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FTC adds two defendants to real estate investment scheme suit
On February 25, the FTC and the Utah Division of Consumer Protection announced the addition of two additional defendants in an action taken against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. As previously covered by InfoBytes, the FTC and the Utah Division of Consumer Protection claimed that the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law by marketing real estate events with false claims and using celebrity endorsements. The defendants allegedly promised consumers they would (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “a minimum of three times” the price of the workshop within six months. In October 2019, the U.S. District Court for the District of Utah granted a temporary restraining order against the defendants, prohibiting the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.
New York reaches $18.5 million settlement with virtual currency operators
On February 23, the New York attorney general announced a $18.5 million settlement with the operators of a virtual currency trading platform and the “tether” virtual currency issuer, along with their affiliated entities, to resolve allegations that the companies deceived clients by overstating available reserves and hiding $850 million in co-mingled client and corporate funds. According to the AG, one of the companies operated an online trading platform for exchanging and trading virtual currency, which allowed users to store virtual or fiat currency, convert virtual currency into fiat currency, and withdraw funds, while the “tether” virtual currency issuer represented that the “stablecoin” it issued was backed one-to-one by U.S. dollars in reserve. However, an AG investigation found, among other things, that the companies made false statements about the backing of the stablecoin and moved hundreds of millions of dollars between the two companies in an attempt to conceal massive losses, and that the stablecoins were, in fact, no longer backed one-to-one by U.S. dollars in reserve, contrary to the company’s representations. The AG also noted that a national bank, which acted as the correspondent bank for the companies and was used to fill orders for U.S. dollars, elected to stop processing U.S. dollar wire transfers from the companies, forcing the companies to find alternative banking arrangements and ultimately leading to a liquidity crisis. Further, the AG stated that the companies failed to disclose these issues to the public. In 2019, a court order enjoined the companies from engaging in activities that may have defrauded investors trading in cryptocurrency (covered by InfoBytes here).
Under the terms of the settlement agreement, the companies and related entities must, among other things, (i) discontinue any further trading activity in the state; (ii) pay $18.5 million in monetary relief; and (iii) take steps to increase transparency, including maintaining internal controls and procedures designed to ensure that their products and services are not used by New York persons and entities, providing compliance reports to the AG, and providing a list of utilized payment processors.
SEC issues multiple whistleblower awards, including award based on DOJ agreement
On February 23, the SEC announced a more than $9.2 million award to a whistleblower whose information and assistance led to successful related DOJ actions. This marks the first SEC whistleblower award based on a DOJ non-prosecution agreement or deferred prosecution agreement since amendments to the SEC’s whistleblower program rules took effect last December (covered by InfoBytes here). The SEC noted that the whistleblower was previously awarded for his contributions to a successful SEC enforcement action based on the same information that supported the DOJ’s actions, which is a prerequisite in order to be eligible for a related-action award. According to the redacted order, the whistleblower provided significant, original information to the SEC about an ongoing fraud that “enabled a large amount of money to be returned to investors harmed by the fraud.” The SEC provided the information to the DOJ, noting that the whistleblower provided significant assistance by traveling at the whistleblower’s own expense to be interviewed by DOJ.
Earlier on February 19, the SEC announced whistleblower awards totaling nearly $3 million in two separate enforcement actions. According to the first redacted order, the SEC awarded a whistleblower over $2.2 million for providing original information that significantly contributed to the investigation and resulted in the “return of millions of dollars to harmed clients.” According to the SEC, the whistleblower also “took personal and professional risks by raising concerns internally in an effort to remedy the misconduct.”
In the second redacted order, the SEC awarded a whistleblower nearly $700,000 for alerting Commission staff to a fraudulent reporting scheme, which prompted the opening of an investigation. The SEC noted that the whistleblower voluntarily provided critical documents and information to Commission staff, helped identify key documents and witnesses, thus conserving SEC time and resources, and “internally raised concerns about the perceived conduct in an effort to remedy the violations.”
The SEC has now paid approximately $750 million to 136 individuals since the inception of the program in 2012.
