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DOJ Indicts 14 In Global FIFA Corruption Crackdown, Announces 6 Guilty Pleas
The DOJ on May 27 unveiled indictments in one of the most sprawling, long-running alleged corruption rings in recent decades, charging nine executives of FIFA or related soccer governing bodies, as well as five sports marketing or broadcast executives, with racketeering, wire fraud, and money laundering. The defendants were charged with offering and accepting over $150 million in bribes and kickbacks over a 24-year period related to the media and marketing rights for soccer tournaments. In addition, the DOJ unsealed guilty pleas previously entered by four individual and two corporate defendants.
Seven of the defendants were arrested in Switzerland as a result of U.S. arrest warrants, pending extradition, continuing the trend of international cooperation between U.S. and foreign anti-corruption enforcement agencies. Continuing a different trend, one of the individuals who pleaded guilty was a former FIFA executive who acted as an informer for the DOJ, including by taping key conversations.
While the indictment mainly concerned media and marketing rights, at least one reference was made to alleged bribes related to voting for World Cup host countries, and the Swiss government announced an inquiry into the awarding of the 2018 and 2022 World Cups. Additional charges appear likely to be brought in the future, whether by the U.S. or other jurisdictions. The U.S.’s jurisdiction to bring the charges is also likely to be challenged.
DOJ Files Lawsuit Against City of Beaumont, Texas for Alleged FHA Violations
On May 26, the DOJ announced a lawsuit against the city of Beaumont, Texas (Beaumont) for allegedly violating the Fair Housing Act (FHA) and the Americans with Disabilities Act. According to the DOJ’s complaint, Beaumont’s Zoning Code imposes a one-half mile spacing restriction on small community homes for persons with intellectual or developmental disabilities; this means that no such community home may operate within one-half mile of another such community home. The DOJ alleges that Beaumont’s Zoning Code does not similarly restrict the spacing of housing for persons without disabilities. In addition, the DOJ asserts that Beaumont imposes on community homes for persons with disabilities excessive fire safety requirements that are not imposed on similarly situated housing for persons without disabilities. According to the DOJ, Beaumont’s policies have “compelled the closure of several community homes” and prohibited “new community homes from opening or operating in most of Beaumont’s residential neighborhoods,” forcing residents with disabilities to move to institutional settings or out of Beaumont. The lawsuit, which arose after complaints were filed with HUD, requests that the Court enter an Order under which Beaumont, among other things, would be (i) enjoined from enforcing the one-half mile spacing rule or fire safety requirements that apply only to community homes of persons with disabilities, (ii) required to restore (to the extent practical) the alleged victims to the position they would have been in but for the alleged violations, and (iii) required to pay monetary damages.
Oil and Gas Company with Republic of Guinea Operations Announces Conclusion of DOJ Investigation
Houston-based Hyperdynamics Corp. announced in an 8-K filed on May 26 that the DOJ had closed its investigation into alleged FCPA violations by the company in the Republic of Guinea. A parallel investigation by the SEC remains ongoing. The DOJ investigation was originally disclosed by the company in 2013, and was stated to relate to concession rights and relationships with charitable organizations.
The investigation and declination raise two notable issues. First, the investigation into relationships with charitable organizations continues the government’s focus on the potential use of charitable organizations to influence acts of foreign officials. Second, the declination letter from the DOJ to Hyperdynamics was released by the company and noted its “cooperation with investigations,” including through providing information and the results of the company’s internal investigation to the government, as well as how much the DOJ values cooperation. Recent speeches by the DOJ have sought to reassure companies that extensive cooperation can theoretically result in a declination.
OIG for U.S. Postal Service Probes Expansion Into Financial Services
On May 21, the Office of Inspector General for the U.S. Postal Service (OIG) issued a report titled, “The Road Ahead for Postal Financial Services.” The report follows a January 2014 white paper issued by the OIG, which explored how the U.S. Postal Service could expand its provision of financial products to underserved Americans. The report summarizes five potential approaches for increasing the Postal Service’s financial services offerings, including: (i) expand current product offerings, which include paper money orders, international remittances, gift cards, and limited check cashing, as well as adjacent services (e.g., bill pay, ATMs); (ii) develop one key partner to provide financial services offerings, including possible expansion to general purpose reloadable prepaid cards, small loans, and/or deposit accounts; (iii) develop different partners for each product; (iv) make the Postal Service a “marketplace” for distribution of financial products of an array of providers; and/or (v) license the Postal Service as a financial institution focused on the financially underserved (although the OIG is not recommending this approach). Factors to consider when determining which approach to take, if any, include the legal and regulatory landscape; the effectiveness of cash management systems; dedication of the internal team, and public awareness of existing and potential services offered.
Department of Education Releases Reports on SCRA Reviews of Major Student Loan Servicers
On May 26, the Department of Education announced the release of reports on its reviews of four major federal student loan servicers, which were conducted to ensure that the servicers adhered to federal law concerning loan interest rates for active-duty servicemembers. Specifically, the Department aspired to determine whether eligible borrowers of eligible Family Federal Education Loans (FFEL) and Direct Loans received the benefit of the 6 percent interest rate cap provided by the SCRA in accordance with applicable statutes and the Department’s regulations and guidance. The reviews considered servicemembers’ SCRA eligibility between 2009 and 2014, and showed that “in less than 1 percent of cases, borrowers were incorrectly denied the 6 percent interest rate cap required by the laws.” In addition to these reviews, the Department will be “expanding its review of compliance with the SCRA and HEA to the Department’s seven non-profit servicers as well as commercial [FFEL] servicers,” with completion expected later this year. The Department’s reviews follow a May 2014 DOJ settlement with one of the four student loan servicers.
SEC Releases Agenda For Upcoming Advisory Committee Meeting
On May 28, the SEC released the agenda for its upcoming Advisory Committee on Small and Emerging Companies meeting, which is scheduled to occur on June 3. The meeting will focus on public company disclosure effectiveness, intrastate crowdfunding, venture exchanges, and the treatment of “finders.” The Advisory Committee also is expected to vote on a recommendation to the SEC with respect to the “Section 4(a)(1½) exemption,” which shareholders may use to resell privately issued securities. The meeting will be held at the SEC headquarters, and is open to the public.
NY Issues Proposed Rules to Manage How Employers Pay Workers Using Debit Cards
On May 27, the Governor of New York State announced that the state Department of Labor published new proposed rules intended to better regulate employers who pay their employees using debit cards. The proposed regulations detail the responsibilities of employers that use debit cards to pay employees, and prohibit employers from profiting from or passing along costs to employees. In addition, the proposed rules prohibit employers from imposing fees (such as those for customer service, account maintenance, overdraft, and inactivity), and require employers to (i) obtain advance consent, which must be documented and kept on record for six years; (ii) make known to employees the local locations where their wages can be accessed for free; and (iii) provide unlimited free ATM withdrawals within a local network, including a method to withdraw the full amount of wages each pay period without penalty. The regulations will take effect following a 45-day notice and comment period.
2nd Circuit Reinstates Consumer Class Action Against National Debt Buyer Through Preemption Decision
On May 22, the U.S. Court of Appeals for the Second Circuit ruled against a debt collection firm, holding that “non-national bank entities are not entitled to protections under the National Bank Act (“NBA”) from state-law usury claims merely because they are assignees of a national bank.” Madden v. Midland Funding, LLC, No. 14-2131-cv, 2015 WL 2435657 (2nd Cir. May 22, 2015). The Second Circuit’s holding reversed the Southern District of New York’s decision, which held that it was permissible for the firm to charge a consumer an interest rate of 27%—a rate exceeding New York’s 25% usury limit—because the firm was an assignee of a national bank. The Second Circuit vacated the District Court’s judgment “[b]ecause neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which [the plaintiff’s] claim relies would not significantly interfere with any national bank’s ability to exercise its powers under the NBA.” Id. at *1. According to the court, extending “NBA preemption to third-party debt collectors such as the defendants would be an overly broad application of the NBA” which “would create an end-run around usury laws for non-national bank entities that are not acting on behalf of a national bank.” Id. at *5. The Second Circuit also vacated the District Court’s judgment as to the plaintiff’s FDCPA claim and the denial of class certification because those rulings were predicated on the District Court’s preemption analysis. The case, which has been argued on the premise that New York state usury law applies, has been remanded back to the district court to determine choice-of-law based on a Delaware choice-of-law clause in the original debt agreement.
DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets
On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.
CFPB Fines Worldwide Payment System $25 Million for Alleged Deceptive Practices
On May 19, the CFPB announced a stipulated final judgment against a California-based worldwide payment system company. According to the CFPB’s complaint, filed the same day, the defendant (i) failed to honor advertised promotional benefits; (ii) charged consumers deferred-interest fees; (iii) enrolled consumers in a credit product without their knowledge or consent; (iv) failed to remove late fees and interest charges that consumers accrued because of website failures; and (v) mishandled consumers’ billing disputes. Under the terms of the final judgment, the company will improve its disclosures regarding enrollment options and payment allocation, pay $15 million to reimburse consumers who were the victims of its practices, and pay $10 million to the CFPB’s Civil Penalty Fund.