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  • SEC gives first “safe harbor” whistleblower award

    Securities

    On April 5, the SEC announced an award of over $2.2 million given to a whistleblower who initially reported information to another federal agency and then later to the SEC. The award was the first paid under the “safe harbor” of the Exchange Act Rule 21F-4(b)(7), which provides that the SEC will treat information submitted to it, by a whistleblower, as though it received the information at the same time as another federal agency as long as the whistleblower submits the information to the SEC within 120 days after its submission to the other agency. According to the announcement, the SEC opened an investigation into the reported conduct after it received a referral from the other federal agency. The whistleblower then reported the same information to the SEC and later provided substantial cooperation in the investigation.

    Securities Whistleblower Dodd-Frank SEC

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  • Bank and shareholders reach settlement over BSA/AML compliance allegations

    Securities

    On March 30, a regional bank reached a $13 million settlement with a group of its shareholders over allegations of misleading statements and omissions regarding the bank’s compliance with fair lending laws, and Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulations. The shareholders—purchasers of the bank’s stock between July 2013 and July 2014—allege that the bank’s misrepresentations regarding their compliance with BSA/AML laws, as well as other laws and regulations, artificially inflated the price of the bank’s stock. According to the settlement, both parties’ decisions to enter into the agreement were partially due to the length and expense of continued litigation, which began in 2014. The shareholders initiated the class action litigation in July 2014; however, the U.S. Court of Appeals for the 6th Circuit vacated the initial class certification in September 2016, remanding to the district court for further proceedings. The class was recertified by the district court in June 2017 with the 6th Circuit denying the bank’s petition for appeal of the recertification. The bank denies all allegations of wrongdoing and liability in the settlement.

    Securities Settlement Bank Secrecy Act Anti-Money Laundering Appellate Sixth Circuit Class Action

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  • International bank agrees to pay $2 billion in civil penalties to settle allegations of RMBS misconduct

    Securities

    On March 29, the DOJ announced a $2 billion settlement with an international bank and several of its affiliates to resolve allegations of misrepresentation in the sale of residential mortgage-backed securities, in violation of the Financial Institutions Reform, Recovery, and Enforcement Act. The bank agreed to pay the civil monetary penalty in exchange for dismissal of a civil action filed in 2016. According to the settlement agreement, the investigation focused on 36 securitizations by the bank between 2005 and 2007. In addition to the alleged misrepresentations in the offering documents, the bank allegedly misled investors about the quality of the mortgage loans backing the deals. Separately, two former bank executives agreed to pay a combined $2 million to resolve claims brought against them individually. The bank did not admit to any liability or wrongdoing.

    Securities DOJ RMBS Settlement FIRREA

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  • Massachusetts securities division halts five initial coin offerings

    Securities

    On March 27, Massachusetts’s Office of the Secretary of the Commonwealth Securities Division (Division) entered into separate consent orders with five companies that allegedly violated the Massachusetts Uniform Securities Act by promoting initial coin offerings (ICOs) using unregistered securities. The five companies, which conduct business in Massachusetts, offered the ICOs via websites, including social media platforms. Under the terms of the consent orders, the companies are prohibited from selling unregistered or non-exempt securities in the state and are censured by the Division.

    Visit here for additional InfoBytes coverage on ICOs.

    Securities State Issues Initial Coin Offerings Cryptocurrency Virtual Currency Enforcement

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  • Supreme Court rules state courts may hear certain securities class actions brought under federal law

    Courts

    On March 20, the U.S. Supreme Court unanimously affirmed a California state appeals court decision in 2011, which ruled that state courts are permitted to hear certain securities class actions brought under federal law. Justice Kagan delivered the opinion. The decision resolves a question concerning whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which made amendments to the Securities Act of 1933 (1933 Act), gave federal courts exclusive jurisdiction over covered class actions alleging only 1933 Act violations. SLUSA “does nothing to deprive state courts of their jurisdiction to decide class actions brought under the 1933 Act,” the Court stated when ruling that SLUSA allowed state courts concurrent jurisdiction over securities claims involving 50 or more plaintiffs. Rather, Section 77p of SLUSA “bars certain securities class actions based on state law,” but it “says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” And, the Court further opined, “Neither did SLUSA authorize removing such suits from state to federal court.”

