between 2013 and 2020, the company “auctioned off motor vehicles, without court orders, belonging to at least 33 SCRA-protected servicemembers.” The settlement requires the company to pay nearly $100,000 in compensation to affected servicemembers and a $20,000 civil money penalty. Additionally, the company must develop new SCRA policies and procedures for enforcing storage liens and provide annual SCRA compliance training to all of its employees.
On September 8, the CFPB filed a complaint against the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”) for allegedly violating the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the defendants allegedly engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices in violation of the Consumer Financial Protection Act (CFPA), FDCPA, and FCRA. According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants have collected more than $300 million from consumers using practices that did not comply with the 2015 consent order. Among other things, the complaint alleges that the defendants violated the terms of the consent order—and again violated the FDCPA and CFPA—by (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing required disclosures; (ii) failing to provide consumers with OALD within 30 days of the consumer’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that consumers may incur international-transaction fees when making payments to foreign countries, which “effectively den[ied] consumers the opportunity to make informed choices of their preferred payment methods.” The Bureau seeks injunctive relief, damages, consumer redress, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA or FDCPA.
On September 10, in remarks at the Paycheck Protection Program (PPP) Criminal Fraud Enforcement Action press conference, Acting Assistant Attorney General Brian Rabbitt provided an overview of recent PPP enforcement actions and noted that “[m]any financial institutions have been strong partners” in assisting the DOJ with “detecting and investigating potentially fraudulent activity in connection with the PPP.” In addition to partnerships with private institutions, Rabbitt emphasized the agency’s data analytics capabilities as a key component in their ability to bring PPP fraud cases quickly—within six months, the DOJ has charged 57 defendants in at least 19 federal judicial districts. Moreover, Rabbitt discussed commonalities among the cases, including the “defendants’ use of their stolen PPP funds for entirely illegitimate purposes” having nothing to do with the intended relief. In total, according to the DOJ, the current charges against the 57 defendants “involve attempts to steal over $175 million from the PPP” and over $70 million in “actual losses to the federal government.”
- Daniel P. Stipano to discuss "Making customers whole: Trends in remediation and restitution expectations" at the American Bar Association Business Law Virtual Section Meeting
- Jonice Gray Tucker to discuss "Fairness gone viral: Fair lending considerations for financial institutions amid Covid-19" at the American Bar Association Business Law Virtual Section Meeting
- Daniel P. Stipano to discuss "High standards: Best practices for banking marijuana-related businesses" at the ACAMS AML & Anti-Financial Crime Conference
- Daniel P. Stipano to discuss "Wait wait ... do tell me! Where the panelists answer to you" at the ACAMS AML & Anti-Financial Crime Conference
- Matthew P. Previn and Walter E. Zalenski to discuss "Is valid when made ... valid?" at the Women in Housing & Finance Partner Series webinar
- Warren W. Traiger and Caroline K. Eisner to discuss "CRA modernization and the OCC final rule" at CBA Live
- Daniel R. Alonso to discuss "Transnational corruption: A chat with former U.S. federal prosecutors in New York" at Marval Live Talks
- Sherry-Maria Safchuk and Lauren Frank to discuss "New CFPB interpretation on UDAAP" at a California Mortgage Bankers Association Mortgage Quality and Compliance Committee webinar
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute