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DOJ Reaches Settlement with National Bank Over Bankruptcy Practices
On March 3, the DOJ’s U.S. Trustee Program announced a $50 million settlement with a national bank to resolve allegations that the bank engaged in improper actions during bankruptcy proceedings. Under the terms of the settlement, the bank will provide relief in the form of cash payments, mortgage loan credits, and loan forgiveness to over 25,000 homeowners who are, or were, in bankruptcy. Additionally, the bank will acknowledge that (i) the bank’s former employees and the employees of an outside vendor improperly signed more than 50,000 payment change notices filed in bankruptcy courts around the country; (ii) the bank failed to file timely, accurate payment change notices; and (iii) the bank failed to provide timely, accurate escrow statements. The bank further will agree to enhance its technology, policies, procedures, internal controls and other oversight systems. Finally, the parties will agree to engage an independent reviewer to confirm the bank’s adherence to the terms of the settlement. The settlement is pending court approval.
White House Announces Nominations for Treasury, Justice Tax Division
On February 24, the White House released a number of intended nominations for key Administration posts. Among the anticipated nominations were (i) Amias Gerety as Assistant Secretary for Financial Institutions, Department of the Treasury; and (ii) Cono R. Namorato as Assistant AG for the Tax Division, Department of Justice. Gerety began his career at Treasury in 2009 as Senior Advisor in the Office of Financial Institutions, and since June 2014, has served as Counselor in the Office of Domestic Finance. Namorato, currently in private practice, previously held various positions within the DOJ’s Tax Division and the Department of Treasury including serving as Deputy Assistant Attorney General and Director of the Office of Professional Responsibility for the IRS, respectively.
U.S. Marshals to Auction 50,000 Bitcoins Seized During Investigation of Silk Road Operator
On February 18, the U.S. Marshals Service announced that it will auction 50,000 bitcoins seized from wallet files found on computer hardware belonging to Ross Ulbricht, who was recently convicted in connection with his operation and ownership of Silk Road, a website that functioned as a criminal marketplace for illegal goods and services. The auction is scheduled for March 5. On February 4, a federal jury in the Southern District of New York found Ulbricht guilty on seven federal charges. In the court’s January 27, 2014 Stipulation and Order for Interlocutory Sale of Bitcoins, the Federal Government and Ulbricht agreed that “the Computer Hardware Bitcoins [were] to be liquidated or sold by the Government…”
DOJ and North Carolina AG Settle First-Ever Federal Discrimination Suit Involving Auto Lending
On February 10, the DOJ, along with the U.S. Attorney’s Office for the Western District of North Carolina and the North Carolina AG, announced the settlement of the federal government’s discrimination suit involving two “buy here, pay here” auto dealerships. According to the DOJ, this is the federal government’s first-ever settlement involving discrimination in auto lending. Filed in January 2014, the settlement resolves a lawsuit alleging that two North Carolina-based auto dealerships violated the federal Equal Credit Opportunity Act by “intentionally targeting African-American customers for unfair and predatory credit practices in the financing of used car purchases.” The North Carolina AG further alleges that the auto dealerships’ lending practices violated the state’s Unfair and Deceptive Trade Practices Act. The terms of the settlement require the two dealerships to revise the terms of their loans and repossession practices to ensure that “reverse redlining” ceases to exist; required amendments include: (i) setting the maximum projected monthly payments to 25% of the borrower’s income; (ii) omitting hidden fees from required down payment; (iii) prohibiting repossession until the borrower has missed at least two consecutive payments; and (iii) providing better-quality disclosure notices at the time of the sale. Also required by the settlement agreement, the two auto dealerships must establish a fund of $225,000 “to compensate victims of their past discriminatory and predatory lending."
DOJ Reaches Agreement With Leading Mortgage Servicers Over Servicemember Foreclosures
On February 9, the DOJ announced a $123 million settlement with five national mortgage servicers for allegedly violating sections of the SCRA. Specifically, the DOJ alleges that the mortgage servicers subjected over 900 service members to unlawful non-judicial foreclosures between January 1, 2006 and April 4, 2012. Under the SCRA portion of the 2012 National Mortgage Settlement, the five mortgage servicers will reimburse millions of dollars to service members who should have been protected from foreclosure, as per Section 533 of the SCRA, which “prohibits non-judicial foreclosures against service members who are in military service or within the applicable post-service period, as long as they originated their mortgages before their period of military service began.” The mortgage servicers are cooperating with the Justice Department to compensate service members affected by the alleged non-judicial foreclosures.
DOJ Settles False Claims Act Allegations Against Pharmaceutical Manufacturer
On February 11, the DOJ announced a $7.9 million settlement with a Delaware-based pharmaceutical manufacturer for allegedly violating the False Claims Act by engaging in a kickback scheme with a pharmacy benefits manager corporation. The pharmaceutical manufacturer denies the DOJ’s allegations that it paid $40 million to a pharmacy benefits manager corporation in exchange for “sole and exclusive” recommendation of a certain drug. According to the two whistleblowers, both former employees for the accused pharmaceutical manufacturer, the accused manufacturer paid the pharmacy benefits manager “through price concessions on [other] drugs.” Under the whistleblower provision of the False Claims Act, the two former employees will receive a combined payment of $1,422,000.
DOJ and State AGs Announce Settlement with Credit Rating Agency
On February 3, the DOJ announced a settlement agreement with a large credit rating agency and its parent company for $1.375 billion – a record amount according to the DOJ – in connection with the agency’s alleged “scheme to defraud investors in structured financial products known as Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDOs).” In 2013, the DOJ, along with 19 states plus the District of Columbia, brought the lawsuit against the agency for misrepresenting the securities’ true credit risks through inflated ratings, which led investors to suffer substantial losses right before the financial crisis. While the agency is neither admitting to nor denying the allegations, it has agreed to (i) “retract an allegation that the United States’ lawsuit was filed in retaliation for the defendant’s decision with regard to the credit of the United States;” (ii) abide by the consumer protection statutes set forth by the settling states and DC; and (iii) answer requests from any of the states and DC regarding information on potential violations of the consumer protection laws.
Silk Road Operator Found Guilty
On February 4, a federal jury found Ross Ulbricht guilty on all seven federal charges brought against him in connection with his role in operating the Silk Road website, including narcotics and money laundering charges. According to the government, Mr. Ulbricht created, owned, and operated the website, which functioned as a criminal marketplace for illegal goods and services until the website was shut down in October 2013. This marketplace allowed individuals to sell controlled substances and illegal services, and included a Bitcoin-based payment system that allowed buyers and sellers to conceal their identities. According to Ulbricht’s attorneys, while Ulbricht did create the Silk Road, he turned over operation of the website to other individuals who eventually grew the site into the vast criminal marketplace. Ulbricht faces a sentence of 20 years to life in prison and is scheduled to be sentenced by Judge Forrest on May 15. Ulbricht’s attorney described the verdict as “very disappointing” and is planning to appeal. U.S. v. Ulbricht, No-14-cr-68 (S.D. NY. Feb. 3, 2014).
President Obama Nominates Deputy Attorney General
On December 22, President Obama announced his intent to nominate Sally Yates as the Deputy Attorney General. Since 2010, Yates has served as the U.S. Attorney for the Northern District of Georgia. If confirmed, Yates would be second-highest ranking official at the DOJ.
Second Circuit Overturns Two Insider Trading Convictions
On December 10, the U.S. Court of Appeals for the Second Circuit overturned, and further, dismissed two of the DOJ’s insider trading convictions. United States of America v. Newman and Chiasson, Nos. 13-1837-cr(L), 13-1917-cr(con) (2nd Cir. Dec. 10, 2014). In a 28-page decision, the Court noted “erroneous” jury instruction, the Government’s lack of evidence that personal benefit was received by the alleged insiders, and the inability to prove the alleged insiders actually knew that they were trading on inside information. The ruling now narrows the scope of what constitutes insider trading and will likely impact other pending insider-trading cases. It is anticipated that the Government will appeal the Court’s decision.