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  • Trump Administration Files Brief in PHH Corp. v. CFPB

    Agency Rule-Making / Guidance / Amendments

    On March 17, the Trump Administration’s Department of Justice (“DOJ”) filed its amicus brief in the D.C. Circuit’s en banc review of the CFPB’s enforcement action against PHH Corporation for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”). In October 2016, a panel of the D.C. Circuit concluded that the CFPB misinterpreted RESPA and that its single-Director structure violated the constitutional separation of powers. The DOJ brief states that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”

    Like the brief filed in this case by the Obama Administration DOJ before the change in administration, the current DOJ brief states that “[t]he United States takes no position on the statutory issues in this case, but in the event that the ultimate resolution of those issues results in vacatur of the CFPB’s order [against PHH], it is within this Court’s discretion to avoid ruling on the constitutional question.” However, the brief goes on to state that, because the issue is already before the en banc court and the “question is likely to recut in pending and future cases, it would be appropriate for the Court to provide needed clarity by exercising its discretion to resolve the separation-of-powers issue now.”

    Agency Rulemaking & Guidance Consumer Finance Federal Issues CFPB PHH v CFPB DOJ POTUS

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  • DOJ Enters $45 Million Settlement with California Technology Company in False Claims Act Matter

    FinTech

    On March 10, the Department of Justice (the “Government”) announced that a California-based technology company agreed to settle the Government’s allegations that it violated the False Claims Act by making false statements and claims in its negotiation and administration of a General Services Administration (“GSA”) contract. According to the Government’s press release announcing the settlement, the settlement resolved allegations that the company failed to “fully and accurately disclose its discounting practices to GSA contracting officers.” More specifically, the Government had alleged that the company provided false information about customer discounts in connection with the contract negotiations, and violated the price reduction clause in the contract by not providing government customers with additional discounts when commercial discounts improved. The company agreed to pay $45 million to resolve the allegations, which were first made in a whistleblower lawsuit filed under the False Claims Act. $10.195 million of the total settlement will be paid to the whistleblower, as the rules under the False Claims Act provide that private individuals may to sue on behalf of the government and share in a portion of the recovery.

    FinTech DOJ False Claims Act / FIRREA

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  • DOJ Pilot Program Extended to Provide Adequate Time for Evaluation

    Financial Crimes

    Speaking at the American Bar Association’s National Institute on White Collar Crime yesterday, U.S. Department of Justice official Kenneth Blanco reportedly announced that the Justice Department’s FCPA pilot program encouraging corporate cooperation will not end on April 5 of this year as originally announced.  Instead, until the Justice Department is able to render a final decision based on a complete evaluation, the program will remain in force.  Notably, as previously reported, the new Deputy Assistant Attorney General with oversight over the Fraud Section, Trevor N. McFadden, co-authored an article during his time in the private sector praising the program as “a step forward in providing companies and their counsel with more transparent and predictable benefits for self-reporting, cooperating, and remediating FCPA misconduct.”

    Financial Crimes DOJ FCPA Pilot Program

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  • Trump Administration Given March 17 Filing Date for Amicus Brief in PHH v CFPB; Requests to Intervene by Outside Organizations Denied by D.C. Circuit

    Consumer Finance

    On March 7, the U.S. Court of Appeals for the D.C. Circuit granted the United States’ unopposed motion, filed through the Office of the Solicitor General (“SG”), which requested an extension to file its amicus brief in PHH Corp. v. CFPB. Notably, amicus briefs supporting PHH must be filed by March 10 and those supporting the CFPB must be filed by March 31. The fact that the United States’ motion requested an extension until March 17—before the deadline for briefs supporting the CFPB—signals that the SG may present arguments supporting PHH that differ both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.

    As previously covered in InfoBytes, late last year the D.C. Circuit invited briefing by the SG’s office on behalf of the United States (note that the SG does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The then Obama-led SG’s office took the position that the case should be reheard by the en banc court because, among other reasons, (i) the majority’s reasoning misapplied Supreme Court precedent on separation of powers issues and/or (ii) the panel majority should not have reached the constitutional issue. Now under the Trump Administration, the DOJ hinted that it may revise its positions with respect to both the constitutionality of the CFPB’s single-director-removable-only-for-cause structure, and, if it chooses, the merits of PHH’s argument that the Bureau’s RESPA interpretation was incorrect. Indeed, the short motion asserted, among other things, that “the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies.”

