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Financial Services Law Insights and Observations


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  • West Virginia AG Reaches Settlement with Debt Collection Firm

    Consumer Finance

    On January 20, Herbalife Ltd., a Los Angeles-based maker of nutritional supplements and weight management products, disclosed in a Form 8-K filing that it is being investigated by the SEC in connection with the company’s activities in China.  Herbalife said it is also conducting its own review and “has discussed the SEC’s investigation and the company’s review with the Department of Justice.”  It also said it is cooperating with the SEC but “cannot predict the eventual scope, duration, or outcome of the matter at this time.”

    The announcement comes months after Herbalife agreed last July to pay $200 million in consumer redress to settle Federal Trade Commission allegations that it operated a pyramid scheme and “deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.”  The FTC deal also required Herbalife to “fundamentally restructure” its multi-level marketing operations and compensation structure.

    State Attorney General Debt Collection

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  • New York State Appeals Court Upholds Decision Dismissing Buyback Lawsuit


    On January 17, Nevada-based gaming and resort company Las Vegas Sands Corp. agreed to pay the DOJ nearly $7 million to resolve FCPA charges with a non-prosecution agreement (NPA) in connection with payments from 2006 to 2009 totaling almost $6 million to a business consultant to promote its brand in China and Macau.  Sands admitted that the payments were made “without any discernable legitimate business purpose,” that its executives had knowingly and willfully failed to implement adequate internal accounting controls to ensure that the payments were legitimate, and that it failed to prevent the false recording of those payments in its books and records, continued to make the payments even after warnings from its finance staff and an outside auditor, and terminated the finance department employee who raised those concerns.

    The $7 million criminal penalty is a 25-percent discount from the bottom of the U.S. Sentencing Guidelines fine range.  In announcing the NPA, the DOJ credited Sands for its full cooperation in the investigation, including conducting a thorough internal investigation and voluntarily providing evidence and information to the DOJ, and its extensive remedial measures, including expanding its compliance and audit programs and making significant personnel changes.  The DOJ found particularly notable that Sands no longer employs or is affiliated with any of the individuals implicated in the investigation and hired a new general counsel and new heads of its internal audit and compliance functions.

    In an unusual move, the DOJ’s announcement comes several months after Sands resolved similar FCPA claims with the SEC in related proceedings last April.  There the SEC filed a cease and desist order against Sands and the company agreed to pay a civil penalty of approximately $9 million.  The SEC alleged that Sands violated the FCPA’s internal controls and books and records provisions in connection with more than $62 million in payments to a consultant operating in China and Macau who did not properly document how the money was used.  Sands had consented to the SEC’s order without admitting or denying the charges.  Previous FCPA Scorecard coverage of the Sands SEC settlement can be found here.


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  • Supreme Court Dismisses Writ of Certiorari in RESPA Case


    On January 13, Chilean chemical and mining company Sociedad Quimica y Minera de Chile, S.A. (SQM) agreed to pay nearly $30.5 million to resolve criminal and civil FCPA charges in connection with payments to politically-connected individuals in Chile. SQM admitted that, from at least 2008 to 2015, it made approximately $15 million in payments to Chilean politicians, political candidates, and individuals connected to them.  Many of the payments violated Chilean tax law and/or campaign finance limits and were not supported by documentation.  Rather, SQM made many of these payments to third-party vendors associated with the politically-connected individuals based on fictitious contracts and invoices for non-existent services.  SQM falsely recorded many of these payments in its books and records.

    SQM agreed to a three-year deferred prosecution agreement (DPA) with the DOJ, including a $15,487,500 criminal penalty, and agreed to retain an independent compliance monitor for two years.  The criminal penalty reflected a 25 percent discount from the low end of the U.S. Sentencing Guidelines fine range due to the company’s full cooperation and substantial remediation.  SQM also agreed to pay a $15 million penalty to the SEC pursuant to an Administrative Order Instituting Cease-and-Desist Proceedings to settle the SEC’s charges that the company violated the books and records and internal controls provisions of the FCPA.

