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  • Court dismisses SEC allegations against executives of hedge fund management firm as time-barred

    Financial Crimes

    On July 12, Judge Nicholas Garaufis of the Eastern District of New York issued a 32-page memorandum opinion this week dismissing the SEC’s civil suit against two former executives of an American hedge fund management firm (earlier coverage can be found here and here).

    The SEC’s complaint alleged that the executives violated the FCPA between May 2007 and April 2011 by causing the firm “to pay tens of millions of dollars in bribes to government officials on the continent of Africa.” Specifically, the defendants allegedly induced Libyan authorities to invest in firm managed funds, and directed illicit efforts to secure mining deals by bribing government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. The case against the two executives was the latest in a line of civil and criminal proceedings involving the hedge fund management firm and its employees and executives, and the firm paid $412 million in criminal and civil penalties to settle its FCPA enforcement actions.

    Judge Garaufis, in dismissing the complaint in its entirety with prejudice, found that the claims were barred by the FCPA’s five-year statute of limitations, and he rejected the SEC’s tolling arguments. A cornerstone of this dismissal is the Supreme Court’s ruling last year in Kokesh v. SEC, which held that SEC disgorgement actions are subject to a five-year statute of limitations.

    Financial Crimes SEC FCPA

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  • Latest conviction in Venezuelan oil company bribery case

    Financial Crimes

    On July 16, 2018, a dual U.S.-Venezuelan citizen pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering. The citizen’s convictions relate to allegations that he bribed officials at Venezuela’s state-owned oil company and laundered money for bribes to other company employees. FCPA Scorecard provided earlier coverage of this case here.

    The citizen admitted to soliciting and directing bribes from two U.S. citizens in exchange for securing payment priority for their companies from the oil company and for awards of the company's contracts. The citizen also admitted to conspiring with these individuals to launder and conceal the proceeds of the scheme through a series of financial transactions, including wire transfers to offshore accounts. Sentencing is scheduled for September 24.

    His conviction underscores how wide investigations can become as the DOJ continues pulling threads and obtaining guilty pleas. The DOJ has charged 15 defendants in the company's cases, 12 of whom have pleaded guilty to date, including the citizen. The DOJ also credited the assistance of the Swiss Federal Office of Justice and the Spanish Guardia Civil.

    Financial Crimes DOJ FCPA Anti-Money Laundering Bribery

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  • CFPB Succession: Kraninger testifies before Senate Banking Committee; Bureau nominates Paul Watkins to lead Office of Innovation

    Federal Issues

    On July 19, the Senate Banking Committee held a confirmation hearing for Kathy Kraninger on her nomination as permanent director of the CFPB. Prior to the hearing, the White House issued a fact sheet asserting that “Kraninger has the management skills and policy background necessary to reform and refocus the Bureau.” In her written testimony Kraninger shared four initial priorities: (i) the Bureau should be fair and transparent, utilize a cost benefit analysis to facilitate competition, and effectively use notice and comment rulemaking to ensure the proper balance of interests; (ii) the Bureau should work closely with other regulators and states to “take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activities”; (iii) data collection will be limited to what is needed and required under the law and measures will be taken to ensure the protection of the data; and (iv) the Bureau will be held accountable to the public for its actions, including its expenditure of resources.

    Chairman of the Committee Senator Mike Crapo, R-Idaho, remarked in his opening statement that he hoped Kraninger “will be more accountable to senators on this Committee than Director Cordray was” but that he had “the utmost confidence that she is well-prepared to lead the Bureau in enforcing federal consumer financial laws and protecting consumers in the financial marketplace.” Conversely, Senator Elizabeth Warren, D-Mass., released a staff report prior to the hearing detailing Kraninger’s tenure at OMB and identifying her participation in several alleged management failures in the current administration.

    During the hearing, Kraninger received questions covering a range of topics, including whether she would appeal last month’s ruling by a federal judge in New York that the CFPB’s structure was unconstitutional. (See previous InfoBytes coverage on the ruling here.) Kraninger responded that constitutionality questions are “not for me in this position to answer.” However, Kraninger did comment that “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” Kraninger also commended recent efforts by the OCC to encourage banks to make small-dollar loans, discussed plans to consult Bureau staff on the use of the disparate impact theory in enforcement, and stated she will seek to promote the agency’s regulatory views through formal rulemaking instead of through enforcement.

