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House passes bill to let SEC go back 14 years on disgorgement
On November 18, the U.S. House passed the Investor Protection and Capital Markets Fairness Act (H.R. 4344) by a vote of 314-95. The bill, which was received in the Senate, would overturn the U.S. Supreme Court’s 2017 decision in Kokesh v. SEC, which limits the SEC’s disgorgement power and subjects the agency to the five-year statute of limitations applicable to penalties and fines. (Previously covered by InfoBytes here.) As discussed in a recent Buckley article, in Kokesh’s wake, H.R. 4344 would amend the Securities Exchange Act of 1934 by specifically authorizing the SEC to seek disgorgement and restitution, putting to rest the threshold question of whether the SEC has the authority to seek disgorgement. Notably, on November 1, the Court granted certiorari in Liu v. SEC to answer this very question. If signed into the law, H.R. 4344 would allow the SEC 14 years to pursue disgorgement in federal court under the statute of limitations.
DOJ again clarifies FCPA enforcement policy
On November 21, the DOJ updated its FCPA Corporate Enforcement Policy to clarify ways in which companies can voluntarily disclose information in an effort to receive leniency from the Department in foreign bribery situations. First, a company does not need to have a complete picture of a possible violation when it first shares information with the DOJ; rather, the company should “make clear that it is making its disclosure based upon a preliminary investigation.” Next, the agency expects a company to disclose “where the company is aware of relevant evidence not in the company’s possession,” simplifying the requirement which previously called for disclosure of “opportunities for the department to obtain relevant evidence not in the company’s possession.” Finally, in the course of a merger or acquisition “an acquiring company that discloses misconduct may be eligible for a declination, even if aggravating circumstances existed as to the acquired entity.”
As previously covered by InfoBytes, the policy was last amended in March (March 2019 version available here) to, among other things, clarify the Department’s position on the use of ephemeral messaging apps by companies seeking full cooperation credit under the policy.
New York AG investigates housing discrimination on Long Island
On November 19, the New York attorney general’s office announced the launch of a Civil Rights Bureau investigation into allegations that Long Island real estate agents have engaged in discriminatory practices. The announcement follows a newspaper’s recent publication of findings based on a three-year examination of residential brokering firms, where, according to the report, several agents allegedly (i) “steered undercover testers to neighborhoods whose composition matched their own race or ethnicity”; (ii) directed white testers to neighborhoods with the highest white representations, whereas minority testers were sent to more integrated areas; and (iii) subjected minority testers to financial bars that were not imposed on white testers, such as requiring mortgage preapproval in order to view properties. The AGs office encourages Long Island residents to report any instances of housing discrimination.
District Court rejects sampling-related expert discovery in RMBS action
On November 18, the U.S. District Court for the Southern District of New York denied an investment company’s request to use “sampling-related expert discovery” in its action against a trustee of five residential mortgage-backed securities (RMBS), concluding that the proposal was not proportional to the needs of the case. As previously covered by InfoBytes, the investment company filed suit against the trustee alleging the trustee “failed to fulfil certain contractual duties triggered by the discovery of breaches of ‘representations and warranties’” when the underlying mortgages allegedly were found not to be of the promised quality. The investment company also alleged that the trustee failed to exercise its rights to require the companies that sold the mortgages in question “to cure, substitute, or repurchase the breaching loans.” After being denied class certification by the court in February, the investment company preemptively moved for an order from the court allowing it to use sampling-related expert discovery—a process which “engage[s] experts to select samples of mortgage loans from each of the five trusts and to perform analyses on those samples of loans to extrapolate information about the quality of all of the loans in the trusts.”
The court denied the request, calling the proposed sampling a “blind corner.” The court noted that the “breach rate evidence” that would be discovered by the sampling “only provides substantial probative value for [the investment company’s] claims if [the investment company] can demonstrate that [the trustee] was under an obligation to conduct an investigation of the loans in each of the trusts,” which the investment company has failed to do. Because “the probative value of that discovery hinges upon a factual theory that [the investment company] has yet to demonstrate is viable,” the court could not justify allowing the parties to expend hundreds of thousands of dollars on the proposed sampling.
FDIC seeks to codify policy statement on bank employment standards
On November 19, the FDIC issued a proposed rule, which would formalize the agency’s Federal Deposit Insurance Act (FDI Act) Section 19 policy statement covering individuals seeking to work in the banking industry who have been convicted of certain crimes. In general, Section 19 of the FDI Act prohibits, without the prior written consent of the FDIC, any person who has been convicted of any criminal offense involving dishonesty, breach of trust, or money laundering—or who has entered into a pretrial diversion or similar program in connection with such an offense—from participating in the banking industry. As previously covered by InfoBytes, in August 2018, the FDIC updated the statement of policy to expand the criteria of de minimis offenses for which the FDIC will not require the filing of an application and (i) clarify when an expungement is considered complete for Section 19 purposes; (ii) recognize that convictions set aside based on procedural or substantive error should not be considered convictions under Section 19; and (iii) adjust the definition of “jail time” to not include “those on probation or parole who may be restricted to a particular jurisdiction.”
The proposal not only seeks to codify the policy statement but requests public comment on all aspects of the policy. According to Chairman McWilliams, the FDIC is particularly interested in “whether and how the FDIC should expand the criteria for what constitutes a de minimis offense.” Comments are due 60 days after publication in the Federal Register.
SEC monetary sanctions in whistleblower program top $2 million for 2019
On November 15, the SEC announced it issued its fiscal year 2019 whistleblower program annual report to Congress, which states that since the program’s inception, the SEC has ordered over $2 billion in total monetary sanctions in enforcement actions that resulted from information brought by meritorious whistleblowers. As for FY 2019, the SEC received over 5,200 whistleblower tips, with over 300 tips relating to cryptocurrencies, and awarded approximately $60 million in whistleblower awards to eight individuals. Since the program’s inception, the SEC has awarded approximately $387 million to 67 whistleblowers. The report acknowledges that FY 2019 was an “unusual year” due to the lapse in appropriations, referring to the government shutdown from the end of December 2018 through most of January 2019, and includes a summary of the six actions leading to the eight awards of FY 2019. The report notes that the agency anticipates final rules to be adopted in FY 2020 related to the July 2018 proposed amendments to the whistleblower program (covered by InfoBytes here). The proposed amendments, among other things, address the Supreme Court ruling in Digital Realty Trust, Inc. v. Somers (covered in a Buckley Special Alert) and authorize the SEC to adjust an award’s percentage as appropriate to advance the goals of rewarding and incentivizing whistleblowers.
On the same day, the SEC announced a collective award of over $260,000 to three whistleblowers who submitted a joint tip “alerting the agency to a well-concealed fraud targeting retail investors,” which led to a successful enforcement action. The order does not provide any additional details regarding the whistleblower or the company involved in the enforcement action. With this new action, the SEC has now awarded approximately $387 million to 70 whistleblowers.
OFAC sanctions ISIS procurement and financial networks
On November 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against two Islamic State of Iraq and Syria (ISIS) procurement agents based in Turkey and four ISIS-linked entities operating in Syria, Turkey, and across the Gulf and Europe for allegedly providing financial and logistical support to ISIS. OFAC also took action against an Afghanistan-based organization, as well as two affiliated senior officials, for “using false charitable pretenses as a cover to facilitate the transfer of funds and support the activities of the terrorist group’s branch in Afghanistan, ISIS – Khorasan.” OFAC noted that these sanctions coincide with the twelfth meeting of the Counter ISIS Finance Group, which coordinates efforts to isolate ISIS from the international financial system and eliminate revenue sources. As a result of the sanctions, all property and interests in property of the designated entities and individuals within U.S. jurisdiction are blocked and must be reported to OFAC. OFAC further noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitate significant transactions for any Specially Designated Global Terrorists, they may be subject to U.S. correspondent account or payable-through account sanctions.
NYDFS to ease restrictions on sharing confidential supervisory information
On November 14, NYDFS announced a proposed regulation, which would allow regulated entities to share confidential supervisory information with legal counsel or with independent auditors without obtaining prior written approval from the agency. Currently, entities are required to receive prior written approval for each instance in which they want to share confidential supervisory information with hired legal counsel or independent auditors. The proposal would allow a regulated entity to share this information without prior written approval from NYDFS as long as there is a written agreement between the parties, in which the hired legal counsel or independent auditor agrees to, among other things, (i) only use the information for the purposes of legal representation or auditing services; (ii) not to disclose the information to its employees except on a “need to know” basis; (iii) promptly notify NYDFS of any requests for the information; and (iv) maintain records for all information disclosed pursuant to the regulation. Comments on the proposal will be accepted for 60 days following publication in the state register on November 27.
11th Circuit vacates class certification in TCPA action against satellite TV provider
On November 15, the U.S. Court of Appeals for the Eleventh Circuit vacated the district court’s certification order of a class action alleging a national satellite TV company violated the TCPA by contacting individuals who had previously asked to not be contacted. According to the opinion, a consumer filed a class action against the company alleging that the company failed to maintain an “internal do-not-call list,” which allowed the company and its telemarketing service provider to contact him eighteen times after he repeatedly asked to not be contacted. The consumer sought certification “of all persons who received more than one telemarketing call from [the telemarketing service provider] on behalf of [the company] while it failed to maintain an internal do-not-call list.” The district court certified the class and the company appealed.
On appeal, the 11th Circuit disagreed with the district court, concluding the court incorrectly determined that issues common to the class predominated over issues individual to each member. Specifically, the appellate court noted that the class consisted of unnamed class members who may not have asked the company to stop calling and therefore, would never have been on an internal do-not-call list, had one been properly maintained. Thus, these members were not injured by the company’s failure to comply and their injuries are then “not fairly traceable to [the company’s] alleged wrongful conduct,” resulting in a lack of Article III standing to sue. The appellate court emphasized that recertification is still possible, but the district court would need to determine which of the class members made the request to not be contacted. However, if “few made [the] request[], or if it will be extraordinarily difficult to identify those who did, then the class would be overbroad” and individualized issues may “overwhelm issues common to the class.”
District Court enters stipulated final judgment against debt collector
On November 15, the U.S. District Court for the Northern District of Georgia entered a stipulated final judgment and order to resolve allegations concerning one of the defendants cited in a 2015 action taken against an allegedly illegal debt collection operation. As previously covered by InfoBytes, the CFPB claimed that several individuals and the companies they formed attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect. The complaint further alleged uses of harassing and deceptive techniques in violation of the CFPA and FDCPA, and named certain payment processors used by the collectors to process payments from consumers. While the claims against the payment processors were dismissed in 2017 (covered by InfoBytes here), the allegations against the outstanding defendants remained open. The November 15 stipulated final judgment and order is issued against one of the defendants who—as an officer and sole owner of the debt collection company that allegedly engaged in the prohibited conduct—was found liable in March for violations of the FDCPA, as well as deceptive and unfair practices and substantial assistance under CFPA.
Among other things, the defendant, who neither admitted nor denied the allegations except as stated in the order, is (i) banned from engaging in debt collection activities; (ii) permanently restrained and enjoined from making misrepresentations or engaging in unfair practices concerning consumer financial products or services; and (iii) prohibited from engaging in business ventures with the other defendants; using, disclosing or benefitting from certain consumer information; or allowing third parties to use merchant processing accounts owned or controlled by the defendant to collect consumer payments. The stipulated order requires the defendant to pay a $1 civil money penalty and more than $5.2 million in redress, although full payment of the judgment is suspended upon satisfaction of specified obligations and the defendant’s limited ability to pay.