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Financial Services Law Insights and Observations


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  • SEC Settles Fraud Charges in Investment Scheme, Issues Fine of Over a Half-Million Dollars

    Financial Crimes

    On February 14, the SEC announced a settlement with a real estate investment manager based in Arizona over allegations that he defrauded investors. According to the complaint, the investment manager allegedly told investors he would make personal investments in real estate projects which he failed to do, instructed some investors to “falsely state that they were ‘accredited investors’” to avoid registration requirements for the offerings, and falsely represented that he would personally manage the projects when, instead, he entrusted management to a real estate broker who was later imprisoned for other crimes. The settlement requires the investment manager to disgorge $51,358 plus interest of $4,893.98 and pay a penalty of $450,000.

    Financial Crimes Courts SEC Securities

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  • Decades-Old Fraud Case Settled After Over 12 Years


    On February 10, the New York Attorney General’s office announced it had reached a settlement in a securities fraud suit filed in 2005 by then-Attorney General Eliot Spitzer. The lawsuit was filed after the company admitted to engaging in improper reinsurance transactions that materially misrepresented loss reserves and misstated underwriting results. The original settlement in 2006 resulted in the company paying $1.6 billion to settle the matter; however, the two individuals involved refused responsibility for the transactions. Now, over 12 years later, and after the two defendants’ arguments were “substantially rejected by the New York Supreme Court, the New York Supreme Court Appellate Division, First Department and the New York Court of Appeals,” the defendants have acknowledged their role in the transactions and agreed to collectively relinquish over $9.9 million they had received as performance bonuses from 2001 through 2004.

    Courts Consumer Finance Fraud Securities State Attorney General

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  • Federal Judge Sentences Hacker to Eight Years for Cyber Heists that Caused More than $55 Million in Losses


    On February 10, the United States Attorney for the Eastern District of New York announced that the Honorable Kiyo A. Matsumoto levied an eight year prison sentence against a Turkish citizen charged with organizing and carrying out three cyber-attacks on global financial institutions between 2011 and 2013 which resulted in more than $55 million in losses. Last March, the defendant pleaded  guilty to “computer intrusion conspiracy, access device fraud conspiracy, and effecting transactions with unauthorized access devices.” Specifically, the defendant and his associates were alleged to have repeatedly hacked into debit card processing systems, manipulated account balances, stole customers’ PINs, and transferred that information to associates who then encoded debit cards with the stolen data in order to make fraudulent ATM withdrawals. The DOJ further alleged that the hackers targeted databases companies maintained for prepaid debit cards and effectively eliminated the card accounts’ withdrawal limits in what are called “unlimited operations.” The defendant was also ordered to pay $55,080,226.14 in restitution as part of his sentence. 

    Courts Privacy/Cyber Risk & Data Security Financial Crimes

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  • CFPB Temporarily Enjoined from Naming Company Under Investigation


    On February 17, U.S. District Judge Rudolph Contreras issued an Order granting in part a motion filed by a unnamed "John Doe" recipient of a CFPB civil investigative demand (CID) for an injunction preventing the Bureau from disclosing its identity pending its petition to the Court of Appeals for a stay of the CID. Specifically, Judge Contreras ordered that: “Defendants are ENJOINED, until March 3, 2017” from “publicly disclosing the identify of Plaintiff John Doe Company, by taking actions including, but not limited to, the public filing of either the civil investigative demand . . . or the Director’s Decision and Order [denying] Plaintiff’s Petition" to set aside the CID. 

    As previously covered by InfoBytes, the John Doe company filed an action against the CFPB back in January seeking to enjoin the Bureau from, among other things, disclosing the existence of an investigation and taking any action against the company unless and until the CFPB is constitutionally structured. The company argued, among other things, that the agency should not be able to identify it as the target of an investigation as publication of the company’s name would bring “irreparable harm” as it tries to defend itself against any enforcement action. Immediately following the District Court's ruling against the company, it lawyers filed a Notice of Appeal with the U.S. Court of Appeals for the D.C. Circuit to try to stop the agency from moving forward.

    Courts Consumer Finance CFPB Enforcement John Doe v CFPB Single-Director Structure

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  • District Court Upholds CFPB CID Targeting the Marketing of “Contracts for Deed”


    On February 17, a U.S. District Court held that home sellers who use contracts for deed are required to comply with CFPB Civil Investigative Demands (CIDs) asking for information about possible illegalities in selling or collecting residential property purchase loans. CFPB v Harbour Portfolio Advisors, LLC et al., [Order] No. 16-14183 (E.D. Mich. Feb. 17, 2017). Specifically, the Court found that the Bureau is not “plainly lacking” in jurisdiction to look into contracts for deed, and the CIDs were not unduly burdensome.

    Back in November, the CFPB had petitioned the court to enforce CIDs served on Respondents. At issue before the Court was whether the Bureau’s investigative authority extends to the selling, marketing, and servicing of a financial product called an Agreement for Deed (“AFD”), otherwise known as a “contract for deed” or a “land installment contract.” Respondents thereafter petitioned the Bureau to set aside the CIDs, offering three reasons why the CIDs should not be enforced: (i) the CFPB exceeded its authority in issuing the CIDs; (ii) the companies had not been given fair notice that contracts for deed could be covered by federal financial consumer protection laws; and (iii) the CIDs were unduly burdensome and should be modified.