CFPB, states sue defendants for predatory immigrant-services scam
On February 22, the CFPB and state attorneys general from Massachusetts, New York, and Virginia filed a complaint against a group of defendants that provide immigration bond products or services for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The Bureau alleges that the defendants engaged in deceptive and abusive acts and practices in violation of the CFPA, while the states bring related claims that the defendants violated their respective consumer-protection laws, by, among other things, (i) representing that they paid the detainees’ bonds and that monthly payments go towards repaying the defendants for doing so (the Bureau and states allege that the monthly payments are actually “rental fees for a GPS device that do not go to repaying consumers’ bonds”); (ii) making false threats that detainees will be re-arrested, detained, or deported if they do not make the monthly payments or remove the defendants’ GPS devices, many of which, the complaint claims, do not actually work; (iii) threatening to send detainees’ accounts to collection, representing that failing to make payments could harm their credit, or threatening to sue detainees or their families for non-payment; (iv) representing that collateral payments would be refunded once the detainees’ proceedings were resolved but in many cases failing to do so; (v) presenting detainees, most of whom cannot read or understand English, with a series of English-only contracts requiring the payment of large upfront fees plus $420 per month to “lease” GPS-tracking ankle monitors until their cases are resolved; (vi) creating the illusion that defendants are affiliated with ICE, even though they have no affiliation with authorities; and (vii) offering financial rewards to employees who sign up new customers and collect payments. The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
OCC releases recent enforcement actions
On February 18, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is a January 8 civil money penalty order against an Illinois-based bank, which requires the payment of $193,105 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations.
Digital payment solutions company settles with OFAC for $500k
On February 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $507,375 settlement with a Georgia-based payment processing solutions company for 2,102 apparent violations of multiple sanctions programs. According to OFAC’s web notice, between 2013 and 2018, the company—which offers solutions for merchants to accept digital currency as payment for goods and services—allegedly processed thousands of transactions on behalf of individuals located in sanctioned jurisdictions based on IP addresses and invoice information. Specifically, OFAC alleged that the company “received digital currency payments on behalf of its merchant customers from those merchants’ buyers who were located in sanctioned jurisdictions, converted the digital currency to fiat currency, and then related that currency to its merchants.” While OFAC noted that the company screened its direct merchants against its List of Specially Designated Nationals and Blocked Persons and conducted due diligence to ensure merchants were not located in a sanctioned jurisdiction, the company’s transaction review process allegedly failed to screen identification and location data for its merchants’ buyers, many of whom were located in Crimea, Cuba, North Korea, Iran, Sudan, and Syria. As a result, these buyers, OFAC claimed, were able to make purchases from merchants located in the U.S. and elsewhere using digital currency on the company’s platform in violation of an executive order and multiple sanctions regulations.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) “failed to exercise due caution or care for its sanctions compliance obligations” by allowing buyers in sanctioned jurisdictions to transact with merchants despite having “sufficient information to screen those customers”; and (ii) conveyed more than $128,000 in economic benefit to individuals in OFAC sanctioned jurisdictions.
OFAC also considered various mitigating factors, including that the company (i) had implemented certain sanctions compliance controls, including due diligence and sanctions screening; (ii) trained employees—including senior management—that signing up merchants from sanctioned jurisdictions or trading with sanctioned persons is prohibited; (iii) cooperated with OFAC’s investigation; and (iv) terminated the conduct leading to the apparent violations and undertook remedial measures to minimize the risk of similar violations from occurring in the future. The base civil monetary penalty applicable in this action is $2,255,000; however, the lower settlement amount reflects OFAC’s consideration of the general factors under the Economic Sanctions Enforcement Guidelines.
OFAC issues new executive order connected to Burmese military coup, adds sanctions targets under new order
On February 11, President Biden issued Executive Order (E.O.) 14014, “Blocking Property With Respect To The Situation In Burma.” Among other things, the new executive order permits the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) to target any person determined to operate in the defense sector of the Burmese economy, or any other sector of the economy as determined by the Secretary of the Treasury. The order also targets persons determined to have undermined democracy, threatened peace or stability, or engaged in a number of other activities threatening freedoms or human rights in Burma, and other persons determined to be a leader, part of, or associated with the Government of Burma. Under this new authority, OFAC announced sanctions against 10 current and former military officials and three entities connected to a Burmese military coup. The sanctions “specifically target those who played a leading role in the overthrow of Burma’s democratically elected government.” As a result of the sanctions all property and interests in property belonging to the sanctioned individuals and entities, and “any entities that are owned, directly or indirectly, 50 percent or more by them,” subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific license.
