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Financial Services Law Insights and Observations


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  • SEC reaches $1 billion milestone in whistleblower awards


    On September 15, the SEC announced whistleblower awards totaling nearly $114 million to two whistleblowers who provided information and assistance leading to successful SEC and related actions. According to the redacted order, the first whistleblower was awarded $110 million for providing “significant independent information that bridged the gap between certain publicly available information and the possible securities violations.” The SEC noted that the “$110 million award consists of an approximately $40 million award in connection with an SEC case and an approximately $70 million award arising out of related actions by another agency.” The $110 million award is the second-highest award in the program's history, following an approximately $114 million whistleblower award the SEC issued in October 2020 (covered by InfoBytes here). After the SEC staff opened an investigation and undertook significant investigative steps, a second whistleblower voluntarily provided original information and received an approximately $4 million award.

    The SEC has awarded approximately $1 billion in whistleblower awards to 207 individuals since issuing its first award in 2012, which includes over $500 million in fiscal year 2021 alone.  

    Securities SEC Whistleblower Enforcement Investigations

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  • SEC charges alternative data provider with securities fraud


    On September 14, the SEC announced a settlement with an alternative data provider and one of the company’s co-founders (collectively, "respondents") resolving allegations that the company violated antifraud provisions by engaging in deceptive practices and making material misrepresentations regarding alternative data. According to the order, the respondents understood that companies would share their confidential app performance data if they promised not to disclose it to third parties. As a result, the respondents assured companies that their data would be aggregated and anonymized before being used by a statistical model to generate estimates of app performance. However, the respondents, between 2014 and mid-2018, utilized non-aggregated and non-anonymized data to alter its model-generated estimates to make them more valuable to sell to trading firms. The SEC alleged that the respondents violated provisions of the Exchange Act, such as Section 10(b) and Rule 10b-5 thereunder, because their misrepresentations and other deceptive practices misled subscribers regarding how the company’s intelligence estimates were calculated. The order, to which the respondents consented, imposes civil money penalties of $300,000 and $10 million. The order also provides that the company must cease and desist from committing or causing any future violations of the Exchange Act, and prohibits the co-founder from serving as an officer or director of a public company for three years.

    Securities Enforcement Alternative Data Securities Exchange Act Cease and Desist

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  • District Court reimposes $5 million restitution award in FTC action


    On September 13, the U.S. District Court for the Northern District of Illinois reimposed a more than $5 million restitution award in an action dating back to 2018, this time under Section 19 of the FTC Act. The court originally granted the FTC’s motion for summary judgment against a credit monitoring service and its sole owner in an action filed under Section 13(b) of the FTC Act, after concluding that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge could occur without engaging in unfair or deceptive practices (covered by InfoBytes here). However, as previously covered by InfoBytes, in 2019, the U.S. Court of Appeals for the Seventh Circuit held that Section 13(b) does not grant the FTC authority to order restitution—a position that the U.S. Supreme Court ultimately agreed with when issuing its 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).   

    In its current ruling, the court agreed to reimpose the damages under the Restore Online Shopper Confidence Act (ROSCA) and Section 19. The court noted that because ROSCA incorporates all the enforcement tools of the FTC Act, the FTC could seek remedies using Section 19 of the FTC Act instead of relying on Section 18. Further, the court noted that the FTC indicated that the FTC may seek remedies under Section 19 when it brought the action under Section 5(a) of ROSCA, which the court ultimately agreed was correct. “The FTC has the better of this dispute,” the court wrote, adding, among other things, that “the court is unmoved by [the defendant’s] claims of unfair prejudice. Aside from the particular route to an award of restitution, nothing will materially change. The FTC seeks the same remedy, for the same reasons, and for the same victims under section 5(a) via section 19 as it did under section 13(b).”