    This settlement demonstrates the jurisdictional-reach of the U.S. government in enforcing the FCPA.  SQM, a Chilean company with no U.S. operations, agreed to settle both the SEC’s and DOJ’s charges even though the entirety of the conduct occurred outside of the United States and was committed by foreign nationals.  The only tie to the United States referenced in the SEC and DOJ settlement papers is that SQM is registered with the SEC as a foreign private issuer (its Series B shares have been listed on the NYSE since 1993).

    U.S. Supreme Court RESPA

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  • Mobile App Developer Agrees to Stop Collecting and Using Children's Data in Settlement


    On January 17, Rolls-Royce plc (Rolls-Royce), a UK-based manufacturer and distributor for the civil aerospace, defense aerospace, marine, and energy sectors worldwide, agreed to pay nearly $170 million to the DOJ to resolve charges that it conspired to violate the anti-bribery provisions of the FCPA around the world. The settlement with the DOJ (via a three-year deferred prosecution agreement (DPA)), was a fraction of the company's $800 million global resolution in connection with bribes paid to government officials in exchange for government contracts in China, India, Indonesia, Malaysia, Nigeria, Russia, Thailand, Brazil, Kazahkstan, Azerbaijan, Angola, and Iraq.

    In addition to settling with the DOJ, the company resolved charges with the UK SFO by entering into a DPA and agreeing to pay a fine of $604,808,392.  Rolls-Royce entered into a leniency agreement with the Brazilian Ministério Público Federal (MPF) and agreed to pay a penalty of $25,579,170.

    According to the DPA Statement of Facts, Rolls Royce admitted that between 2000 and 2013, it conspired to violate the anti-bribery provisions of the FCPA by paying more than $35 million in bribes to foreign officials in exchange for confidential information and/or government contracts.  Many of these contracts benefited RRESI, Rolls Royce’s indirect U.S. subsidiary.  Rolls Royce made the majority of the bribes by inflating commission payments to third-party intermediaries, who then paid part of the commission as bribes to government officials.

    The DOJ lauded Rolls Royce’s cooperation in its investigation and as a result, Rolls Royce received a 25 percent reduction from the low end of the U.S. Sentencing Guidelines fine range due.  However, the DOJ refused to award the company any voluntary disclosure credit.  The DOJ has been transparent that it only will award voluntary disclosure credit when the disclosure occurs prior to an imminent threat of disclosure or government investigation. Here, that test was not satisfied because the company did not disclose the conduct until after media reports and the related SFO inquiry began.

    Privacy/Cyber Risk & Data Security

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  • Massachusetts Federal Court Finds On-Demand Web Streaming Service Falls within the ADA's Scope


    On June 19, the U.S. District Court for the District of Massachusetts ruled that Netflix’s “Watch Instantly” on-demand movie and television streaming service is a “place of public accommodation” subject to the Americans with Disabilities Act’s (ADA) bar on disability-based discrimination. Nat’l Ass’n of the Deaf v. Netflix, Inc., No. 11-30168 (D. Mass. June 19, 2012). Plaintiffs asserted that the streaming service provided inadequate closed-captioned content and sought declaratory and injunctive relief directing the company to provide closed-captioning for all “Watch Instantly” offerings. Netflix moved for judgment on the pleadings, arguing that the ADA did not apply to its on-demand service and that the Twenty-First Century Communications and Video Accessibility Act of 2010 (CVAA) precluded the plaintiffs’ interpretation of the ADA. The court disagreed, finding that the plaintiffs adequately pled their claim that the scope of the ADA applies to the company’s on-demand service. In addition, the court rejected the company’s argument that the CVAA precluded the plaintiffs’ ADA claim, concluding that the CVAA’s specific requirements related to captioning of streamed video did not present an irreconcilable conflict with the ADA.

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  • SEC and FDIC Announce Senior Appointments


    On July 3, the SEC announced that Ken C. Joseph will lead the Investment Adviser/Investment Company Examination Program for the New York Regional Office. Mr. Joseph previously served for 16 years as a Staff Attorney, Branch Chief, and Assistant Director in the SEC’s Division of Enforcement in Washington, DC and New York.

