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  • Shaw v. United States - Supreme Court Holds That Fraud Against Customer Can Be Fraud Against Bank

    Courts

    In Shaw v. United States, No. 15-5991 (Dec. 12, 2016), the Supreme Court ruled 8-0 that Lawrence Eugene Shaw had defrauded a national bank when he used a customer’s personal details to transfer more than $275,000 from that bank’s customer’s account to his own PayPal account. In an opinion written by Justice Breyer, the Court rejected Shaw’s arguments that the conviction was inappropriate because prosecutors could not prove that Shaw intended to defraud the bank. The Court held, among other things, that: (i) the bank had a property interest in the customer’s deposits; (ii) the defendant’s ignorance of the application of property laws to bank deposits was not a defense; and (iii) the bank fraud statute does not require the government to prove that the defendant intended that the bank would suffer a loss; rather, his knowledge that the bank likely would suffer a loss was sufficient.

    Despite this finding, the Supreme Court ultimately vacated the Ninth Circuit’s decision affirming the conviction and remanded it to the appellate court for consideration of whether a claimed defect in the jury instructions was properly preserved for appeal, whether the instructions were defective, and whether any resulting error was harmless.

    Courts Banking Fraud U.S. Supreme Court

  • Justice Department Recovers Over $4.7 Billion From False Claims Act Cases in Fiscal Year 2016

    Federal Issues

    On December 14, the DOJ announced that it has obtained more than $4.7 billion in settlements and judgments in civil cases involving fraud and false claims against the government in fiscal year 2016 (ending September 30). Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The DOJ also recovered $1.6 billion from housing and mortgage settlements and judgments this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.

    There were 845 new False Claims Act suits in 2016, one of the largest totals in history. Of those, 143 were initiated by the government and 702 were brought by whistleblowers. Approximately $100 million was recovered in cases handled exclusively by whistleblowers and their attorneys—a sharp drop from the record $1.1 billion recovered in 2015, but an amount comparable to the averate amount recovered in previous years. Notably, the $4.7 billion recovered in 2016 does not include state shares. Such shares were significant in 2016 because of payouts involving the federal-state Medicaid program, with the top three health care settlements alone resulting in distributions of approximately $500 million to states.

    Federal Issues Mortgages Fraud Whistleblower False Claims Act / FIRREA Health Care

  • Argentine Sports Marketing Firm Agrees to $112.8 Million Settlement in Connection with FIFA Corruption Investigation

    Federal Issues

    An Argentine sports marketing firm, entered into a deferred prosecution agreement with the U.S. DOJ on December 13, admitting to wire fraud conspiracy in connection with paying tens of millions of dollars in bribes and kickbacks to high-ranking FIFA officials in order to secure support for broadcasting rights in Argentina, Uruguay, and Paraguay for the 2018, 2022, 2026, and 2030 World Cup. The four-year DPA calls for the firm to pay approximately $112.8 million in forfeiture and criminal penalties. In announcing the DPA, the DOJ noted its consideration of the firm’s remedial actions including termination of its entire senior management team, hiring a new General Manager, Chief Financial Officer, Legal Director, Chief Compliance Officer, and Compliance Manager, cooperation, and implementation of enhanced internal controls and a rigorous corporate compliance program.

    The deferred prosecution agreement is part of the DOJ’s wider investigation into corruption in international soccer. Thus far, DOJ has charged 42 defendants and obtained 19 guilty pleas in connection with the FIFA corruption prosecutions. Prior Scorecard coverage of the FIFA investigations can be found here.

    Federal Issues Fraud International Anti-Corruption DOJ Bribery

  • Federal District Court Holds Claims Brought by CFPB Alleging Deceptive Conduct Must Meet Heightened Rule 9(b) Standard

    Courts

    In a recent case, a California District Court held that CFPB’s claims alleging deceptive conduct under the Telemarketing Sales Rule (“TSR”) against a credit repair company failed to meet the heightened pleading requirement under Fed. R. Civ. P. 9(b), under which a plaintiff must “state with particularity the circumstances constituting fraud” – including pleading “the time, place, and specific content of the false representations.” CFPB v. Prime Marketing Holdings, LLC, CV 16-07111-BRO, Dkt. No. 32 (C.D. Cal. Nov. 15, 2016).

    Specifically, the court in Prime Marketing Holdings concluded that the CFPB’s general allegations of deception “failed to identify any specific instances where the defendant made such a misrepresentation” including, for instance, “what representations were made, when these representations were made and to whom they were made.” Id. at 12-13. Based on this finding, the court dismissed without prejudice the four deception-based claims. Id.

    Courts Consumer Finance Fraud CFPB Telemarketing Sales Rule

  • FinCEN Issues Advisory on E-Mail Compromise Fraud Schemes

    Privacy, Cyber Risk & Data Security

    On September 6, FinCEN issued advisory bulletin FIN-2016-A003 notifying financial institutions of a growing number of e-mail compromise schemes, in which criminals misappropriate funds by deceiving financial institutions and their customers into conducting wire transfers. The advisory summarizes the three main stages of email compromise schemes, which involve impersonating victims to submit seemingly legitimate transactions instructions: (i) compromising victim information and e-mail accounts, whereby criminals access an e-mail account via social engineering or computer intrusion techniques; (ii) transmitting fraudulent transaction instructions, whereby criminals use stolen e-mail account information to send financial institutions fraudulent wire transfer instructions; and (iii) executing unauthorized transactions, whereby the fraudulent wire transfer instructions direct the financial institution to deposit the transfers to the criminals’ domestic or foreign banks. The advisory further warned of two prevalent email compromise schemes: i) Business E-mail Compromise (BEC), which targets commercial customers of financial institutions; and (ii) E-mail Account Compromise (EAC), which targets personal bank accounts. When conducting a BEC scheme, criminals will impersonate company employees, a company supplier, or a company executive to “authorize or order payment through seemingly legitimate internal e-mails.” EAC schemes, however, target individuals conducting large transactions through financial institutions, lending entities, real estate companies, and law firms. Developed in coordination with the FBI and the U.S. Secret Service, the advisory provides red flags for financial institutions to use to identify and prevent BEC and EAC e-mail fraud schemes.

