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Agencies file lawsuit in scheme targeting the elderly
On February 1, the California Department of Financial Protection and Innovation (DFPI), along with the CFTC and 26 other state regulators, announced a complaint against a precious metals dealer and its owner (collectively, “defendants”) for allegedly perpetrating a $68 million fraudulent scheme against more than 450 individuals nationwide, specifically against the elderly. According to the complaint, the defendants allegedly utilized false statements on its website regarding the risk and safety of their traditional retirement accounts and used fear tactics to convince senior citizens to purchase the precious metals. The complaint alleged that the company violated the federal Commodity Exchange Act by targeting the elderly and advising them to dissolve their savings and traditional retirement accounts in order to purchase their highly inflated and overpriced products, and that defendants had misrepresented their credentials and advised customers that the products were “a safe and conservative investment.” The complaint seeks disgorgement, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act, state regulatory laws, and CFTC regulations.
The same day, the SEC filed a complaint against the defendants in the U.S. District Court for the Central District of California for allegedly violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctions, disgorgement, plus interest, and civil penalties.
French Council of State confirms €100 million fine against tech company
On January 28, the French Council of State confirmed the French data protection agency Commission Nationale de l’Informatique et des Libertés’s (CNIL) jurisdiction to impose sanctions on a multinational technology company and its Irish affiliate related to the companies’ process for managing cookies. The judgment follows an appeal by the companies against a 100 million euro fine imposed by CNIL in December 2020, for failure to obtain users’ consent and provide adequate information before depositing advertising cookies on users’ computers. The 2020 decision cited three violations of Article 82 of the French Data Protection Act (the Act). In confirming the 2020 decision, the Council of State recognized that it is within CNIL’s jurisdiction “to issue sanctions regarding cookies outside the ‘one-stop-shop’ mechanism provided for in the GDPR and therefore confirmed the sanction imposed by the CNIL on the companies[.]” Specifically, the Council of State concluded that the GDPR’s “one-stop-shop” mechanism does not apply to the deposit of cookies, which is covered by the Act. Additionally, because the cookies in question are implemented in the context of the companies’ activities in France, the Council of State determined CNIL had jurisdiction pursuant to the Act, and consequently, did not have to forward the case to the Irish Data Protection Authority (the lead supervisory authority for these companies under the GDPR). Moreover, the Council of State held that the fines imposed by CNIL were “not disproportionate in view of the seriousness [of] the violations, the scope of the processing and the financial capabilities of the companies.”
SEC: Taking remedial actions may help companies avoid penalties
On January 28, the SEC announced a settlement subject to court approval with a private technology company to resolve allegations that the company, through its former CEO, falsely inflated key financial metrics and doctored internal sales records. The complaint, which alleged violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, claimed that the CEO significantly inflated the value of numerous customer deals, and then masked the inflation by creating fake invoices and altering real invoices to make it seem as if customers had been billed higher amounts. The company’s board of directors conducted an internal investigation, which led to the removal of the CEO, a revised company valuation, and remedial efforts including repaying investors. The company also hired new senior management, expanded its board, and implemented processes and procedures to ensure transparency and accuracy of deal reporting and associated revenues. While the company neither admitted nor denied the allegations, it agreed to be permanently enjoined from violations of the antifraud provisions. The SEC highlighted that the lack of a penalty in the settlement is significant, and demonstrates the Commission’s position that a company may receive credit if it makes significant remedial efforts in the wake of an internal investigation. “For companies wondering what types of remedial actions and cooperation might be credited by the Commission after a company uncovers fraud, this case offers an excellent example,” stated Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “[The company’s] remediation and cooperation included not just its internal investigation and revised valuation, but also repaying harmed investors and improving its governance—all of which were factors that counseled against the imposition of a penalty in this case.”
FINRA fines securities firm $20,000 for AML violations
On January 20, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), which requires a securities firm to pay a $20,000 fine for allegedly failing to: (i) establish and implement anti-money laundering (AML) policies and procedures reasonably expected to detect and cause the reporting of suspicious activity; (ii) conduct an independent AML test; and (iii) obtain the signature of a principal at the firm evidencing supervisory review and approval of the opening of customer accounts. According to the AWC, in 2018, “following a change in majority ownership, the firm’s business model shifted, and it began to service high-net worth international customers, many of whom were citizens or residents of jurisdictions that posed a heightened risk of money laundering or were considered bank secrecy havens.” The firm allegedly “failed to tailor its AML program to the firm’s new, higher-risk business model,” FINRA stated. The firm did not admit nor deny the findings as part of the AWC but agreed to a censure, among other things.
FDIC discusses post-financial crisis legal claims and enforcement proceedings
Recently, the FDIC reported on legal claims and enforcement proceedings taken by the agency during the financial crisis in the years from 2008 to 2013. During this time period, the FDIC stated it “pursued and defended more legal claims in both its receivership and corporate capacities than during the savings and loan and banking crisis of the 1980s and early 1990s.” In its receivership capacity, the FDIC investigated and litigated many professional liability claims and sought to enter and collect on criminal restitution and forfeiture orders related to failed banks. The agency also pursued many enforcement claims and other actions related to both open and failed banks in its corporate capacity. The report discussed numerous topics, including the FDIC’s investigation into the residential mortgage-backed security (RMBS) portfolios of failed insured depository institutions (IDIs), which often “revealed that RMBS portfolios suffered heavy losses because the credit quality of loans collateralizing the RMBS was much lower than the credit quality represented in the RMBS offering documents.” Ultimately, 19 lawsuits were filed by the FDIC on behalf of eight receiverships seeking damages based on the IDIs’ purchases of RMBS. Other significant topics discussed within the report focus on LIBOR suppression claims, residential mortgage malpractice and/or mortgage fraud, criminal claims and recovery, income tax refund litigation, and administrative enforcement proceedings, among others.
CFPB files emergency motion to hold phantom debt scammers in contempt
On January 22, the CFPB filed an emergency motion seeking to hold two individual defendants in contempt of court for allegedly failing to honor the terms of a default judgment and order related to a 2015 enforcement action. The defendants are two of multiple participants that were allegedly involved in an illegal phantom debt collection scheme involving payment processors and a telephone broadcast service provider. As previously covered by InfoBytes, the Bureau claimed that the defendants attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect, used harassing and deceptive techniques in violation of the CFPA and FDCPA, and placed robo-calls through a telephone broadcast service provider to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. At the time, the Bureau obtained a preliminary injunction to halt the debt collection activities and freeze the assets of all defendants named in the lawsuit.
According to the Bureau, the two defendants named in the emergency motion failed to comply with any of the required terms under the default judgment entered last October, which required, among other things, the payment of civil money penalties ranging from $100,000 to $500,000, and permanently banned the defendants from attempting collections on any consumer financial product or service and from selling any debt-relief service. (Covered by InfoBytes here.) The defendants’ disregard for court orders “has been a recurring theme of this case,” the Bureau wrote in its the motion, claiming that the defendants, among other things, failed to show up for scheduled depositions or produce requested documents, and violated the preliminary injunction by transferring assets and concealing properties that they owned. After both defendants were found to be in contempt for not complying with the preliminary injunction, a receiver was appointed to conserve the assets for the benefit of affected consumers, which one of the defendants “promptly” violated. After the defendants failed to respond to additional requests, the Bureau filed the motion to have them both found in contempt. The defendants have “provided no cause for comfort that they will respect rulings of the Court or that they will comply with the law unless the Permanent Injunction Order is enforced,” the Bureau stated in its motion.
FDIC releases December enforcement actions
On January 28, the FDIC released a list of administrative enforcement actions taken against banks and individuals in December. During the month, the FDIC made public eight orders, including one order issued in October 2021, and one notice. The administrative enforcement actions in the orders and notice consisted of “two Orders to Pay Civil Money Penalty, one Consent Order, one order terminating consent order, one voluntary termination of deposit insurance, two Section 19 Orders, one adjudicated cease and desist order, and one Notice of Charges.” Among the actions is an order to pay a civil money penalty imposed against a North Dakota-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank: (i) “made, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; and (ii) “made, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The order requires the payment of a $4,500 civil money penalty.
