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On June 11, the U.S. Court of Appeals for the Tenth Circuit held that mere notice from a borrower does not extend the three-year period for filing an action for rescission under TILA. Rosenfield v. HSBC Bank, USA, No. 10-1442, 2012 WL 2087193 (10th Cir. Jun 11, 2012). In so holding, the unanimous three-judge panel rejected the position of the amicus brief filed by the CFPB and sided with the defendant-lender and three financial industry trade groups. Relying on Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), the Tenth Circuit emphasized that TILA’s three-year statute of repose was a strict limit on the time for filing suits for rescission. According to the court, an attempt to extend the period by filing a notice within the three-year period would be inconsistent with that strict limit. Furthermore, the court reasoned that adopting the borrower’s position would make TILA enforcement difficult and expensive, all while clouding title on foreclosed homes. This decision deepens an already-existent circuit split between the Ninth Circuit (which took the same approach as the Tenth Circuit) and the Fourth Circuit (which concluded that notice within the three-year period was sufficient). The Eighth and Third Circuits currently are considering the same issue in pending cases.
OCC Finalizes Rule to Replace Certain Credit Rating References with Alternative Creditworthiness Standards.
On June 13, pursuant to Section 939A of the Dodd-Frank Act, the OCC published a final rule with regard to regulations applicable to investment securities, securities offerings, and foreign bank capital equivalency deposits. The final rule is identical to the rule proposed by the OCC in November 2011 and will require national banks to assess whether a security issuer has an "adequate capacity to meet financial commitments under the security for the projected life of the asset or exposure," a standard which may be met if the risk of default by the issuer is low and timely repayment of principal and interest is expected. For federal savings associations, the definition of "investment grade" would cross-reference the requirement established by the FDIC. Simultaneously, the OCC finalized guidance to outline measures (i) banks should put in place to demonstrate they have properly verified their investments, and (ii) institutions should put in place to demonstrate their compliance with due diligence requirements when making investments and reviewing investment portfolios. Specific due diligence factors will depend on the type of security, and firms will need to adjust the depth of due diligence to match the credit quality of the security, its complexity, and the size of the investment.
Ninth Circuit Holds Debt Validation Notice That Implicitly Requires Debtor to Dispute Debt in Writing Does Not Violate FDCPA
On August 30, the SEC announced a $5.5 million settlement with AstraZeneca, the U.K.-based pharmaceutical company, to settle charges under the FCPA’s books and records and internal control provisions due to allegedly improper payments made by the company’s wholly-owned subsidiaries in China and Russia. In its administrative order, the SEC alleged that the Chinese subsidiaries made improper payments to doctors at state-owned healthcare providers to incentivize purchasing and prescribing AstraZeneca pharmaceuticals. The improper payments were funded by fraudulent tax receipts, inflated travel invoices, and fabricated speaker fees. The Chinese subsidiary also allegedly made improper payments to government officials in exchange for reductions or dismissals of proposed financial sanctions against the subsidiary. Similarly, the SEC alleged that AstraZeneca’s Russian subsidiary made improper payments in connection with pharmaceutical sales. Without admitting or denying the SEC’s findings, AstraZeneca agreed to disgorge $4.325 million and pay a $375,000 civil penalty with $822,000 in prejudgment interest.
The SEC’s administrative order indicates that AstraZeneca waived its statute of limitations defenses. This is notable because AstraZeneca’s misconduct allegedly ended in 2010, and the statute of limitations for FCPA offenses is five years.
This settlement represents another in a series of SEC investigations of the pharmaceutical industry. Examples include the March 2016 Novartis settlement and payment of $25 million, and SciClone Pharmaceuticals’ settlement earlier this year for $12.8 million. Other notable pharmaceutical companies with recent FCPA settlements include Bristol-Myers Squibb in 2015 settling for $14 million; Eli Lily in 2012 settling for $29 million; and Johnson & Johnson settling with the SEC and DOJ in 2011 for $70 million.
On June 13, the FHFA submitted to Congress its annual report on its 2011 examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The report rates Fannie Mae and Freddie Mac as “critical supervisory concerns” and states that their continuing credit losses stem primarily from loans originated during 2005-2007. The report cites certain key challenges of Fannie Mae and Freddie Mac, which include (i) the ongoing stress in the national housing market, (ii) the broader economic environment, and (iii) the lack of certainty about the future of Fannie Mae and Freddie Mac. Among other things, the report provides updated information about the Fannie Mae and Freddie Mac portfolios and foreclosure prevention efforts. The report also notes that the financial condition of the Federal Home Loan Banks remained stable, though exposure to private-label mortgage-backed securities continues to impact certain of the Banks.