    Courts FTC Enforcement FTC Act Appellate Seventh Circuit U.S. Supreme Court

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  • FTC to use CIDs and subpoenas to streamline investigations

    Federal Issues

    On September 14, the FTC voted 3-2, at the recommendation of the Bureau of Consumer Protection and Bureau of Competition, to approve a series of resolutions intended to streamline consumer protection and competition investigations in core FTC-priority areas over the next decade. At the recommendation of the Bureaus, the FTC authorized eight new compulsory process resolutions, which authorize the use of civil investigative demands and subpoenas when investigating the following areas: (i) acts or practices affecting U.S. servicemember and veterans; (ii) acts or practices affecting children under 18; (iii) algorithmic and biometric bias; (iv) deceptive and manipulative online conduct, including matters related to tech support scams, payment processing, marketing of goods and services, and user interface manipulation; (v) repair restrictions; (vi) intellectual property abuse; (vii) common directors and officers and common ownership; and (viii) monopolization offenses. According to the FTC, adopting these resolutions will enhance and streamline the ability of FTC investigators and prosecutors to obtain evidence in critical investigations relating to potential violations of the FTC Act. FTC Commissioner Rohit Chopra issued a statement following the vote, commenting that the adoption “will improve the agency’s ability to order documents and data in investigations and fills a notable gap in the Commission’s long list of enforcement authorizations developed over many years.”

    Federal Issues FTC Consumer Protection FTC Act Investigations Enforcement Servicemembers UDAP

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  • New York enters judgment against crypto platform and CEO

    State Issues

    On September 13, the New York attorney general announced a judgment against an unregistered virtual currency trading platform and its CEO (collectively, “defendants”) for allegedly defrauding thousands of investors across the country out of millions of dollars by converting investor funds without their consent. According to the AG, in June, the New York Supreme Court granted the AG’s motion for a preliminary injunction and the appointment of a temporary, court-appointed receiver with special powers to safeguard investments already made on the trading platform. The defendants failed to comply with the preliminary injunction by creating, offering, and selling a new virtual currency and failed to respond to the AG’s complaint. The judgment permanently appoints the court receiver to obtain, safeguard, and return all assets invested and traded through the trading platform and imposes a money judgment against the defendants of $3,061,511, both together and separately. In addition, the judgment requires the defendants to permanently cease their illegal and fraudulent operations and puts in place a permanent receiver to protect investors’ funds.

    State Issues State Attorney General New York Cryptocurrency Enforcement

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  • SEC says digital asset trading company violated the Exchange Act


    On September 13, the SEC announced charges against three media companies (respondents) for allegedly violating the Securities Act of 1933 (Securities Act) by conducting an illegal unregistered offering of stock and coin security. In addition, two of the companies were also charged for allegedly conducting an illegal unregistered offering of a digital asset security. According to the SEC’s order, between April and June 2020, the respondents generally solicited thousands of individuals to invest in a common stock offering. During the same time period, two of the companies solicited individuals to invest in their offering of a digital asset coin security. As a result of these two unregistered securities offerings, whose proceeds were commingled, the respondents collectively raised approximately $487 million from over 5,000 investors.

    The order finds that, through both the stock and coin offering, the respondents violated Sections 5(a) and 5(c) of the Securities Act by offering and selling securities without having properly registered. The order, to which the companies consented without admitting or denying the findings, notes that the respondents are banned from participating in any offering of a digital asset security, and are required to cease and desist from future violations of the Securities Act and assist the SEC staff in the administration of a distribution plan, among other things. Two of the companies agreed to pay, jointly and severally, disgorgement of approximately $434 million plus prejudgment interest of approximately $16 million, in addition to a civil penalty of $15 million each. The other company agreed to pay disgorgement of approximately $52 million plus prejudgment interest of almost $2 million, as well as a civil penalty of $5 million. The order also establishes a Fair Fund to return monies to injured investors.

