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On September 27, the SEC filed charges against a Florida-based payday lender and its CEO (collectively, “defendants”) for fraudulently raising more than $66 million through the sale of promissory notes to hundreds of retail investors, including members of the South Florida Venezuelan-American community. The SEC charges the defendants with falsely promising investors that their money would be used solely to make small-dollar, short-term loans and for associated costs. However, the defendants allegedly misappropriated roughly $2.9 million for personal use, transferred approximately $3.6 million to family and friends without an apparent legitimate business purpose, and used at least $19.2 million of investor funds to make Ponzi-like payments to other investors. The complaint further contends that the defendants mislead investors by promising high annual returns and representing that the business was profitable, and made misrepresentations about the safety and security of the promissory notes. The SEC’s complaint alleges violations of the registration and antifraud provisions of the federal securities laws, and charges the CEO with acting as an unregistered broker. The complaint seeks a permanent injunction against the defendants, disgorgement with prejudgment interest, civil penalties, and an officer and director ban against the CEO.
On September 29, the CFTC announced a $1.5 million settlement with a non-U.S. provisionally registered swap dealer headquartered in France to resolve claims that it failed to comply with certain swap dealer reporting requirements. Among other things, the swap dealer allegedly failed to meet mid-market mark disclosure requirements for numerous swaps, failed to accurately report certain swap valuation data to a swaps data repository, and did not diligently perform its supervisory obligations related to these disclosures. In addition to the civil monetary penalty, the swap dealer must cease and desist from further violations of the Commodity Exchange Act and CFTC regulations and must continue its remediation efforts.
Earlier, on September 27, the CFTC announced a $1 million civil monetary penalty to resolve allegations that a global financial institution violated swap data legal entity identifier (LEI) reporting requirements as well as related supervision responsibilities. According to the CFTC, the alleged failures violated the cease and desist provision of a 2017 CFTC order, in which the CFTC found that the financial institution, among other things, failed to report LEI swap transaction data or establish systems and procedures to do so, did not correct errors in previously reported LEI data, and failed to diligently perform its supervisory duties when reporting LEI swap data. The 2017 order imposed a $550,000 civil monetary penalty and required the financial institution to cease and desist violating CFTC regulations. The CFTC’s September 27 order further found that the financial institution’s alleged continued reporting failures occurred, in part, from a failure to diligently supervise its swap dealer activities with respect to LEI swap data reporting.
On September 29, the DOJ announced a settlement with a California-based auto-financing company resolving allegations that the company failed to refund up-front lease payments to servicemembers who lawfully terminated their motor vehicle leases early, in violation of the Servicemembers Civil Relief Act (SCRA). According to the press release, the SCRA “permits servicemembers to terminate motor vehicle leases early without penalty after entering military service or receiving qualifying military orders for a permanent change of station or to deploy.” When servicemembers end their motor vehicle leases early under the SCRA, the lessor must refund all lease payments made in advance under the SCRA. The settlement, filed by the DOJ in the U.S. District Court for the Central District of California, alleged that the company provided cash refunds for capitalized cost reduction (CCR) by servicemembers, but failed “to refund, on a pro rata basis, lease amounts—in the form of [CCR] from vehicle trade-in value—paid in advance by servicemembers who lawfully terminated their motor vehicle leases upon receipt of qualifying military orders.”
Among other things, the settlement requires the company to compensate 714 servicemembers, pay $64,715 to the U.S. Treasury, adopt new policies, and implement new training requirements consistent with the SCRA. The settlement also notes that the company fully cooperated with the investigation.
On September 28, FTC Chair Lina M. Khan appointed Samuel A.A. Levine as Director of the Bureau of Consumer Protection and Holly Vedova as Director of the Bureau of Competition. Levine—who served as an attorney advisor to Commissioner Rohit Chopra—previously worked for the Illinois attorney general where he prosecuted predatory for-profit colleges and engaged in rulemaking to expand income-driven repayment options for student borrowers. Vedova, who has a background in mergers and antitrust, most served recently as an attorney advisor to Chopra and previously served as counsel to the Director of the Bureau of Competition. “[A]s permanent directors of the FTC’s enforcement bureaus, their mission will be to guide this agency as we work to safeguard fair competition and check unfair or deceptive practices,” Khan stated.
On September 23, the SEC filed a complaint against two former principals of a subprime automobile finance company for allegedly misleading investors about certain subprime auto loans. According to the SEC, the defendants made false and misleading statements and engaged in deceptive conduct concerning the company’s servicing practices in connection with a $100 million offering backed by a pool of subprime auto loans. The SEC alleged that the defendants took measures to artificially inflate the value of the collateral underlying the offering, such as by (i) including poorly-performing and delinquent loans that were disguised to appear to be performing better than they really were; (ii) applying “fake borrower payments” to delinquent loans; and (iii) extending terms on delinquent loans without contacting the borrower to disguise how far behind the borrowers were on payments. Because of these improper practices, the SEC claimed that servicing and performance information provided by the company to investors at the time of the offering and later on was false. The complaint charges the defendants with violations of the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and seeks permanent injunctions, officer and director bars, disgorgement with prejudgment interest, and civil penalties.