On June 13, Freddie Mac published Bulletin 2012-13, which updates multiple servicing requirements in the Single-Family Seller/Servicer Guide. With regard to the state foreclosure timeline, the Bulletin (i) adds several circumstances in which the timeline will be extended for all foreclosure sales completed on or after January 1, 2012, (ii) revises the calculation for compensatory fees associated with exceeding a state foreclosure timeline, and (iii) alters the compensatory fee appeal process. With regard to certain operational procedures, the Bulletin (i) adds a time frame for reimbursement of taxes that were incurred and paid to a taxing authority for non-real estate owned expenses, (ii) allows wire transfers for REO-related remittances, and (iii) clarifies the time frame for submitting modification agreements to document custodians. The Bulletin also makes changes to the Guide related to unemployment forbearance, the quality right party contract performance standard, fraud prevention and reporting, and MERS Rule 14.
Also on June 13, Fannie Mae published Announcement SVC-2012-10, which updates its notice of data breach and incident response policy to require servicers to provide written notice to Fannie Mae of a data breach in addition to any reporting to consumers or state authorities required under applicable state law. A servicer also must request permission to use Fannie Mae’s name if it intends to refer to Fannie Mae in any notices sent to affected borrowers or regulatory agencies. On the same day, Fannie Mae also published Announcement SVC-2012-11, which updates and clarifies for all mortgages with a foreclosure sale date on or after January 1, 2012, (i) the maximum allowable foreclosure time frames for twelve jurisdictions, (ii) compensatory fee assessments and appeals, and (iii) the preferred method of foreclosure in Montana and Nebraska.
In a SEC cease and desist order filed on August 11, Key Energy Services, Inc., a Houston-based provider of rig-based oil well services, agreed to disgorge $5 million to settle charges that the company violated the books and records and internal control provisions of the FCPA. According to the order, from August 2010 through at least April 2013, Key Energy’s Mexican subsidiary paid bribes of at least $229,000 to a contract employee at Petroleos Mexicanos (Pemex), the Mexican state-owned oil and gas company. In exchange, the subsidiary received Pemex non-public information, advice and assistance on contracts with Pemex, and lucrative amplifications or amendments to those contracts. The funds were allegedly funneled through an entity purporting to provide consulting services, but for which there was no evidence of appropriate authorization of the relationship, and no supporting documentation regarding the purported consulting work performed. According to the SEC, the subsidiary improperly recorded the transfers to the consulting firm as legitimate business expenses, which were consolidated into Key Energy’s books and records. Key Energy allegedly failed to implement and maintain sufficient internal controls, including within the subsidiary relating to interactions with Pemex officials, and failed to respond to indications that the subsidiary was improperly using consultants.
It is notable that Key Energy was not required to pay a civil fine in addition to disgorgement. The SEC identified three reasons for accepting Key Energy’s offer of settlement and not imposing a separate civil penalty. First, the SEC praised Key Energy for cooperating with and assisting in its investigation. Key Energy was first contacted by the SEC in January 2014 concerning possible FCPA violations. In April 2014, Key Energy was informed by employees of its subsidiary of possible bribes, at which time the company reported the allegations to the SEC and “undertook a broad internal investigation and risk assessment of [its] international operations.” The SEC specifically noted that, “to the extent the internal investigation identified additional issues of concern, Key Energy provided updates to the Commission staff.”
Second, the SEC considered not only the “cooperation Key Energy afforded to the Commission staff,” but also the “remedial acts undertaken by [the company].” The SEC noted that Key Energy, during its internal review, “promptly and simultaneously undertook significant remedial measures including … a renovation and enhancement of [its] compliance program.” Specific remedial measures included (1) stronger vendor oversight, (2) enhanced financial controls, (3) increased training of all international employees, (4) developing and/or reviewing policies and procedures pertaining to the FCPA, codes of business conduct, and more, and (5) a coordinated wind-down and exit from all markets outside of North America, including a commitment to exit Mexico by the end of 2016.
Finally, “in determining the disgorgement amount and not to impose a penalty,” the SEC “considered Key Energy’s current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities.” This third justification indicates the SEC is not only aware of the current financial strains within the oil and gas services sector, but is uninterested in unnecessarily putting companies out of business. It is also possible that Key Energy’s cooperation and remediation, coupled with its tenuous financial condition, factored into the DOJ’s decision in April to close its investigation of the same conduct without bringing charges.