    Also on March 7, the D.C. Circuit issued a separate order denying three pending “motions and alternative requests” seeking to intervene, or in the alternative, hold in abeyance requests to intervene submitted by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, 16 State Attorneys General, a coalition of consumer interest groups, and two conservative advocacy groups working with State National Bank of Big Spring.

    Consumer Finance PHH v CFPB Courts CFPB U.S. Solicitor General Trump DOJ RESPA

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  • District Court Denies Injunction Against “Operation Choke Point” Activities

    Courts

    On February 23, a U.S. District Court for the District of Columbia issued a Memorandum Opinion denying a request for injunctive relief sought by a group of payday lenders to stop “Operation Choke Point” – a DOJ initiative targeting fraud by investigating US banks and the business they do with companies believed to be a higher risk for fraud and money laundering including, but not limited to, payday lenders. Payday lenders have called the initiative a coordinated effort by federal regulators to stop banks from doing business with them, thereby threatening their survival. See Advance America v. FDIC, [Memorandum Opinion No. 134] No. 14-CV-00953-GK (D.D.C. Feb. 23, 2017). According to the lenders, the Fed, FDIC, and OCC have adopted DOJ guidance on bank reputation risk and then used that guidance to exert “backroom regulatory pressure seeking to coerce banks to terminate longstanding, mutually beneficial relationships with all payday lenders.”  The government has rejected this characterization, asserting that banks can do business with payday lenders as long as the risks are managed properly.

    Evaluating the request under the due process “stigma-plus rule,” the Court focused on whether the payday lenders could show they were likely to succeed on the merits of their case and whether or not they were likely to suffer irreparable harm without the injunction.

    Ultimately, the payday lenders were unable to convince the Court that they were likely to suffer the harm central to a “stigma-plus” claim. The Court reasoned that (i) the closure of some bank accounts would not be enough to constitute the loss of banking services, and that the lenders needed (and failed) to show that the loss of banking services had effectively prevented them from offering payday loans; and (ii) nearly all of the lenders were still in operation; and (iii) because the lenders were still able to find banks to work with, evidence of the possibility of future loss of banking services was too speculative to support an injunction.

    The Court was also not persuaded that the lenders would be able to prove that regulatory actions caused banks to deny services to petitioners. Specifically, the Court determined that the lenders were “unlikely” to be able to set forth evidence of the “campaign of backroom strong-arming” underlying petitioners’ request for injunctive relief. Specifically, the Court noted that the lenders relied on “scattered statements,” some of which the Court characterized as “anonymous double hearsay,” to support their claims. The only direct evidence, according to the Court, was actually just “evidence of a targeted enforcement action against a single scofflaw.”

    Though the Court explained that the two other factors—the balance of equities and the public interest—were of less significance in this situation, it noted in closing that “enjoining an agency’s statutorily delegated enforcement authority is likely to harm the public interest, particularly where plaintiffs are unable to demonstrate a likelihood of success on the merits.”

    Courts Consumer Finance CFPB DOJ Operation Choke Point Payday Lending Prudential Regulators Federal Reserve FDIC OCC

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  • Financial Services Institution Discloses SEC FCPA Investigation into Hiring Practices

    Financial Crimes

    On February 24, a major financial services institution disclosed in its 10-K that government and regulatory agencies, including the SEC, are conducting investigations concerning potential violations of the FCPA related to hiring of candidates referred by or related to foreign government officials.  The institution stated that it was cooperating with the investigations.

    This is not the first FCPA-related investigation of a company’s hiring practices.  As previously reported here in November 2016, a global financial company and a Hong Kong subsidiary agreed to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, ending a nearly three year, multi-agency investigation of the subsidiary’s referral program through which the children of influential Chinese officials were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia.  Similarly, as reported here, in August 2015, the SEC announced a settlement with a multinational financial services company over allegations that the company violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The company paid $14.8 million to settle the charges. 

    Nor are the inquiries confined to financial services companies.  For example, the SEC announced in March 2016, as covered here, that it settled charges with the San Diego-based mobile chip maker.  The company agreed to pay a $7.5 million civil penalty to resolve charges that it violated the FCPA by hiring relatives of Chinese government officials and providing things of value to foreign officials and their family members, in an attempt to influence these officials to take actions that would assist the company in obtaining or retaining business in China.

