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FCPA class action against Brazilian aerospace firm dismissed
A class action against a Brazilian aerospace firm was recently dismissed by U.S. District Judge Richard Berman. The class action, which was brought in federal district court in New York, alleged that the firm had failed to adequately disclose the scope and possible financial impact of ongoing corruption investigations by the DOJ and SEC, harming the company’s investors.
In granting the firm’s motion to dismiss, Judge Berman held that the company’s disclosures were sufficient as a matter of law, and that requiring disclosures advocated by the putative class plaintiffs would effectively require reporting companies to acknowledge guilt for conduct that was still being investigated and had not yet been charged.
The underlying bribery alleged in the complaint (and being investigated by regulators) involves the firm’s October 2016 admissions that from 2007 to 2011, company executives made payments to government officials in several countries, including the Dominican Republic, Saudi Arabia, Mozambique, and India, totaling $11.5 million. The firm received government contracts resulting in profits over $83 million in exchange.
This decision is a clear win for publicly traded companies currently under investigation for corruption-related conduct. Had the case proceeded, companies may have faced difficult choices between making more detailed disclosures to investors regarding the potential merits of ongoing investigations and protecting themselves against incriminatory public statements about these same matters.
Former media executive pleads guilty to bribing UN official
A Chinese-born naturalized U.S. citizen reportedly pleaded guilty this week to violations of the FCPA related to a scheme to bribe the UN General Assembly’s former president. The citizen is a former executive of a media group that focused on promoting UN development goals, but she was accused of paying the bribe to secure diplomatic postings. She pleaded guilty this week in the SDNY to three counts, including violating and conspiring to violate the FCPA, as well as income tax fraud.
The charges relate to her payment of $500,000 to the former president in April 2013 in exchange for receiving a diplomatic posting within the government of Antigua, where the former president previously served as a UN representative. She is just the most recent in a line of other individuals who have faced FCPA repercussions for bribes paid to the former president (who died in 2016), including a Chinese real estate businessman, who was found guilty of paying the fromer president and another individual bribes worth at least $1 million, and a former head of a New York-based foundation who also pleaded guilty to paying the former president bribes in excess of $800,000. As part of the citizen's plea, she admitted that she had failed to report approximately $2 million in income to the IRS.
This guilty plea illustrates how prosecutors are able to unwind even complex bribery schemes by methodically targeting individual participants. The criminal charges against her were likely bolstered by the string of preceding bribery cases involving similar payments to the former president that likewise resulted in a guilty pleas and verdicts.
Court denies national bank’s motion to dismiss FDIC action seeking deposit insurance payments
On April 4, the U.S. District Court for the District of Columbia denied a national bank’s motion to dismiss or strike an FDIC complaint seeking $1.12 billion in deposit insurance payments. In January 2017, the FDIC filed a complaint against the national bank for $542 million based on the bank’s alleged failure to pay sufficient mandatory assessments under the Federal Deposit Insurance Act (FDIA) for the second quarter of 2013 through the fourth quarter of 2014. In April 2017, the FDIC filed an amended complaint to add a claim of unjust enrichment and allege that the national bank owes an additional $583 million for underpayments predating the second quarter of 2013. In denying the bank’s motion, the court concluded that (i) the FDIC could plead alternative theories of liability at this stage and therefore could allege a claim for unjust enrichment even when an adequate legal remedy is available under the FDIA; (ii) the FDIC adequately pleaded a claim for unjust enrichment; and (iii) it was premature to determine if the FDIC’s FDIA and unjust enrichment claims are time-barred.
State judge says Massachusetts can sue credit reporting agency over data breach
On April 2, a state court judge denied a credit reporting agency’s motion to dismiss claims for violations of state data security regulations. The court stated that while the “mere existence of data breach” does not translate into violations of the state data security regulations, the Massachusetts Attorney General plausibly suggests that the company violated such regulations by knowing of certain vulnerabilities and failing to properly address them. As previously covered by InfoBytes, Massachusetts was the first state to file an action against the credit reporting agency after its September 2017 announcement of a data breach which affected over 143 million consumers.