On June 4, the United States District Court for the District of Maryland in a pending class action denied defendant’s motion for summary judgment, and ruled that the plaintiffs properly alleged that a federal credit union violated the TILA and Regulation Z prohibition on offsets when it withdrew funds from members’ deposit accounts to satisfy amounts due on the members’ credit card accounts without clearly establishing a security interest in such deposit accounts. Gardner v. Montgomery County Teachers Federal Credit Union, No. 10-02781, 2012 WL 1994602 (D. Md. Jun 4, 2012). The court rejected the credit union’s argument that it had a consensual security interest in the members’ deposit funds. In doing so, the court closely analyzed the Federal Reserve Board’s Official Staff Commentary on § 226.12(d) of Regulation Z, and determined that the credit union did not meet any of the conditions necessary to claim a security interest in the deposit funds.
On June 12, New York Governor Andrew Cuomo and the New York Department of Financial Services (DFS) announced that insurers offering lender-placed insurance must submit new premium rate schedules by July 6, 2012, along with justifications for those new rates. The DFS argues that new rates and justifications are needed based on information derived from recent hearings, which DFS Superintendent Lawsky believes proves that a lack of competition, unnecessarily high rates, and low loss ratios are harming borrowers in New York.
Buckley Sandler Continues Expansion With Addition of Andrew W. Schilling, Former Chief of the Civil Division of the U.S. Attorney's Office for the Southern District of New York
BuckleySandler LLP today announced the addition of Andrew W. Schilling, former Chief of the Civil Division of the U.S. Attorney's Office for the Southern District of New York. Mr. Schilling joins as a partner in the firm's New York office. The arrival of Schilling coincides with that of Thomas A. Sporkin, Chief of the Office of Market Intelligence (OMI) at the Securities and Exchange Commission. Mr. Schilling and Mr. Sporkin bring significant expertise to the firm, particularly with respect to federal civil and criminal enforcement and securities investigations, the False Claims Act, Dodd-Frank and other whistleblower qui tam actions.
As Chief of the Civil Division, Mr. Schilling supervised one of the largest Civil Divisions in the country, with 57 Assistant U.S. Attorneys in eight specialized units. In this role, Mr. Schilling established the Office's new Civil Frauds Unit, which investigates and prosecutes complex financial fraud cases, including mortgage fraud and health care fraud cases. Schilling directly supervised several nationally significant financial fraud lawsuits and investigations against major financial institutions and coordinated all parallel civil investigations with the Office's Criminal Division. An experienced trial attorney both in private practice and in his 12 years as an Assistant United States Attorney, Mr. Schilling has tried cases before juries and the bench in civil rights, organized crime, bankruptcy, employment discrimination, First Amendment and official misconduct cases, and represented the United States in more than a dozen appeals before the United States Court of Appeals for the Second Circuit.
"As financial services and other corporate entities continue to grapple with increased scrutiny and regulations, it is important for our clients to have a team with broad experience in defending against complex enforcement and criminal prosecutions working on their behalf," explained BuckleySandler Chairman and Executive Partner, Andrew L. Sandler. "Andrew and Tom have unique, in-depth knowledge and understanding of complex civil, criminal and enforcement matters and our clients will have the added benefit of access to the invaluable insights they both have to offer as former senior leaders in key government enforcement agencies."
"Joining BuckleySandler was a natural choice for me given its nationally recognized and highly regarded government enforcement practice," noted Schilling. "I look forward to joining the firm's New York office and using my 20 years of experience litigating in the federal and state courts of New York to help the firm's financial services and corporate clients navigate through sensitive investigations and complex litigations."
BuckleySandler LLP and eight of its partners have received top rankings in Chambers USA, which ranks leading firms and lawyers in a range of practice areas throughout the United States based on in-depth client and peer research. This year, Chambers USA recognized BuckleySandler as “one of the preeminent legal brands in the consumer finance market,” and ranked it highly in both Financial Services Regulation: Banking (Enforcement & Investigations) and Financial Services Regulation: Consumer Finance (Compliance). Chambers USA provided individual attorney recognition to seven partners in one or more of these Financial Services categories, recognized Andrew L. Sandler as a “Star Individual” in Financial Services Regulation: Consumer Finance (Litigation), and recognized David S. Krakoff in District of Columbia Litigation: White-Collar Crime & Government Investigations.
According to Chambers USA, BuckleySandler is noted for “its impressive enforcement and litigation talent, and represents some of the world's most high-profile financial institutions in a host of enforcement actions.” Chambers further highlights BuckleySandler’s regulatory work by saying “[the firm] was recently commissioned by a number of national banks to produce an exhaustive 50-state survey of all state and federal laws affecting lending businesses.”