    Each of these three arguments was rejected by the court: (i) as to the Bureau’s authority, the court found that objection premature, noting that the Bureau need only establish a “plausible reason” to believe the companies might have information related to violations of the federal financial consumer protection laws; (ii) the court similarly held the “fair notice” argument to be premature at the investigation stage; and (iii) in rejecting Respondent’s arguments that the burden of compliance was excessive, the court noted that the CFPB was entitled to documents that “will help the Bureau develop a complete understanding of Respondents’ practices and operations” and that Respondents’ assertions about the cost of compliance and the burden on its few employees were not corroborated.

    Courts Consumer Finance CFPB Compliance

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  • Special Alert: D.C. Circuit Grants Petition For Rehearing in PHH v. CFPB; Vacates Judgment Based on Bureau’s Unconstitutionality


    Buckley Sandler Special Alert

    On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation. Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act. As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Oral argument is scheduled for May 24, 2017.

    As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations. However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution. The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.


    Click here to read full special alert

    * * *

    If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

    Courts Appellate DC Circuit PHH v. CFPB RESPA Mortgages CFPB Special Alerts Single-Director Structure

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  • Court Rules that CFPB Must Prove Deceptive Practices at Trial in Mortgage Relief Case


    On February 6, the U.S. District Court for the Northern District of California denied the CFPB’s motion for summary judgment and held that its “intrinsically factual” deception claims would have to be decided at trial. See CFPB v. Nationwide Biweekly, et. al., [Order Denying Motions for Summary J.] No. 15-cv-2106 (N.D. Cal. Feb. 6, 2017). The Bureau alleges that the defendant company—which helps homeowners restructure their mortgage payments to help them pay down their mortgages faster—misrepresented the savings that consumers would gain through its services. Lawyers for the defendants rejected those claims, saying in a court filing last month that consumers were told multiple times about the setup fee and that promises of interest savings are true. Ultimately, Judge Richard Seeborg sided with defendants, disagreeing with the CFPB’s assertion that it had presented “uncontroverted evidence” of deception and that “no reasonable fact finder” could find in defendants’ favor.

    Courts Mortgages Consumer Finance CFPB N.D. Cal.

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  • CFPB and New York Attorney General File Lawsuit Against Company that Lured 9/11 Heroes Out of Millions of Dollars


    On February 7, the CFPB announced that it has—in partnership with the New York Attorney General (NYAG)—filed a complaint in federal district court against a finance company and two affiliates that offer lump-sum advances to consumers entitled to periodic payouts from victim compensation funds or lawsuit settlements. A press release from the NYAG’s Office can be accessed here.

    The Bureau and the NYAG claim, among other things, that the defendants misled World Trade Center attack first responders and professional football players in selling expensive advances on benefits to which they were entitled and mischaracterized extensions of credit as assignments of future payment rights, thereby misleading their victims into repaying far more than they received. Specifically, according to the allegations in the complaint, the New Jersey-based companies:  (i) used “confusing contracts” to prevent the individuals from understanding the terms and costs of the transactions; (ii) lied to the individuals by telling them the companies could secure their payouts more quickly; (iii) misrepresented how quickly they would receive payments from the companies, and (iv) collected interest at an illegal rate.

    These actions, the two regulators argue, constitute violations of the Consumer Financial Protection Act ban on unfair, deceptive, or abusive practices, New York usury laws, and other state consumer financial protection laws. The lawsuit seeks to end the company’s illegal practices, obtain relief for the victims, and impose penalties.

    Courts Consumer Finance CFPB Compensation CFPA State Attorney General

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  • Intervention by Lawmakers in PHH Case Denied by D.C. Circuit


    On February 2, a federal appeals court in Washington, D.C., in a brief order, denied a motion by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB to intervene in PHH Corp. v. CFPB. The order also denied similar motions submitted by 16 state attorneys general and a coalition of interest groups. As previously covered on InfoBytes, the court is still considering a petition by the Bureau for rehearing an October ruling that said CFPB Director Richard Cordray may be removed by the president without cause.

    Courts Consumer Finance PHH v. CFPB Cordray Mortgages RESPA Litigation

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  • CFPB Reaches Settlement with Arizona-Based Title Lender


    On February 2, the CFPB announced a consent order and stipulation in an enforcement action against one of five Arizona-based title lenders under investigation for violations of TILA (see September 23 InfoBytes post). The terms of the February consent order and stipulation include a $10,000 civil money penalty as well as a mandatory requirement that the lender refrain from further violations of TILA and create a comprehensive compliance plan to ensure that its advertising practices for its title lending business conform to all applicable federal consumer financial laws and the terms of the consent order. On November 1 and December 20, 2016, the CFPB posted consent orders and stipulations against three of the other five title lenders (2016-CFPB-0018, 2016-CFPB-0019, 2016-CFPB-0021). The Bureau is still negotiating an agreement with the fifth title lender.

    Courts Consumer Finance CFPB TILA Title Loans Regulator Enforcement

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