    On July 18, acting Director of the CFPB Mick Mulvaney announced the selection of Paul Watkins to lead the Bureau’s new Office of Innovation. The Office of Innovation—a recent addition to the Bureau—will focus on policies for facilitating innovation, engage with entrepreneurs and regulators, and review outdated or unnecessary regulations. Specifically, the Office of Innovation will replace what was previously known as Project Catalyst, which was—as previously discussed in InfoBytes—responsible for facilitating innovation in consumer financial services. Prior to joining the Bureau, Watkins worked for the Arizona Attorney General and helped launch the first state regulatory sandbox for fintech innovation. (See previous InfoBytes coverage on Arizona’s regulatory sandbox here.) Earlier in May, Mulvaney announced at a luncheon hosted by the Women in Housing & Finance that the Bureau is working to build its own regulatory sandbox program, and last year the agency took steps to make it easier for emerging technology companies to comply with federal rules by issuing its first “no action letter.”

    Federal Issues CFPB Succession Fintech Regulatory Sandbox Senate Banking Committee CFPB Enforcement

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  • Fannie Mae and Freddie Mac issue disaster relief policy reminders and updates

    Federal Issues

    On July 18, Fannie Mae, in Lender Letter LL-2018-04, and Freddie Mac, in an industry letter released the same day, reminded servicers of requirements that continue to be in effect for servicing mortgages impacted by eligible disasters. Specifically, Fannie Mae provides information on (i) reimbursements related to insured loss repair inspection costs; (ii) disaster-impacted inspections; (iii) the Extend Modification for Disaster Relief policy—developed in conjunction with Freddie Mac for post-disaster forbearance mortgage loan modifications; and (iv) the disbursement of hazard loss draft proceeds. Freddie Mac also reminds servicers of property inspection reimbursement requirements and changes to insurance loss settlement distributions.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues Fannie Mae Freddie Mac Disaster Relief Mortgage Servicing

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  • OFAC issues Venezuela General License, updates FAQs

    Financial Crimes

    On July 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Venezuela General License 5 (GL 5) to allow U.S. persons to engage in transactions related to the financing for, and other dealings in the Petroleos de Venezuela SA 2020 8.5 Percent Bond that would otherwise by prohibited by Executive Order 13835 (E.O. 13835). (See previous InfoBytes coverage here.) OFAC also published two additional FAQs to provide additional guidance on the reasons for the issuance of GL 5 as well as answers to whether E.O. 13835 prohibits U.S. persons having a legal judgment against the Government of Venezuela from attaching and executing against Venezuelan government assets, including vessels, properties, or financial assets.

    Visit here for additional InfoBytes coverage on Venezuela sanctions.

    Financial Crimes OFAC Department of Treasury Venezuela International

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  • Fannie Mae updates borrower-initiated mortgage insurance termination requirements

    Federal Issues

    On July 18, Fannie Mae released Lender Letter LL-2018-03 (Letter) to provide updates to requirements for single-family servicers related to borrower-initiated conventional mortgage insurance (MI) termination requests. The Letter covers requirements for borrower-initiated MI terminations and outlines various processes for verifying current property values. Among other things, the Letter also incorporates into the Servicing Guide changes previously announced in LL-2017-09 (see previous InfoBytes coverage here), which allows for temporary forbearance mortgage loan modification for servicers with mortgage loans affected by recent disasters. Fannie Mae encourages servicers to implement the new requirements on January 1, 2019, but will not require them to do so until March 1, 2019, unless otherwise noted.

    Federal Issues Fannie Mae Mortgage Insurance Servicing Guide Disaster Relief

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  • NYDFS issues final rule to establish standards for insurance sellers

    State Issues

    On July 18, the New York Department of Financial Services (NYDFS) issued a final rule requiring licensed insurers that offer life insurance and annuity products to New York consumers to establish standards and procedures to ensure that the financial objectives of the consumer are addressed at the time of the transaction and financial exploitation is prevented. According to the NYDFS, the rule amends the state’s current suitability regulation and “provides for a best interest standard of care for all sales of life insurance and annuity products.” The rule provides that when making a recommendation to consumers with respect to policies, the producer must “appropriately address the insurance needs and financial objectives of the consumer at the time of the transaction.” According to NYDFS Superintendent Maria Vullo, “financial compensation or incentives may not influence the recommendation.”