FTC bans auto marketer over deceptive mailings
On January 28, the FTC announced that it had banned a marketing services company and its owner from the auto industry for allegedly misleading consumers that their websites were affiliated with a government stimulus program and sending consumers deceptive mailings regarding prizes they had supposedly won. According to the opinion, the respondents violated the FTC Act by utilizing deceptive and unfair practices such as sending misleading mailings to persuade consumers to visit auto sales sites by suggesting that these sites were affiliated with a government Covid-19 stimulus program when in fact the sales were not part of any such program. The respondents also allegedly quoted monthly payments to purchase vehicles on credit, but did not provide key financing terms required by law that consumers need to determine the true cost of the advertised loans. Additionally, the respondents allegedly sent direct mail advertisements that deceptively indicated that consumers had won specific, valuable prizes that could be collected upon visiting the car dealership. The FTC noted that the respondents conducted such mailings, despite entering into three prior consent orders with state authorities identifying the ads as deceptive. According to the order, the respondents, are, among other things, banned from advertising, selling, or leasing automobiles for 20 years, and are prohibited from misrepresenting any material fact while marketing any product or service of any kind, as well as from any further violations of TILA’s disclosure requirements.
FTC settles with remaining student debt relief defendants
On January 26, the FTC announced settlements with the remaining participants in a student loan debt relief operation. As previously covered by InfoBytes, the FTC filed a complaint against the defendants for allegedly using telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule (TSR). The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants allegedly charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization. A $43 million settlement was reached in 2020 with certain of the defendants that was partially suspended conditioned upon the surrender of at least $835,000, as well as additional assets.
The FTC entered two settlements against the remaining defendants. The first settlement imposes a roughly $7.5 million monetary judgment, which is partially suspended after the individual defendant pays $743,386. The second settlement includes a $22 million monetary judgment, which is also partially suspended based on the defendants’ inability to pay. The settlement also requires the defendants to forfeit all frozen funds held by the receiver. Monies recovered in the action will go towards consumer refunds. Additionally, the defendants are banned from providing any debt relief products and services in the future, and are prohibited from making misrepresentations in connection with the sale of any products or services or from making any unsubstantiated claims. Defendants are also enjoined from violating the TSR.
FTC settles FTC Act violations matter
On January 25, the FTC announced a proposed settlement with an online fashion retailer (defendant) for allegedly engaging in deceptive practices—the FTC’s first action involving a company’s efforts to conceal negative customer reviews. According to the complaint, the defendant allegedly violated the FTC Act by, among other things, misrepresenting that the product reviews on its website reflected the views of all purchasers who submitted reviews, when it actually suppressed certain low reviews. The complaint further noted that the defendant utilized a third-party review management software to automatically post certain reviews to its website and hold other reviews for the defendant’s approval. However, from 2015 to 2019, the defendant allegedly did not approve or post lower-starred reviews. According to the FTC, “[s]uppressing a product’s negative reviews deprives consumers of potentially useful information and artificially inflates the product’s average star rating.” The announcement pointed out that this is the FTC’s second recent action taken against the defendant, which includes ordering the defendant to pay $9.3 million to resolve allegations that it failed to properly notify consumers and provide them the opportunity to cancel their orders after it failed to timely ship merchandise, and that it illegally utilized gift cards to compensate consumers. Under the terms of the proposed settlement of the recent allegations, the defendant is: (i) ordered to pay $4.2 million; (ii) prohibited from making misrepresentations about any customer reviews or other endorsements; and (iii) required to post on its website all customer reviews of products currently being sold, under certain circumstances. The FTC also announced that the agency is sending letters to ten companies “offering review management services, placing them on notice that avoiding the collection or publication of negative reviews violates the FTC Act,” and released new guidance for online retailers and review platforms on the agency’s key principles for collecting and publishing customer reviews that are not meant to mislead consumers.