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Financial Services Law Insights and Observations


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  • DOJ and SEC Publish Long-Awaited FCPA Resource Guide

    Financial Crimes

    On November 14, the DOJ and the SEC released A Resource Guide to the Foreign Corrupt Practices Act. The long-awaited release comes almost a year to the day after Assistant Attorney General Lanny Breuer announced that the agencies would prepare an FCPA guidance document. Overall, the Resource Guide is a compilation of previously-issued guidance and litigation positions set forth by the DOJ and the SEC with regard to (i) who and what is covered by the FCPA’s anti-bribery and accounting provisions, (ii) the definition of a “foreign official”, (iii) what constitute proper and improper gifts, travel and entertainment expenses, (iv) facilitating payments, (v) how successor liability applies in the mergers and acquisitions context, and (vi) the different types of civil and criminal resolutions available in the FCPA context. The Guide also provides what the DOJ refers to as “the hallmarks of an effective corporate compliance program,” which may serve as a useful starting point for constructing, testing or revising an FCPA compliance program. At an industry conference this week, Assistant Attorney General Breuer explained that the Guide represents “the most comprehensive effort ever undertaken by either the Justice Department or the SEC to explain our approach to enforcing a particular statute.” BuckleySandler’s FCPA Practice plans to prepare an analysis and perspectives on the Resource Guide, drawing from recent trial and international compliance counseling experience.


  • SEC Reports Results of 2012 Enforcement and Whistleblower Programs


    On November 14, the SEC reported the results of its enforcement program for the fiscal year ending September 30, 2012. During the year, the SEC filed 734 enforcement actions, which included an increasing number of actions focused on highly complex products, transactions, and practices. The SEC obtained orders requiring more than $3 billion in penalties and disgorgement, an 11% increase over the amount required in 2011. The SEC believes these metrics indicate “sustained high-level performance,” which it attributes to various reforms and innovations put in place over the past two years. The announcement highlights certain cases related to (i) the financial crisis, (ii) insider trading, (iii) investment advisers, (iv) broker-dealers, (v) FCPA, and (vi) municipal securities. On November 15, the SEC released its Annual Report on the Dodd-Frank Whistleblower Program. The annual report provides an overview of the program and notes that the SEC received 3,001 whistleblower tips from all 50 states and from 49 countries, including a tip that resulted in the first ever award under the program. There were 143 enforcement judgments and orders issued with potential for a whistleblower award. The most common complaints related to corporate disclosures and financials (18.2%), offering fraud (15.5%), and manipulation (15.2%).

    SEC Whistleblower Enforcement

  • Federal District Court Finds Valid Agreement under ESIGN Based on Upload of Images in Accordance with Website Terms of Use


    On November 13, the United States District Court for the District of Maryland held that uploaded pictures to a website disclosing in its Terms of Use (TOU) that uploading images creates valid assignments of the rights to use those images were electronic signatures creating valid assignments. Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., No. 12-cv-00954 (D. Md. Nov. 13, 2012). The plaintiff had obtained a preliminary injunction against the defendant’s use of images that appeared on the plaintiff’s website, and the defendant appealed the injunction, arguing, inter alia, that no valid assignment of the images had occurred under Section 204(a) of the Copyright Act, which requires assignments to be in writing and signed by the assignor. Citing Section 101(a) of the Electronic Signature in Global and National Commerce Act (ESIGN Act), the court found that users’ acts of uploading images constituted electronic signatures sufficient to satisfy the requirements of the Copyright Act. The court thus denied the defendant’s motion to suspend the preliminary injunction.

    ESIGN Electronic Signatures

  • CFPB Launches Financial Product Innovation Initiative

    Consumer Finance

    On November 14, the CFPB announced an initiative designed to encourage “consumer-friendly innovation and entrepreneurship” in financial product markets. The CFPB stated that the “Project Catalyst” initiative will allow the Bureau to (i) establish firm communication with innovators that will allow the Bureau to better understand the current situations in the market, (ii) understand new and emerging products in the market and the sufficiency of the existing regulatory environment for such products, and (iii) engage with innovators to help the Bureau better understand what works and does not work for consumers. The first phase of the project involves three companies that will share anonymized data about consumer behaviors and trends with the CFPB, which the CFPB intends to use to inform policy decisions. The initial phase participants will provide (i) consumer credit and debit card billing dispute data, (ii) data regarding the value consumers place on easily depositing and obtaining immediate access to their funds, and (iii) a product that helps consumers gain insight into their spending habits. Through the Project Catalyst website, interested parties can identify financial regulations that hamper consumer-friendly innovation or seek to collaborate with the CFPB on new financial products or services.


  • CFPB Deputy Director Expected to Depart in January 2013

    Consumer Finance

    On November 12, major news outlets reported that CFPB Deputy Director Raj Date will leave the Bureau at the end of January 2013. Mr. Date joined the CFPB in the fall of 2010 and led the agency following the departure of Elizabeth Warren in July 2011 until the appointment of Director Richard Cordray in January 2012. Mr. Date will depart after the CFPB finalizes a series of mortgage-related rules required by the Dodd-Frank Act to be adopted by January 21, 2013.