    Fraud FinCEN Privacy/Cyber Risk & Data Security

  • SEC Announces $22 Million-Plus Whistleblower Award; Program Surpasses $100 Million in Awards

    Securities

    On August 30, the SEC announced that a whistleblower will receive more than $22 million for providing the SEC with a “detailed tip and extensive assistance” to help the agency uncover “well-hidden” securities fraud at the whistleblower’s company. The $22 million-plus award is the second largest SEC whistleblower award, following a $30 million award in September 2014. The SEC began the whistleblower program in 2011 and announced its first award in August 2012. Since then, the agency’s program has surpassed $100 million in total money awarded. More than 14,000 whistleblower tips have been submitted to the Whistleblower Office, with a total of 33 whistleblowers receiving monetary awards.

    Fraud SEC Whistleblower

  • State AGs Urge Card Companies to Advance Consumer Protection by Implementing Chip and PIN Technology

    Privacy, Cyber Risk & Data Security

    On November 16, nine state attorneys general sent a letter urging leading card brands to expedite the implementation of chip and PIN technology in the United States. The letter summarizes research connected to recent data breaches, stating “individuals whose credit or debit cards were breached in the past year were nearly three times more likely to be an identity fraud victim.” Addressing concern that PIN technology would be burdensome or confusing to consumers, the AGs maintain that many consumers are accustomed to financial transactions that rely on PIN technology, such as transactions involving debit cards, and point to a November 2014 poll that indicated cardholders were supportive of chip and PIN technology. The AGs emphasize that PIN technology is “nothing new” and is considered the “gold standard” for payment card security, noting that countries around the world have seen a dramatic decrease in fraud since implementing the technology. Finally, while the letter stresses that chip and PIN technology would better protect both consumers and businesses from data breaches, it does not suggest that the technology be legally mandated at the federal or state level: “[T]his letter calls upon you as good corporate citizens to voluntarily expedite the implementation of existing technology that offers the most substantial security benefits, and to continue to adapt and improve security as quickly as possible as technology advances.”

    Fraud State Attorney General Privacy/Cyber Risk & Data Security

  • Industry Trade Groups Urge Congress to Pass Legislation to Protect Consumers from Data Breaches

    Privacy, Cyber Risk & Data Security

    On February 12, seven industry trade associations co-authored a letter to Congress regarding anticipated data breach legislation. The letter urges Congress to protect its constituents from the impact of identity theft and financial fraud resulting from data breaches by (i) considering a national data security and breach standard; (ii) recognizing the existing fraud protection standards (e.g., HIPAA and GLBA) and having them serve as a model for sectors where there are none; and (iii) encouraging shared responsibility between entities, including costs. The letter is the latest effort among the industry to lobby Congress in passing legislation to combat increasing data breaches and fraud.

    Fraud U.S. Senate U.S. House Privacy/Cyber Risk & Data Security

  • Justice Scalia Places Renewed Focus on Lenity in Hybrid Civil-Criminal Statutes

    Financial Crimes

    On November 10, 2014, the Supreme Court denied Douglas Whitman’s petition for a writ of certiorari in Whitman v. United States, No. 14-29; Justice Antonin Scalia, joined by Justice Clarence Thomas, issued a brief statement specifically highlighting their view of the role that the doctrine of lenity should play in the interpretation of criminal statutes. Whitman asked the high court to review his 2012 conviction for securities fraud and conspiracy under the Securities Exchange Act of 1934. The Second Circuit appeared to defer to the SEC’s interpretation of ambiguous language in the Act—according to Justice Scalia, such an approach would disregard the “many cases . . . holding that, if a law has both criminal and civil applications, the rule of lenity governs its interpretation in both settings.” Justice Scalia further noted that it was the exclusive province of the legislature to create criminal laws, and to defer to the SEC’s interpretation of a criminal statute would “upend ordinary principles of interpretation.” Justice Scalia’s approach may indicate potential adjustments in the ongoing effort to strike the right balance between the due process rights of targets of enforcement actions to know what the law prohibits, and deference to enforcement agencies to interpret federal statutes flexibly. BuckleySandler discussed the tension between lenity and Chevron deference earlier this year in a January 16 article, Lenity, Chevron Deference, and Consumer Protection Laws.

    Fraud U.S. Supreme Court SEC

  • ABA Petitions FCC To Allow Security And Fraud Alerts To Customers Without Consent

    Privacy, Cyber Risk & Data Security

    On October 14, the ABA submitted a petition to the FCC requesting that it exercise its statutory authority to allow financial institutions to send consumers certain security and fraud alerts without the consumers’ prior consent. Specifically, the consumers would receive alerts regarding: (i) transactions suggesting a risk of identity theft or fraud; (ii) potential security breaches involving personal information; (iii) preventative steps consumers can take to decrease their chances of falling victim to security breaches, in addition to steps they can take to remedy harm already caused by a breach; and (iv) actions required to receive a receipt for money transfers. The petition notes that the most effective way to ensure that consumers receive these important messages is through automated texts and calls to mobile devices and accordingly requests that the FCC allow for an exemption to the Telephone Consumer Protection Act to ensure that customers receive security and fraud notifications in a timely manner.

    Fraud TCPA FCC

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