    Courts U.S. Supreme Court Securities Class Action

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  • New York Attorney General reaches $230 million settlement for international company’s RMBS misconduct

    Securities

    On March 21, the New York Attorney General announced a $230 million settlement with two divisions of an international financial services company to resolve allegations that the company made misrepresentations in the sale of residential mortgage-backed securities (RMBS) in violation of New York’s Martin Act and Section 63(12) of New York’s Executive Law. According to the settlement agreement, the investigation focused on 15 securitizations sold by the company between 2006 and 2007. In addition to the alleged misrepresentations in each of the securitizations’ prospectus and prospectus supplements, the company also included loans in the sales portfolio that diligence reports flagged for underwriting and valuation issues. The $230 million settlement includes $41 million to New York State and $189 million to consumer relief programs.

    Securities RMBS State Attorney General State Issues Mortgages

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  • SEC awards highest-ever payout to whistleblowers

    Securities

    On March 19, the SEC announced its largest-ever payouts for three whistleblowers, totaling around $83 million. According to the announcement, two whistleblowers will share a nearly $50 million award, while a third was awarded more than $33 million. The highest award the SEC had previously given was $30 million in 2014, and since the program’s inception in 2012, the SEC has awarded more than $262 million to 53 whistleblowers. While the SEC did not provide any substantive details on the whistleblowers’ tips or the resulting enforcement action due to confidentiality, media reports the whistleblower tips resulted in a $415 million settlement in 2016 with the large wealth management division of a national bank.

    Securities Whistleblower Dodd-Frank SEC

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  • International bank settles with New York Attorney General for $500 million for RMBS misconduct

    Securities

    On March 6, the New York Attorney General announced a $500 million settlement with an international bank to resolve allegations of misrepresentations in the sale of residential mortgage-backed securities (RMBS), in violation of New York’s Martin Act and Section 63(12) of New York’s Executive Law. According to the settlement agreement, the investigation focused on 44 securitizations sold by the bank between 2006 and 2007. In addition to the alleged misrepresentations in the offering documents, the bank also included loans in the sales portfolio that due diligence vendors warned did not comply with underwriting guidelines. The $500 million settlement includes $100 million in damages to New York State and $400 million to consumer relief programs.

    As previously covered by InfoBytes, the bank recently settled with the California Attorney General for misrepresentations while selling RMBS to California’s public employee and teacher pension fund.

    Securities State Attorney General State Issues RMBS Settlement Mortgages

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  • Texas State Securities Board issues order halting unregistered cryptocurrency trading operation

    Securities

    On February 26, the Texas State Securities Board (Board) issued an emergency cease and desist order (order) to an unregistered cryptocurrency trading operation for allegedly targeting investors through fraudulent and materially misleading online advertisements and offering unregistered securities for sale. According to the order, the company purportedly—in addition to intentionally seeking to mislead the public by promoting high-return investment opportunities—failed to disclose risks associated with cryptocurrency mining, promised investors it would comply with “all relevant laws and regulations,” and claimed that its fund directors were regulated by the Cayman Islands. The Board further asserted the company failed to disclose the true identities of its Code of Ethics Association members responsible for “contract law, due diligence and corporate law,” and instead, created the impression it was associated with attorneys and judges, including U.S. Supreme Court Justice Ruth Bader Ginsburg. Under the terms of the order, the company, among other things, is prohibited from engaging in the sale of securities in the state until the security is registered with the SEC or exempt from registration under the Texas Securities Act, and cannot act as a securities dealer until it complies with the same.

    Securities State Issues Cryptocurrency Enforcement SEC Fintech

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  • International bank and head trader settle with SEC for CMBS fraud

    Securities

    On February 12, the Securities Exchange Commission (SEC) announced that it reached an agreement with an international bank and its former head trader for allegedly selling commercial mortgage-backed securities (CMBS) to customers by using false and misleading statements. The bank has agreed to repay more than $3.7 million to the affected customers According to the order, the bank misled customers about the original purchase price of the CMBS and failed to institute proper compliance and surveillance procedures in order to detect and prevent the misconduct. Additionally, the order states that the bank’s former head trader failed to properly supervise the traders making the allegedly false statements and failed to take appropriate action when he became aware of the statements.

    In addition to the customer repayment, the bank has agreed to pay a $750,000 civil money penalty to the SEC, while the former head trader has agreed to a $165,000 civil money penalty and a 12-month suspension from the securities industry. According to the SEC, the settlement amounts reflect substantial cooperation by both parties during the investigation and remedial efforts taken by the bank to improve surveillance and compliance controls. Both parties consented to the order without admitting or denying the findings.

    Securities SEC Mortgages Settlement Fraud

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