    State Issues NYDFS Insurance

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  • Federal Reserve vice chairman discusses tailoring prudential standards to account for complexity and risk

    Federal Issues

    On July 18, Federal Reserve Vice Chairman for Supervision Randal K. Quarles spoke before the American Bankers Association’s conference in Salt Lake City to discuss ways the Fed can tailor the supervision and regulation of prudential standards for financial institutions with assets between $100 billion to $250 billion. According to Quarles, U.S. regulators should consider scaling back resolution plan requirements and tailor regulation to risk. In discussing resolution plans, also known as living wills, Quarles noted, among other things, that the Fed “should consider limiting the scope of application of resolution planning requirements to only the largest, most complex, and most interconnected banking firms because their failure poses the greatest spillover risks to the broader economy.” Furthermore, banks that do not qualify as global systemically important banks (G-SIBs) should also be granted some measure of regulatory relief, Quarles stated. Existing G-SIB tests and surcharge indicators could be used for measuring cross-border activity, short-term wholesale funding, as well as nonbank activities while the Fed determines adjustments for less complex banks between the $100 billion and $250 billion range. “This review should ensure that our regulations continue to appropriately increase in stringency as the risk profiles of firms increase, consistent with our previously stated tailoring goals and the new legislation,” Quarles said. “The supervision and regulatory framework for these firms should reflect that there are material differences between those firms that qualify as U.S. G-SIBs and those that do not.” Moreover, according to Quarles, while the Economic Growth, Regulatory Relief, and Consumer Protection Act mandates an 18-month deadline for regulators to issue proposed changes, the Fed plans to “move much more rapidly than this.”

    Federal Issues Federal Reserve Bank Regulatory Stress Test S. 2155

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  • District court dismisses FDCPA suit, rules least sophisticated debtor would not be misled by placement of dispute language


    On July 18, the U.S. District Court for the District of New Jersey dismissed a class action lawsuit alleging a debt collector failed to provide clear instructions that debt disputes must be submitted in writing in order to be valid as required under the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff claimed that the debt collection company misled her into believing she could orally dispute her debt by placing phrases such as “Should you have any questions regarding this account, please feel free to call us” on a debt collection notice she received. However, the debt collector argued that instructions in the notice, which provided the consumer with her rights under the FDCPA, could not be overshadowed or contradicted by including a phone number. The court agreed, referencing two 3rd Circuit cases as precedent, and stated that “merely providing contact information and encouraging a telephone call are insufficient standing alone to undermine an otherwise clear validation notice.” In this instance, the notice “only invites her to call if she has general questions regarding the account.” Furthermore, according to the judge, even the least sophisticated debtor would not be misled by a phone number listed separately from dispute instructions.

    Courts FDCPA Debt Collection Class Action

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  • Federal Reserve chair delivers semi-annual congressional testimony, discusses U.S. financial conditions and regulatory relief act

    Federal Issues

    On July 17, Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee and spoke the next day before the House Financial Services Committee. In his semi-annual congressional testimony, Powell presented the Federal Reserve’s Monetary Policy Report, and discussed the current economic situation, job market, inflation levels, and the federal funds rate. Powell stressed, among other things, that interest rates and financial conditions remain favorable to growth and that the financial system remains in a good position to meet household and business credit needs. Chairman of the Committee, Senator Mike Crapo, R-Idaho, remarked in his opening statement that, while recent economic developments are encouraging, an effort should be made to focus on reviewing, improving, and tailoring regulations to be consistent with the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act S.2155/P.L. 115-174 (the Act). During the hearing, Powell confirmed that the Fed plans to implement provisions of the Act as soon as possible. (See previous InfoBytes coverage here.) When questioned by Senator Sherrod Brown, D-Ohio, about the direction the Fed plans to take to address stress test concerns, Powell responded that the Fed is committed to using stress tests, particularly for the largest, most systemically important institutions, and that going forward, the Fed wants to strengthen the tests and make the process more transparent. Powell also indicated the Fed intends to “publish for public comment the range of factors [the Fed] can consider” when applying prudential standards. Powell also stated that he believes government-sponsored-enterprise reform would help the economy in the long term.

    When giving testimony to the House Financial Services Committee, Powell also commented that cryptocurrency does not currently impair the Fed’s work on monetary policy and that the Fed will not seek jurisdiction over cryptocurrency and instead will defer to the SEC’s oversight as well as Treasury’s lead to identify the right regulatory structure.

    Federal Issues Federal Reserve SEC Cryptocurrency Stress Test Consumer Finance S. 2155 Senate Banking Committee House Financial Services Committee

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