“We are pleased that Chambers USA has once again ranked our firm and so many of our partners. This recognition is all the more meaningful because Chambers’ research methodology focuses on peer and client review and thereby validates our commitment to outstanding legal work and client service,” said BuckleySandler Chairman and Executive Partner, Andrew L. Sandler.
Specifically, their Chambers USA designations are as follows:
Financial Services Regulation: Banking (Enforcement & Investigations)
- Firm Ranked Band 2
- Andrew L. Sandler (Band 1)
- Benjamin B. Klubes (Band 3)
Financial Services Regulation: Consumer Finance (Compliance)
- Firm Ranked Band 1
- Jeremiah S. Buckley (Band 1)
- Joseph M. Kolar (Band 1)
- Andrew L. Sandler (Band 1)
- John P. Kromer (Band 3)
- Jeffrey P. Naimon (Band 3)
- Clinton Rockwell (Band U – Up and Coming)
District of Columbia
Litigation: White-Collar Crime & Government Investigations
- David S. Krakoff (Band 2)
Jeremiah S. Buckley is ranked as Band 1 in Financial Services Regulation: Consumer Finance (Compliance). Chambers says Mr. Buckley “is another example of the firm's astonishing bench strength in the mortgage space. He is praised as "a reliable, quality counsel who is straightforward, candid and energetic."
Benjamin B. Klubes is ranked as Band 3 in Financial Services Regulation: Banking (Enforcement & Investigations). Clients say Mr. Klubes is a "very talented litigation and enforcement expert” and "one of the real leaders in this space."
Joseph M. Kolar is ranked as Band 1 in Financial Services Regulation: Consumer Finance (Compliance). Clients say that he “is singled out as one of the leading mortgage banking lawyers in the country, and noted for his strategic advice and encyclopedic knowledge of federal regulations. He assists mortgage lenders, servicers and insurers, and is ‘extraordinarily good at research and analysis.’"
David S. Krakoff is ranked as Band 2 in DC Litigation: White-Collar Crime & Government Investigations. According to Chambers, “clients describe him as ‘a superb lawyer who is very dedicated.’”
John P. Kromer is ranked as Band 3 in Financial Services Regulation: Consumer Finance (Compliance). Clients report that "he is a joy to work with," with one hailing him as "a true expert in the industry."
Jeffrey P. Naimon is ranked as Band 3 in Financial Services Regulation: Consumer Finance (Compliance). Chambers quotes sources as saying Mr. Naimon is "certainly a thought leader" in the mortgage servicing space, with "his finger on the pulse of what is going on in the mortgage industry.”
Clinton R. Rockwell is ranked as “Up and Coming” in Financial Services Regulation: Consumer Finance (Compliance). Sources are quoted as saying, "it is one thing to provide strict legal advice but it is another to provide practical solutions, and [Mr. Rockwell] does a great job of that."
Andrew L. Sandler is ranked as a Band 1 lawyer in Financial Services Regulation: Consumer Finance (Compliance), as a Band 1 lawyer in Financial Services Regulation: Banking (Enforcement & Investigations), and as a “Star Individual” in Financial Services Regulation: Consumer Finance (Litigation). Chambers says that he “has consolidated his position as one of the leading financial services attorneys in the USA. His broad practice covers enforcement, litigation and compliance, with a focus on consumer finance and the mortgage industry. Sources consider him to be ‘probably the best fair lending lawyer in the country.’"
- Michelle L. Rogers to discuss "What's trending in enforcement" at the Mortgage Bankers Association Annual Convention & Expo
- Kathryn L. Ryan and Moorari K. Shah to discuss "Today's regulatory environment - Are you in the know?" at the Equipment Leasing and Finance Association Annual Convention
- Buckley Webcast: Smoke and mirrors: Navigating the regulatory landscape in banking the marijuana industry
- H Joshua Kotin to discuss "CMS - Components of a successful monitoring program" at the RegList Annual Workshop
- Tim Lange to discuss "Temporary authority to operate - Are you prepared? Hear what the states are doing" at the RegList Annual Workshop
- Sherry-Maria Safchuk to discuss "Cybersecurity" at the RegList Annual Workshop
- Jonice Gray Tucker and Amanda R. Lawrence to discuss "Consumer Regulatory, Enforcement, and Litigation Trends" at the American Bankers Association General Counsel Meeting
- Jeffrey P. Naimon to discuss "Hot topics in mortgage origination" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- Sherry-Maria Safchuk to discuss "CCPA: Countdown to compliance – A discussion of common questions and what is next on the CA privacy horizon" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "Adapting to the rapidly changing compliance landscape involving marijuana and marijuana-related businesses" at an ACAMS webinar
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference