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Financial Services Law Insights and Observations


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  • OCC Seeks Reconsideration of Order Requiring Disclosure of Non-Public Documents related to Bank's AML/CTF Compliance

    Consumer Finance

    On April 24, the U.S. District Court for the Southern District of New York stayed an order that would have required a bank to disclose non-public supervisory information subject to the bank examination privilege. Wultz v. Bank of China, No. 11-1266 (S.D.N.Y. Apr. 24, 2013). The case was brought by the family of victims of a suicide bombing attack who claim that failures in the bank’s anti-money laundering and counter-terrorism financing compliance program aided and abetted international terrorism. On April 9, 2013, the court compelled the bank and the OCC to produce various investigative files and regulatory communications over their objection that the bank examination privilege protected such production. The court relied in part on a recent and unrelated Senate investigative report’s description of the OCC oversight process. The court reasoned that the OCC’s ideal supervision process, on which it based its claim of privilege, diverges from the actual process described in the Senate report, and that the actual process undermines assumptions on which other courts have relied about the likely effects of overriding the bank examination privilege. The court added that “the OCC’s supervisory mission might in some cases be helped as much as hindered by the intervention of private litigants.” In support of its motion to reconsider, the OCC argued that the court failed to properly weigh long-standing principles and that its decision “will be construed as an erosion of the bank examination privilege that ultimately will undermine the bank supervisory process.” The OCC also asserted that it never waived the privilege and appropriately and in good faith relied upon the procedures set forth under its Touhy regulation, which is designed to provide the OCC with the opportunity to review non-public OCC information in the possession of regulated entities prior to production. The OCC asked the court to vacate its prior order and order the plaintiffs to submit a Touhy request for all materials withheld on the groups of bank examination privilege. The court agreed to stay its prior order and established a briefing schedule on the motion for reconsideration, which will be completed by May 10, 2013.

    Examination OCC Anti-Money Laundering Bank Privilege

  • SEC Fills Enforcement Director, General Counsel Positions


    On April 22, the SEC announced that George Canellos and Andrew Ceresney will share responsibilities as co-directors of the SEC’s Division of Enforcement. Mr. Canellos has been serving as Acting Enforcement Director since January. He previously had been the division’s Deputy Enforcement Director since June 2012, prior to which he served as Director of the SEC’s New York Regional Office. Mr. Ceresney previously served as a Deputy Chief Appellate Attorney in the United States Attorney's Office for the Southern District of New York, where he was a member of the Securities and Commodities Fraud Task Force and the Major Crimes Unit. Most recently, he was in private practice with recently-confirmed SEC Chairman Mary Jo White. On April 23, the SEC named Anne Small as General Counsel. Ms. Small is a former Special Assistant to the President and Associate Counsel in the White House Counsel’s Office where she advised on legal policy questions with a focus on economic issues. She previously worked at the SEC as Deputy General Counsel for Litigation and Adjudication and now becomes the first woman to be named General Counsel.

    SEC Enforcement

  • Federal Authorities Announce FCPA Action, First SEC Non-Prosecution Agreement

    Financial Crimes

    On April 22, the DOJ and the SEC announced parallel actions against a clothing company to resolve allegations that a subsidiary of the company paid bribes to Argentine officials over a several-year period to obtain improper customs clearance of merchandise. The SEC action included the agency’s first non-prosecution agreement (NPA) related to FCPA misconduct, which the SEC determined was appropriate given “the company's prompt reporting of the violations on its own initiative, the completeness of the information it provided, and its extensive, thorough, and real-time cooperation with the SEC's investigation.” According to the SEC’s NPA, the company’s cooperation involved (i) reporting preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts, (ii) voluntarily and expeditiously producing documents, (iii) providing English language translations of documents to the staff, (iv) summarizing witness interviews that the company's investigators conducted overseas, and (v) making overseas witnesses available for staff interviews and bringing witnesses to the U.S. The SEC agreement also required the company to pay over $700,000 in disgorgement and prejudgment interest, while the DOJ required the company to pay a nearly $900,000 penalty.

    FCPA SEC DOJ Enforcement

  • Obama Administration Seeks Supreme Court Review of Recess Appointment Decision

    Consumer Finance

    On April 25, the DOJ and the National Labor Relations Board (NLRB) filed a petition seeking U.S. Supreme Court review of the D.C. Circuit Court’s January 25, 2013 decision invalidating the appointment of three NLRB members. Nat’l Labor Rel. Bd. v. Noel Canning, No. 12-1281 (cert. pet. filed, Apr. 25, 2013). The D.C. Circuit held that appointments to the NLRB made by President Obama in January 2012 during a purported Senate recess were unconstitutional. CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members, and his appointment is the subject of a lawsuit currently pending in the U.S. District Court for the District of Columbia. The petition asks the Court to resolve two questions: (i) whether the President’s recess appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions, and (ii) whether the President’s recess appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess. If the Court accepts review of the case, it likely would be heard during the Court’s next session, which begins in October 2013.

    CFPB U.S. Supreme Court Single-Director Structure

  • Financial Stability Oversight Council Releases 2013 Annual Report


    On April 25, the Financial Stability Oversight Council (FSOC) met in an open session to announce the release of its 2013 Annual Report to the Congress. The Annual Report outlines the FSOC’s views with regard to, among other things, (i) the need for housing finance reform to attract private capital to the housing finance system, (ii) increased awareness of operational risks, whether from cyberattack or acts of nature, and (iii) the importance of working with foreign counterparts to reform the governance and integrity of interest reference rates like LIBOR. FSOC Chairman and Treasury Secretary Lew also advised that the FSOC met in executive session to discuss its continuing analysis of non-bank financial companies and that he expects a vote on an initial set of systemically important designations of non-bank financial companies soon.

    FSOC Department of Treasury LIBOR

  • FTC Updates COPPA FAQs


    On April 25, the FTC issued updated FAQs on the recently amended Children’s Online Privacy Protection Act Rule. The FAQs provide supplemental guidance designed to help website operators, mobile application developers, plug-ins and advertising networks operating on child-directed websites and online services prepare for the amended regulations, which take effect on July 1, 2013.

    FTC Privacy/Cyber Risk & Data Security

  • Ninth Circuit Disapproves $45 Million FCRA Class Settlement Based on Conditional Incentive Award

    Consumer Finance

    On April 22, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s order approving a $45M class action settlement under FCRA on the grounds that the conditional nature of the incentive award rendered the class representatives and class counsel inadequate representatives of the absent class members. Radcliffe v. Experian Info. Solutions Inc., 11-56376, 2013 WL 1715422 (9th Cir. Apr. 22, 2013). The plaintiffs alleged that the three major credit reporting agencies issued consumer credit reports containing negative entries for debts that were already discharged through bankruptcy. The parties reached a settlement in February 2009, whereby a $45M common fund would provide an award not to exceed $5,000 to each named plaintiff, while plaintiffs suffering actual damages would receive awards ranging from $150.00 to $750.00 and the remaining class members would each recover roughly $26.00. The Ninth Circuit held that the “incentive awards” provided to the named plaintiffs “corrupt the settlement by undermining the adequacy of the class representatives and class counsel,” while the conditional nature of the awards “removed a critical check on the fairness of the class-action settlement, which rests on the unbiased judgment of class representatives similarly situated to absent class members.” The court further held that class counsel would have been disqualified under this agreement because they have a fiduciary responsibility to represent the interests of the class as a whole, and conditional incentive rewards would require class counsel to represent class members with conflicting interests. The court explained that the disparity between the awards given to the named plaintiffs and the rest of the class “further exacerbated the conflict of interest caused by the conditional incentive awards.” The court concluded that the representative plaintiffs ultimately were unable to fairly and adequately protect the interests of the class, reversed the district court’s approval of the settlement, and remanded the case for further proceedings.

    FCRA Class Action

  • SEC Charges Bank for Understating Auto Loan Losses


    On April 24, the SEC released an order charging a financial institution and two senior executives for allegedly understating millions of dollars in auto loan losses during the period leading up to the financial crisis. The SEC stated that an investigation identified an alleged failure by the institution to incorporate internal loss forecasts into financial reporting, resulting in the institution understating loan loss expense. The institution did not admit the allegations, but agreed to pay $3.5 million to resolve the charges. The SEC also alleged that the two executives caused the understatements by deviating from established policies and procedures and failing to implement proper internal controls for determining its loan loss expense. The two executives did not admit the allegations, but agreed to pay a combined $135,000 to resolve the investigation, and to cease and desist from committing or causing any violations of the relevant federal securities laws.

    Auto Finance SEC

  • FTC Seeks Input on Privacy, Security Implications of Connected Consumer Devices


    On April 17, the FTC requested input on the consumer privacy and security issues posed by the connectivity of consumer devices in advance of a public workshop to be held on November 21, 2013. The request notes that connected devices can communicate with consumers, transmit data back to companies, and compile data for third parties. While advances in connected devices provide consumer benefits, greater connectivity also poses privacy and security risks. The FTC seeks comment on (i) the significant developments in services and products that make use of this connectivity, (ii) the technologies that enable this connectivity (e.g., RFID, barcodes, wired and wireless connections), (iii) the current and future uses of smart technology, (iv) consumer benefits, (v) privacy and security concerns, and (vi) how privacy risks should be weighed against potential societal benefits. The FTC is accepting comments through June 1, 2013.

    FTC Privacy/Cyber Risk & Data Security

  • Connecticut Implements Electronic Mortgage Recording


    Recently, Connecticut finalized regulations to implement changes to the state’s Uniform Real Property Electronic Recording Act that allows town clerks to accept electronic documents for recording on the land records. Prior to implementation of these changes, town clerks could only accept paper documents for recording. While they may continue to accept paper documents, the regulation permits them to accept delivery of and return electronic documents for the purpose of recording those documents in the land records, consistent with other states. The regulation is also intended to ensure that the records and recordkeeping systems will be maintained properly and securely. The state also has published FAQs for town clerks regarding the new regulation.

    Electronic Records


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