FTC settles with payday lender
On February 11, the FTC announced a settlement with the owners and operators of a payday lending enterprise (collectively, “defendants”) for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. The FTC filed a complaint against the defendants last year claiming, among other things, that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and EFTA/Regulation E, by advertising loans with fixed payback terms and promising consumers that their loans would be repaid after a pre-determined number of payments. However, the FTC claimed that in many cases the payback terms defaulted to debiting the financial fee only, and the U.S. District Court for the District of Nevada granted a temporary restraining order against the defendants (covered by InfoBytes here). Under the terms of the stipulated final order, the FTC ordered that any consumer debt for loans issued and assigned to the defendants are “deemed paid in full to the extent that such [e]xisting [d]ebt exceeds the amount financed plus one finance charge. . . .” The defendants are also (i) permanently banned from the payday lending industry, including making loans or extending credit of any kind; (ii) prohibited from making any misrepresentations related to the collection of any debt; (iii) prohibited from making unauthorized electronic fund transfers from consumers’ bank accounts; and (iv) permanently banned from creating, or causing to be created, any remotely created payment orders. A $114 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.
FTC settles with credit card laundering defendants
On February 10, the FTC announced settlements with several defendants that allegedly violated the FTC Act and the Telemarketing sales Rule by assisting an operation responsible for laundering millions of dollars in credit card charges through fraudulent merchant accounts. As previously covered by InfoBytes, the defendants engaged in a credit card laundering scheme with the operation to process credit card charges through merchant accounts set up by the operation under fictitious company names instead of processing charges through a single merchant account under the operation’s name. According to the FTC’s complaint, the defendants purportedly (i) underwrote and approved the operation’s fictitious companies; (ii) set up merchant accounts with its acquirer for the fictitious companies; (iii) used sales agents to market processing services to merchants; (iv) processed nearly $6 million through credit card networks; and (v) transferred sales revenue from the transactions to companies controlled by the defendants.
The settlements (see here, here, and here) permanently ban three of the defendants from payment processing and telemarketing or acting as independent sales organizations or sales agents in the payment processing industry. A previously issued settlement against a fourth defendant banned him from payment processing or acting as an independent sales organization or sales agent in the payment processing industry. Monetary judgments totaling more than $10.7 million collectively have been suspended due to the defendants’ inability to pay.
Massachusetts AG settles with federal loan servicer to resolve allegations of unfair and deceptive practices
On February 10, the Massachusetts attorney general announced a “first-of-its-kind” settlement with one of the nation’s largest federal student loan servicers, resolving allegations that the servicer engaged in unfair and deceptive practices by overcharging borrowers and improperly processing claims for public service loan forgiveness. As previously covered by InfoBytes, the AG filed a complaint in 2017 claiming the servicer, among other things, (i) failed to timely and properly process applications for income driven repayment (IDR) plans, thereby denying borrowers the opportunity to make qualifying payments under forgiveness programs; (ii) failed to properly count qualifying payments under the Public Service Loan Forgiveness program; (iii) failed to properly process certification forms in connection with the Teacher Education Assistance for College and Higher Education Grant program, causing grants to be converted into loans; and (iv) collected amounts not legitimately due and owing and failing to refund them.
Under the terms of the settlement, more than 200,000 Massachusetts borrowers will be able to submit a claim for a detailed audit. Should the audit identify a servicing error or misrepresentation, the servicer must “restore borrowers to their rightful statuses” under the federal loan forgiveness programs; however, if corrections cannot be made, the servicer is required to provide monetary relief to borrowers. The servicer is also is required to repay teachers whose grants were converted into loans erroneously and have not already received relief from the Department of Education, and make corrections for borrowers who experienced IDR application processing delays resulting in missed opportunities for making qualifying payments towards loan forgiveness. Further, the servicer must implement an enhanced quality assurance review practice to identify servicing errors, affected borrowers, as well as root causes for the errors.