    On July 2, the FDIC announced that Doreen R. Eberley will oversee all examination activities of the FDIC’s regional and field supervisory operations as Senior Deputy Director for Supervisory Examinations in the Division of Risk Management Supervision. Ms. Eberley currently serves as New York Regional Director and has been with the FDIC for 25 years. The FDIC also announced that Andrew Gray will serve as Deputy to the Chairman for Communications and Eric Spitler will serve as Director of the Office of Legislative Affairs.

    FDIC SEC Investment Adviser

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  • State Law Update: South Carolina Adopts Mortgage Lending Act Regulations


    Recently, the South Carolina State Board of Financial Institutions (Board) adopted regulations implementing the South Carolina Mortgage Lending Act. The regulations set forth definitions for previously-undefined terms, specify circumstances under which a licensee’s Nationwide Mortgage Licensing System unique identification number must be disclosed, clarify periodic reporting requirements applicable to licensees, and provide a timeframe within which a license application must be completed before it is deemed abandoned by the Board. The regulations took effect on June 22, 2012.

    Mortgage Licensing

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  • Special Alert: California Legislature Approves Key Parts of State's "Homeowner Bill of Rights"

    On July 2, the California State Legislature passed AB 278 and SB 900 (“the Bills”), two substantively identical pieces of legislation that implement significant portions of the “Homeowner Bill of Rights” initiative announced by California Attorney General Harris on February 29.  The portions of the initiative that still must be considered by the Legislature are listed in a fact sheet appended to the Attorney General’s press release regarding the Bills.  If signed by Governor Brown, the Bills will (i) codify a number of protections similar to those contained in the Multistate Servicer Settlement between 49 state attorneys general, the Federal Government, and the nation’s five largest mortgage servicers announced on February 9 (“the Settlement”), (ii) amend the mechanics of California’s foreclosure processes, and (iii) provide borrowers with new private rights of action.

    First, the Bills create protections similar to those provided to customers of the mortgage servicers that are subject to the Settlement.  For example, the Bills will restrict "dual tracking" and guarantee a single point of contact for certain borrowers pursuing loss mitigation.  Additionally, the Bills will impose certain notice requirements similar to those contained in the Settlement.  For example, the Bills will require that prior to recording a notice of default, covered mortgage servicers will need to send borrowers a disclosure stating that if they are servicemembers, they may be eligible for benefits and protections under the federal Servicemembers Civil Relief Act.  Likewise, the Bills also will require that, under certain circumstance, mortgage services must send Borrowers loss mitigation solicitations within 5 days of the recording of a notice of default.  Lastly, the Bills also will establish sanctions for inaccurate, incomplete, and unsupported foreclosure documentation, so-called "robo signing" activities.   These sanctions include civil penalties of up to $7,500 per mortgage or deed of trust, in an action brought by specified state and local government entities, as well as administrative enforcement against licensees of the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate.

    Second, with respect to the state’s foreclosure process, the Bills will make permanent the state’s current pre-foreclosure contact requirements and extend the reach of these requirements to mortgage servicers.  In addition, the Bills will impose a number of new disclosure requirements that will last through January 1, 2018.  For example, whenever a foreclosure sale is postponed for a period of at least 10 business days, the mortgagee will be obligated to provide the borrower with written notice regarding the new sale date and time of the foreclosure sale within five business days of the postponement.

    Finally, the Bills will provide borrowers new private rights of action, allowing them to seek both injunctions and damages (including attorneys’ fees) for violations of certain of the Bills’ provisions.  Furthermore, with respect to damages, if a court determines that a violation was intentional, willful, or reckless, it will have the power to award the greater of treble actual damages or $50,000 in statutory damages.  In addition, the Bills will provide that certain violations committed by licensees of the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate automatically will become violations of the Departments’ respective licensing laws.