On September 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $1.4 million settlement with a Texas-based supplier of goods and services for the oil and gas industries (a subsidiary of a Netherlands corporation) for allegedly approving contracts that allowed a foreign subsidiary to supply goods to a Russian energy firm blocked under Directive 4 of Executive Order (E.O.) 13662, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” as implemented by the Ukraine-Related Sanctions Regulations. According to OFAC’s web notice, between July 2015 and November 2016, U.S.-senior managers at the company approved five contracts for its foreign subsidiary to supply oil and exploration goods to the blocked energy firm, thus constituting a “prohibited provision of services involving a person determined to be subject to Directive 4 ([the blocked energy firm]), its property, or its interests in property.”
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that (i) U.S. senior managers knew that their approvals were for contracts to supply goods to a blocked entity; (ii) the company “acted directly contrary to U.S. foreign policy objectives by approving the sale of oil production or exploration equipment to an entity subject to the restrictions of Directive 4”; and (iii) the company should have recognized the risk involved when the contracts were approved.
OFAC also considered various mitigating factors, including, among other things, that the company took meaningful corrective actions upon discovering the alleged violations to ensure sanctions compliance, and cooperated with OFAC’s investigation and entered into tolling agreements.
OFAC separately reached a $160,000 settlement with a subsidiary of a subsidiary of the same Netherlands corporation for its apparent violation of OFAC’s now-repealed Sudanese Sanctions Regulations. According to OFAC’s web notice, three of the subsidiary’s U.S. employees allegedly facilitated the sale and shipment of oilfield equipment intended for delivery to Sudan, which was, at the time of the transaction, an apparent violation.
On September 23, the U.S. District Court for the Central District of California entered a judgment in favor of the CFPB against an individual defendant in an action taken by the Bureau against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here, and here).
In August the court granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.) At the time, the court found that injunctive relief, restitution, and a civil money penalty were appropriate remedies. While the individual defendant objected to the proposed judgment, the court ultimately ordered that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here). Additionally, the court determined that the individual defendant “recklessly” violated the CFPA, TSR, and FCRA, warranting a $20 million civil money penalty. The individual defendant is also permanently banned from participating in telemarketing activities or from using or obtaining prescreened consumer reports.
On September 27, the FTC announced a settlement with a Georgia-based debt collection company and its owners (collectively, “defendants”) for allegedly engaging in fraudulent debt collection practices. As previously covered by InfoBytes, the FTC filed a complaint against the defendants alleging that they violated the FTC Act and the FDCPA by, among other things: (i) posing as law enforcement officers, prosecutors, attorneys, mediators, investigators, or process servers when calling consumers to collect debts; (ii) using profane language and threatening consumers with arrest or serious legal consequences if debts were not immediately paid; (iii) threatening to garnish wages, suspend Social Security payments, revoke drivers’ licenses, or lower credit scores; (iv) attempting to collect debts that were either never owed or were no longer owed; (v) unlawfully contacting third parties, such as family members or employers; and (vi) adding unauthorized or impermissible charges or fees to consumers’ debts. The U.S. District Court for the Northern District of Georgia granted a temporary restraining order against the defendants in September 2020. Under the terms of the stipulated final order, the FTC ordered that the defendants are banned from the debt collection industry, prohibited from misrepresenting that they are attorneys or affiliated with a law firm or whether a consumer owes any kind of debt, and are prohibited from making misleading claims while selling a product or service. The order also requires the defendants to pay more than $266,000 to the Commission. A $3 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.
On September 24, the FDIC released a list of administrative enforcement actions taken against banks and individuals in August. During the month, the FDIC issued eight orders consisting of “one Consent Order, three terminations of Consent Orders, two Orders to Pay Civil Money Penalty, one Removal/Prohibition Order, and two Section 19 Orders.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The bank also allegedly “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $3,000 civil money penalty.
On September 24, the SEC announced that it awarded a whistleblower approximately $36 million for providing information and assistance leading to a successful SEC enforcement action, as well as actions by another federal agency. According to the redacted order, the whistleblower voluntarily provided information regarding an illegal scheme to staff at both agencies and met with SEC enforcement staff on multiple occasions. According to the SEC, the SEC's whistleblower program allows individuals who provide critical information to other agencies to be eligible for a related action award if they are also eligible for an award in the underlying SEC action.
The SEC has awarded approximately $1.1 billion to 214 individuals since issuing its first award in 2012.
- Daniel R. Alonso to discuss internal investigations at the Institute of Internal Auditors of Argentina Spanish-language webinar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Marshall T. Bell and John R. Coleman to speak at 2021 AFSA Annual Meeting
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek