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SEC issues $2 million whistleblower award
On May 4, the SEC announced a nearly $2 million award to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower’s “information and assistance helped the agency bring a successful enforcement action and allowed investors to recover much of their money.” The formal order also states that the whistleblower, among other things, provided new information regarding an investigation into ongoing fraud, which informed the SEC’s need to “expeditiously seek a temporary restraining order and asset freeze to prevent further investor loss.” The whistleblower also suffered hardships.
As of May 4, the SEC has awarded 82 individuals a total of approximately $450 million in whistleblower awards since its first award in 2012.
SEC issues $18 million whistleblower award
On April 28, the SEC announced an award of more than $18 million to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower’s “significant information prompted an examination that resulted in an important enforcement action.” The formal order also states that the whistleblower, among other things, relayed information that alerted SEC staff to potential securities violations, and repeatedly raised concerns internally “in an attempt to immediately correct the problem,” which led to the whistleblower suffering hardships as a result. The SEC further emphasizes that the enforcement action resulted in millions of dollars being returned to retail investors.
As of April 28, the SEC has awarded 81 individuals a total of approximately $448 million in whistleblower awards since its first award in 2012.
SEC issues multiple whistleblower awards
On March 24, the SEC announced awards of over $570,000 to two whistleblowers for providing “significant information and assistance that helped the Commission bring multiple successful enforcement actions.” According to the formal order, the first whistleblower received an award of approximately $478,000, and the second whistleblower received an award of approximately $94,000. The SEC stated that the first whistleblower’s award was substantially higher because the information (i) helped the SEC bring antifraud charges related to conduct that was ongoing at the time the whistleblower reported the information to the SEC; (ii) played a critical role in the development of the case; and (iii) related to all the enforcement actions. In comparison, the second whistleblower’s information—while important—contributed to charges brought against only one of the respondents, the SEC stated.
Earlier on March 23, the SEC announced an award of over $1.6 million to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower “provided helpful assistance early in the investigation, preserving Commission time and resources,” and “helped form part of the basis for charges brought in a successful enforcement action.” The formal order—which acknowledged that the allegations reported by the whistleblower “would have been hard to detect”—stated, however, that while the whistleblower “unreasonably delayed” reporting the allegations, the SEC chose not to factor in the delay as severely as it might have done had the delay occurred entirely after the Dodd-Frank Act established the whistleblower award program.
The SEC’s March 24 press release states that it has awarded 76 individuals a total of approximately $396 million in whistleblower awards since its initial award in 2012.
SEC issues $7 million whistleblower award
On February 28, the SEC announced an award of over $7 million to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower “provided extensive and sustained assistance, such as identifying witnesses,” which was “critically important to the success of [the] enforcement action.” The formal order also states that the whistleblower helped the SEC “understand complex fact patterns” and that “[t]he whistleblower’s information and assistance helped the SEC staff devise an investigative plan, craft document requests, and ultimately bring an important enforcement action focusing on serious financial abuses.”
The SEC’s press release states that it has awarded 73 individuals a total of approximately $394 million in whistleblower awards since 2012.
NYDFS investigating student debt relief industry
On September 5, NYDFS announced a new investigation into the student debt relief industry. NYDFS is issuing subpoenas to eight student debt relief companies to investigate deceptive practices in the industry, including misrepresenting the ability to achieve debt relief and charging improper fees. According to NYDFS, “deceptive” student debt relief companies charge borrowers high fees to consolidate their multiple student loans, while the U.S. Department of Education will offer the same programs free of charge. NYDFS estimates that New York residents collectively owe over $86 billion in student loans.
CFPB petitions court to force law firm to comply with CID
On February 25, the CFPB petitioned the U.S. District Court for the Southern District of New York for an order requiring a debt collection law office to comply with a civil investigative demand (CID) issued by the Bureau in June 2017. The CID requested information from the debt collection firm as part of a Bureau investigation into whether debt collectors, furnishers, or other persons associated with the collection of debt and furnishing of information have engaged or are engaging in unfair, deceptive, or abusive acts or practices in violation of the CFPA, FDCPA, and FCRA. According to the petition, the firm partially responded but withheld several responses asserting that doing so would require the firm's principal to violate professional responsibility rules in the states of New York and New Jersey. Withheld information, the Bureau claims, includes telephone calls and written correspondence with indebted consumers, disputes with consumers over the firm's credit reporting activities to third party agencies, and service contracts with creditors on whose behalf the firm collects debt. The Bureau argued that the court should direct the law firm to comply with the CID because, aside from following all applicable procedural requirements for the issuance of a CID contained within the CFPA, it “has shown that the investigation is being conducted for a legitimate purpose, that the inquiries may be relevant to that purpose, that the information sought is not already within the Bureau's possession, and that the administrative steps required by the [CFPA] and its implementing regulations have been followed. . . .” The Bureau further requested an order that the firm show cause and explain why it should not be compelled to comply with the CID.
NYDFS fines international bank $15 million after whistleblower investigation
On December 18, NYDFS announced a $15 million settlement with an international bank and its New York branch resolving allegations stemming from an investigation into the governance, controls, and corporate culture relating to the bank’s whistleblower program. According to the announcement, NYDFS’ investigation determined that several members of senior management failed to follow or apply the bank’s whistleblower policies and procedures, which allegedly allowed the bank’s CEO to attempt to identify the author(s) of two whistleblowing letters criticizing his and bank’s management’s roles in recruiting and employing a recently hired senior executive. Additionally, the investigation found that, in alleged violation of New York Banking Law, the bank (i) failed to devise and implement effective governance and controls with respect to the whistleblower program; and (ii) failed to submit a report to NYDFS immediately upon discovering misconduct.
NYDFS acknowledged the bank’s substantial cooperation in the investigation, including engaging an outside consultant to perform an independent review of the whistleblowing policies, processes, and controls. Additionally NYDFS stated the bank has already addressed certain deficiencies noted in the Consent Order, including implementing (i) procedures which recognize that concerns raised outside whistleblowing channels may nevertheless constitute whistleblows; (ii) procedures which would avoid escalating a whistleblow to the subject of the concern; and (c) procedures to preserve whistleblower anonymity. In addition to the $15 million penalty, the bank must create a written plan to improve compliance and oversight of the whistleblower program and submit a report to NYDFS that contains all instances of whistleblower complaints since January 2017, attempts to identify whistleblowers, and any reported or sustained instances of whistleblower retaliation.
New York Attorney General launches cryptocurrency integrity initiative
On April 18, the New York Attorney General’s office announced the launch of an initiative designed to protect virtual currency investors and increase transparency and accountability within the cryptocurrency industry. Attorney General Eric T. Schneiderman sent questionnaires to 13 virtual currency trading platforms, requesting information on their operations, policies, and internal controls as part of a “fact-finding inquiry.” “[T]oo often, consumers don't have the basic facts they need to assess the fairness, integrity, and security of these trading platforms,” the Attorney General stated. The Virtual Markets Integrity Initiative asks the trading platforms to disclose several categories of information, including ownership and control information, operation and fees, trading policies and procedures, internal controls, and privacy and money laundering risks and safeguards. Responses will be analyzed, compared across platforms, and presented to the public. Questionnaires are due May 1.
Global Securities Firm Agrees to Pay Million Dollar Penalty Related to Alleged Securities Fraud Scheme
On October 26, the United States Attorney for the District of Connecticut announced a non-prosecution agreement between the office and a global securities firm. The resolution was a result of a government investigation, which concluded that the firm perpetrated a scheme to defraud its customers in trades of residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs) between 2008 and 2013. Specifically, the investigation alleges that the firm, (i) misrepresented material facts in trades and monetarily benefited from the misrepresentations; (ii) instructed traders to use fraudulent trading practices; (iii) lied to affected customers who suspected the fraudulent activity; (iv) ignored complaints from its own employees regarding the fraudulent activity; (v) deceived rival broker-dealers in trades by using a purportedly independent propriety trading operation; and (vi) concealed the fraudulent conduct from customers and employees in order to prevent or delay discovery.
The agreement, which was entered into on October 25, requires that the firm pay a $35 million monetary penalty and pay around $9 million in restitution to affected customers.
House Financial Services Committee Issues Second Interim Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation
On September 19, the Majority Committee Staff of the House Financial Services Committee (Committee) released a second interim report and supporting documents on the investigation of the role the CFPB played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the first interim report, issued June 6, accused Director Richard Cordray, among other things, of failing to cooperate with the Committee’s “comprehensive investigation.” The second interim report claims the CFPB and Director Cordray failed to comply with the Committee’s repeated requests for documents related to the investigation into the bank’s practices, never conducted its own independent investigation (but, instead, “relied primarily, if not exclusively,” on a third party report), and withheld a crucial Recommendation Memorandum from the Committee for over a year that disclosed analysis of the legal and factual components of the Bureau’s investigation, as well as an evaluation of whether to enter into a settlement. The Committee’s accusations also include claims that Director Cordray allegedly misled Congress about the agency's investigation into the bank’s illegal sales practices and may have “rushed” a settlement with the bank, which resulted in a $100 million fine when it was potentially liable for a statutory civil monetary penalty exceeding $10 billion. Chairman Jeb Hensarling (R-Tex.) said in a press release that “[t]he premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.”