  • AML Regulatory Initiatives Highlighted at ABA/ABA Money Laundering Enforcement Conference

    Financial Crimes

    Last week, Treasury Under Secretary for Terrorism and Financial Intelligence, David Cohen, and new FinCEN Director Jennifer Shasky Calvery addressed the American Bankers Association/American Bar Association Money Laundering Enforcement Conference. Ms. Calvery and Mr. Cohen announced the formation of an interagency anti-money laundering (AML) task force comprised of Treasury officials, federal banking regulators, and enforcement agencies charged with conducting a comprehensive review of the AML regulatory and enforcement structure to address any gaps, redundancies or inefficiencies in the framework. Ms. Calvery further explained that the Bank Secrecy Act Advisory Group is exploring ways to reduce the variance between compliance risk and illicit financing risk. Ms. Calvery also stressed the importance of electronic filings, and urged financial institutions to adopt the new FinCEN reports before the April 1, 2013 deadline. Mr. Cohen discussed a proposed customer due diligence regulation, which would extend customer due diligence obligations by requiring institutions to collect information on an account’s beneficial owner. In connection with that rulemaking, FinCEN this week announced the last in a series of roundtable discussions to gather information from stakeholders and discuss key issues relating to the proposed rule. This final roundtable will be held on December 3, 2012, at the Miami Branch of the Federal Reserve Bank of Atlanta.

    Anti-Money Laundering FinCEN Bank Secrecy Act Department of Treasury

  • Eighth Circuit Reinstates Portions of Minnesota Quiet Title Action, Upholds Dismissal of "Show-Me-The-Note" Claims


    On November 8, the U.S. Court of Appeals for the Eighth Circuit revived two claims brought by a group of borrowers alleging that the nominal mortgagee on their mortgage loans, and the servicer to whom the mortgagee assigned each mortgage, were not entitled to foreclose on their properties. Murphy v. Aurora Loan Servs. LLC, No. 12-1398, 2012 WL 5439284 (8th Cir. Nov. 8, 2012). The Eighth Circuit, following the Minnesota Supreme Court’s interpretation of state law, has previously held that the servicer has an undeniable right to initiate foreclosure as the legal holder of title. Here, the district court earlier dismissed claims that the servicer and mortgagee lacked authority to foreclose as repackaged “show-me-the-note” claims. The appeals court determined that two of the borrowers’ theories do not rely on the failure of the foreclosing party to produce the note, and therefore should be reinstated. The court reinstated theories that the assignments from the mortgagee to the servicer either were unrecorded or executed by individuals who lacked authority to do so, resulting in a defective chain of title that would undermine the servicer’s authority to foreclose. Because the parties did not specifically brief these theories the court remanded to allow the district court to address the two claims at issue. Specifically, the court directed that additional briefing should address whether the borrowers still have any interest in the properties and whether the borrowers’ interest is adverse to the interests of the mortgagee or servicer.


  • Senate Banking Committee Holds Hearing on Proposed Basel III Rules

    Consumer Finance

    On November 14, the Senate Banking Committee held a hearing regarding rules proposed by federal banking regulators to implement the Basel III international regulatory capital accords. The hearing featured testimony from representatives of the Federal Reserve Board, the FDIC, and the OCC, the federal regulators responsible for the proposed rules. Committee Chairman Tim Johnson (D-SD) and Ranking Member Richard Shelby (R-AL) asked regulators to explain the Basel III process generally, and the potential impact of implementation on community banks specifically. The committee also explored (i) the impact of proposed risk weights, particularly with regard to small banks’ willingness to offer mortgages, (ii) the treatment of accumulated other comprehensive income, (iii) the treatment of insurance businesses, (iv) sovereign debt ratings, and (v) the rulemaking process. The witnesses did not provide a timeline for the final rule or discuss any specific changes to the proposed rules to accommodate small banks’ concerns, but did promise a long implementation timeframe. The witnesses generally acknowledged those concerns and assured that they are considering them as regulators prepare the final rules.

    Capital Requirements U.S. Senate

  • Federal Reserve Board Governor Calls for New Approach to Mortgage Regulation, Highlights Potential Impacts of Qualified Mortgage Rule


    On November 9, in a speech to the Community Bankers Symposium, Federal Reserve Board Governor Elizabeth Duke reviewed in detail the role community banks play in the mortgage market and the post-Dodd-Frank Act mortgage lending challenges facing community banks. Ms. Duke explained that new rules to implement the Basel III capital accords, as well as those to put in place by Dodd-Frank Act requirements regarding escrow accounts for higher-priced mortgages, loan officer compensation, and appraisal requirements will burden community banks significantly. Ms. Duke highlighted the pending qualified mortgage and qualified residential mortgage rules, noting that they could have a “profound effect on the mortgage terms offered and the underwriting conditions.” not only for community banks, but for all banks. Specifically, she said that these rules could “constrain community bankers from using their experience with the cash flows from a small business customer or their knowledge of local real estate markets to customize a loan for an ‘irregular’ situation, such loans may not be made.”. Given the “cost of regulation that is prescriptive with respect to underwriting, loan structure, and operating procedures” and the “lack of evidence that balance sheet lending by community banks created significant problems,” relating to the financial crisis, Ms. Duke concluded that policymakers should establish a separate, simpler regulatory structure applicable to community bank mortgage lending.

    CFPB Dodd-Frank Mortgage Origination Federal Reserve Capital Requirements Qualified Mortgage

  • National Mortgage Settlement Monitor Seeks Servicemember Complaints


    On November 12, National Mortgage Settlement Monitor Joseph Smith, Jr. launched a military-specific outreach program to encourage servicemembers to report mortgage servicing complaints using an online form. The Monitor released a separate form for complaints by attorneys, caseworkers, counselors or other professionals assisting servicemembers with their mortgages, as well as a servicemember-specific fact sheet. The national settlement does not require that the Monitor collect or address individual borrower complaints. The Monitor intends to use the complaint process to identify and investigate any trends in servicing complaints.

    Mortgage Servicing Servicemembers


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