    The Bills’ provisions will be applicable (i) only to mortgage servicers, mortgagees, trustees, beneficiaries, and authorized agents who conduct more than 175 foreclosure sales per year in California and (ii) only with respect to mortgages or deeds of trust secured by owner-occupied, residential real property not exceeding four dwelling units. For a copy of the Bills, please see:









    Loss Mitigation

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  • Spotlight on Anti-Money Laundering (Part 3 of 3): SAR Reporting for RMLOs


    On September 29, Och-Ziff Capital Management (Och-Ziff) agreed to pay approximately $412 million to the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa.  This is the fourth-largest FCPA enforcement settlement of all time, and the first time a hedge fund has been held accountable for violating the FCPA.  In addition, both the SEC and DOJ made clear that their investigations, including of those of individuals, are ongoing, making it possible that the government is not finished collecting FCPA fines from related parties and individuals.

    In the criminal case, Och-Ziff, a New York-based publicly-traded hedge fund, entered into a three-year deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA, falsification of books and records, and failure to implement adequate internal controls. Och-Ziff agreed to pay a criminal penalty of approximately $213 million, and to retain a compliance monitor for three years.  OZ Africa Management (OZ Africa), a wholly-owned subsidiary of Och-Ziff, pleaded guilty to a one-count criminal information charging it with conspiracy to violate the FCPA.  Sentencing is set for March 29, 2017.

    The DPA’s Statement of Facts describes bribes paid to government officials in the Democratic Republic of Congo (Congo) and Libya to help Och-Ziff (i) obtain special access and preferential prices for investment opportunities in government controlled-mining sectors in Congo, and (ii) secure an investment from the Libyan Investment Authority, Libya’s sovereign wealth fund.

    In parallel proceedings, Och-Ziff agreed to pay $199 million to the SEC and entered into an Administrative Order Instituting Cease-and-Desist Proceedings to settle the FCPA civil charges.  The SEC’s allegations covered Libya, Chad, Niger, and the Congo, and alleged that Och-Ziff used intermediaries, agents, and business partners to corruptly influence foreign officials.  The Order found that Och-Ziff executives ignored red flags and corruption risks and permitted the corrupt transactions to proceed..  Both Och-Ziff CEO Daniel S. Och and CFO Joel M. Frank agreed to settle related allegations, without admitting or denying the findings.  Och agreed to pay nearly $2.2 million to the SEC in the settlement, and a penalty will be assessed against Frank at a future date.  In addition, Oz Management, an affiliated investment adviser of Och-Ziff, settled charges that it violated the anti-fraud provisions of the Investment Advisers Act of 1940.

    The FCPA Scorecard previously covered Och-Ziff’s August 2016 10-Q filing, which disclosed substantial financial reserves set aside for alleged FCPA violations for over half a decade.

    Anti-Money Laundering Bank Secrecy Act

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  • CFPB Finalizes Rule Governing Treatment of Privileged Information

    Consumer Finance

    The Argentine sports marketing company, Torneos y Competencias SA, entered into a deferred prosecution agreement with the U.S. DOJ on December 13, admitting to wire fraud conspiracy in connection with paying tens of millions of dollars in bribes and kickbacks to high-ranking FIFA officials in order to secure support for broadcasting rights in Argentina, Uruguay, and Paraguay for the 2018, 2022, 2026, and 2030 World Cup. The four-year DPA calls for Torneos to pay approximately $112.8 million in forfeiture and criminal penalties.  In announcing the DPA, the DOJ noted its consideration of Torneos’ remedial actions including termination of its entire senior management team, hiring a new General Manager, Chief Financial Officer, Legal Director, Chief Compliance Officer, and Compliance Manager, cooperation, and implementation of enhanced internal controls and a rigorous corporate compliance program.

    The deferred prosecution agreement is part of the DOJ’s wider investigation into corruption in international soccer.  Thus far, DOJ has charged 42 defendants and obtained 19 guilty pleas in connection with the FIFA corruption prosecutions. Prior Scorecard coverage of the FIFA investigations can be found here.

    CFPB Examination

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