Pennsylvania district court denies payday lender’s transfer request to bankruptcy court
On April 3, the U.S. District Court for the Eastern District of Pennsylvania denied a motion to move an action, filed by a group of online payday lenders (defendants), from Pennsylvania to Texas. The defendants—who filed for bankruptcy in Texas last year—sought to centralize lawsuits referred to by the court as ”rent-a-bank” and “rent-a-tribe” schemes. (See previous InfoBytes coverage on the allegations here.) The defendants argued that the presumption of trying cases related to a bankruptcy proceeding in the court where the proceeding is pending, which is commonly recognized under 28 U.S.C. Section 1412, should apply. The court, however, found that Section 1412’s presumption of transfer does not apply to police and regulatory actions. In support, the district court cited to a Montana federal judge’s decision this past January, which denied a transfer request in a similar suit brought by the CFPB against one of the defendants. In the summary of its findings, the court noted “[s]imply put, Congress has favored the interest of permitting states’ regulatory and police actions to independently proceed over the interest in centering the administration of the defendant’s related bankruptcy proceedings.”
District Court finds that combination of litigation documents is misleading and violates FDCPA
On March 30, the U.S. District Court for the Southern District of Indiana found that serving a request for admission in connection with a complaint and a summons on a debtor in a debt collection case constituted misleading communications in violation of the Fair Debt Collection Practices Act (FDCPA). According to the order, an attorney served a debtor with a request for admission along with a summons to appear in court and a complaint seeking collection of an alleged debt. The request for admission sought acknowledgment that the allegations in the debt collector’s complaint were true. The court found that, as a matter of law, the combination of the documents would confuse an unsophisticated debtor because a debtor would conclude that filing an answer to the complaint was the necessary step to avoid judgment, and not realize that he or she had to do essentially the same thing separately by serving plaintiff’s counsel within thirty days or else admit the underlying allegations. While not at issue in this case, the court noted that it would be inclined to hold that “in order to avoid a violation of the FDCPA, requests for admission should always advise of the consequences of a failure to make a timely response.”
FINRA revises anti-money laundering template for small firms
On April 4, the Financial Industry Regulatory Authority (FINRA) released a revised template to assist FINRA-registered small firms in developing and implementing risk-based anti-money laundering (AML) programs as required by the Bank Secrecy Act and FINRA Rule 3310. Changes to the template reflect FinCEN’s final rule concerning customer due diligence requirements for covered financial institutions (CDD rule), which goes into effect May 11. (See previous InfoBytes coverage on the CDD rule here.) The CDD rule requires covered financial institutions, including FINRA-registered firms, to identify the beneficial owners of legal entity customers who open new accounts.
CFPB releases RFI on financial education programs
On April 4, the CFPB released its eleventh Request for Information (RFI) in a series seeking feedback on the Bureau’s operations. This RFI solicits public comment to assist the Bureau in “assessing the overall efficiency and effectiveness of its consumer financial education programs.” Pursuant to the Dodd-Frank Act, the CFPB develops education programs to educate and empower consumers to make better informed financial decisions, and to improve consumers’ financial literacy. The Bureau develops programs for the general public as well as programs designed for special populations. While the Bureau is seeking feedback on all aspects of its financial education initiatives, the RFI specifically seeks comments related to (i) the topics and delivery functions of the programs; (ii) the effectiveness of the programs, including how the Bureau should measure program success; and (iii) how to avoid duplication and improve coordination with other federal agencies. The RFI is expected to be published in the Federal Register on April 9. Comments will be due 90 days from publication.
Fannie Mae updates Selling Guide with lender contribution clarifications
On April 3, Fannie Mae updated its Selling Guide, including changes to clarify its lender contribution policy and add the option of full-service certificate custodians (FCCs). According to Fannie Mae SEL-2018-03, lender-sourced contributions to fund closing are permitted as long as the contribution is not (i) used to fund any portion of the down payment; (ii) subject to repayment requirements; or (iii) sourced from a third party. While the contribution cannot exceed borrower-paid closing costs, there is otherwise no limit on the amount of the lender contribution unless the lender is an interested party to the transaction. If the lender is an interested party, the contribution is subject to the Interested Party Contributions policy. Additionally, the Selling Guide includes information related to lenders’ option to use a Fannie Mae approved FCC for whole loans and for loans in mortgage-backed securities. The updated information includes (i) documentation and delivery requirements for loans delivered to FCCs; (ii) certification process for loans delivered to FCCs; and (iii) recognition of the new Master Custodial Agreement, which will govern the relationships involved. The Selling Guide also clarifies transaction timing related to whether a single-closing construction-to-permanent transaction is processed as a purchase or a refinance.
FDIC proposes changes to annual stress test rule
On April 2, the FDIC published proposed technical changes to its annual stress testing rule. Specifically, the proposed rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board and the OCC to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the FDIC’s stress testing rule. The FDIC proposed changes are intended to align with the changes made by the Federal Reserve and the OCC (see previously InfoBytes coverage here). Comments on the proposal must be received by June 1.