    Financial Crimes DOJ FCPA Federal Reserve SEC

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  • Claims Management Company Reports Conclusion of SEC FCPA Investigation

    Financial Crimes

    As previously covered here, an Atlanta-based claims management firm, disclosed in November 2015 that it self-reported possible FCPA violations to the DOJ and SEC.  These potential violations were identified during an internal audit.  On February 27, 2017, the firm announced that it had received notice that the SEC “concluded its investigation and did not intend to recommend an enforcement action” related to this matter.   The company did not reference the DOJ in its announcement.

    Financial Crimes DOJ FCPA SEC

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  • DOJ Fraud Section Unveils New Guidelines on Corporate Compliance Programs

    Financial Crimes

    The DOJ’s Fraud Section recently published an “Evaluation of Corporate Compliance Programs.”  The guidelines were released on February 8 without a formal announcement.  Their stated purpose is to provide a list of “some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.”  The guidelines are divided into 11 broad topics that include dozens of questions.  The topics are:

    1. Analysis and Remediation of Underlying Conduct
    2. Senior and Middle Management
    3. Autonomy and Resources
    4. Policies and Procedures
    5. Risk Assessment
    6. Training and Communications
    7. Confidential Reporting and Investigation
    8. Incentives and Disciplinary Measures
    9. Continuous Improvement, Periodic Testing and Review
    10. Third Party Management
    11. Mergers & Acquisitions

    According to the Fraud Section, many of the topics also appear in, among other sources, the United States Attorney’s Manual, United States Sentencing Guidelines, and FCPA Resource Guide published in November 2012 by the DOJ and SEC.  While the content of the guidelines is not particularly groundbreaking, it is nonetheless noteworthy as the first formal guidance issued by the Fraud Section under the Trump administration and new Attorney General Jeff Sessions.  By consolidating in one source and making transparent at least some of the factors that the Fraud Section considers when weighing the adequacy of a compliance program, the guidelines are a useful tool for companies and their compliance officers to understand how the Fraud Section and others at the DOJ may proceed in the coming months and years. 

    However, while the guidelines may give some indication of what the DOJ views as a best practices compliance program, they caution that the Fraud Section “does not use any rigid formula to assess the effectiveness of corporate compliance programs,” recognizes that “each company’s risk profile and solutions to reduce its risks warrant particularized evaluation,” and makes “an individualized determination in each case.”

    Financial Crimes Federal Issues Securities DOJ SEC

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  • Former Hungarian Telecommunications Executive Settles with SEC

    Financial Crimes

    On February 8th, a former executive of a Hungarian telecommunications company settled a 2011 civil complaint filed by the SEC.  The trial of the remaining co-defendants is scheduled for May 8.  As part of the settlement, the former executive agreed to pay a $60,000 civil penalty and did not admit or deny the SEC’s allegations.  The former executive also admitted that U.S. courts had jurisdiction over the case. The issue of jurisdiction had been contested; in 2013, the court denied the defendants’ motion to dismiss for lack of personal jurisdiction.

    The SEC’s complaint alleged that the former executive, along with two other co-defendants, authorized bribes to Macedonian government officials and others.  In 2014, the SEC dropped allegations regarding payments to government officials in Montenegro, substantially narrowing the allegations in the case.  The company and its parent settled allegations regarding payments to government officials in Macedonia and Montenegro with the SEC and DOJ in 2011.  Prior Scorecard coverage of the company’s investigation can be found here.

    This outcome of this lengthy case illustrates that individual defendants can still achieve relatively favorable outcomes when they choose to litigate FCPA cases, even after the corporate defendants have reached a resolution.

    Financial Crimes Securities DOJ FCPA SEC

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  • DOJ Declines FCPA Action Against Oil Company

    Federal Issues

    Houston-based oil company announced in a February 9, 2017 press release that the DOJ had formally closed its FCPA investigation into the company’s oil exploration operations in Angola and would not prosecute the company. The press release noted that the DOJ’s investigation “was the last remaining FCPA investigation by any U.S. regulatory agency into [the company’s Angolan operations.” The DOJ’s declination letter came more than two years after the SEC closed its own FCPA investigation and declined to bring an enforcement action.

    As detailed in a previous FCPA Scorecard post, the parallel investigations began in 2011, and were prompted by allegations concerning the connection between senior Angolan government officials and a local partner in the company-led deepwater oil venture. According to the company’s 10-K filing for FY 2012, the company had voluntarily contacted the DOJ when the SEC launched its initial inquiry and “offered to respond to any requests the DOJ may have.”

    Federal Issues FCPA International SEC DOJ

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