    Securities Digital Assets SEC Securities Act Enforcement

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  • OCC issues cease and desist order and $250 million penalty against national bank

    Federal Issues

    On September 9, the OCC announced a cease-and-desist and consent order and a $250 million civil money penalty against a national bank for alleged unsafe or unsound practices related to deficiencies in its home lending loss mitigation program and for violations of a 2018 consent order. According to the OCC, the bank, among other things: (i) failed to fully implement and maintain adequate loss mitigation practices; (ii) had mitigation decisioning tools and operational deficiencies that caused errors in loss mitigation processes; (iii) failed to timely detect, prevent, and quantify inaccurate loan modification decisions, due to inadequate controls, insufficient independent oversight, and ineffective governance related to loss mitigation activities; and (iv) had deficient internal auditing, which failed to consider aspects of previously identified issues. The cease and desist order requires the bank, among other things, to establish significant improvements to its loss mitigation program and cease taking on certain new bulk residential mortgage servicing rights from third parties. The September 9 civil money penalty order, which notes that the bank has taken steps to comply with the 2018 consent order but failed to effectively implement corrective actions, requires the bank to pay a civil penalty of $250 million.

    Federal Issues OCC Enforcement Cease and Desist Loss Mitigation

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  • OFAC reaches settlement with Texas technology company

    Financial Crimes

    On September 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $190,000 settlement with a Texas-based company for allegedly knowingly exporting goods, technology, and services in violation of the Iranian Transactions and Sanctions Regulations. According to OFAC’s web notice, between December 2013 and May 2018, the company exported 49 products from the U.S. to two third-country distributors with prior knowledge, or reason to know, that its products were intended specifically for a reseller in Iran. The Iranian reseller then sold three of the exported products to an entity on OFAC’s SDN List, at the time of the relevant exports. On at least three occasions, the company also allegedly provided support, software updates, reseller training, or other services in support of sales to customers located in Iran.

    In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that the company: (i) demonstrated reckless disregard for U.S. sanctions regulations by authorizing distribution and support of its goods; (ii) possessed knowledge of the conduct; and (iii) “caused harm to U.S. sanctions objectives by facilitating access to the bank’s products and support services by resellers and users in Iran.”

    OFAC also considered various mitigating factors, including, among other things, that the: (i) “volume and total amount of payments underlying the Apparent Violations was not significant compared to [the company’s] overall revenue”; (ii) the company demonstrated remedial actions, including establishing export controls and sanctions compliance policies and procedures; and (iii) the company cooperated with OFAC’s investigation.

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

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  • Washington reaches $1.6 million settlement with debt collector

    State Issues

    On September 8, the Washington attorney general announced that a Renton-based debt collector (defendant) will pay over $1.6 million in a settlement to resolve allegations that it violated the Washington Consumer Protection Act by misleading consumers with offers for “settlements” of debts. According to the AG, the defendant sent letters titled “settlement offers,” but failed to disclose that because the debt was older than the six year statute of limitations for filing a suit to collect, it could not enforce the debt in court. The term “settlement offer” allegedly deceptively suggested the defendant could potentially litigate to collect the debt. Under the terms of the settlement, the defendant is required to: (i) pay full restitution to 1,400 Washingtonians, a total of nearly $710,000; (ii) pay $1,675,000 to the attorney general’s office, including payment to cover the costs of the case and fund future investigations and enforcement of the Consumer Protection Act; (iii) cease using the words “settle” or “settlement” when attempting to collect on time-barred debts; and (iv) disclose that the statute of limitations to sue on the debt has passed.

    State Issues State Attorney General Enforcement Debt Collection Washington

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  • FINRA fines broker-dealer for alleged supervision failures


    On September 7, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent, with a New York-based broker-dealer subsidiary of a global financial services company to resolve allegations that it distributed reports to the firm’s institutional customers that omitted required disclosures or included inaccurate disclosures. Among other things, FINRA alleged that the firm’s failure to implement a supervisory system reasonably designed to achieve compliance with the disclosure requirements and failure to enforce the supervisory procedures it had in place, led to the publication of 60 debt research reports with a total of 333 disclosure omissions. The letter reports that after identifying the issue and reporting it to FINRA, the firm “immediately ceased the production of all debt research and suspended the issuance of equity research.” The firm neither admitted nor denied the findings set forth in the AWC letter but agreed to pay a $175,000 fine.

    Securities FINRA Enforcement Settlement

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