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Do Not Call Violations Net $280 Million Fine for FTC, States
On June 5, the U.S. District Court for the Central District of Illinois ruled in favor of the Federal Trade Commission (FTC) and the states of California, Illinois, North Carolina, and Ohio resolving Do Not Call litigation against a direct-broadcast satellite service provider. The court found the service provider liable for making millions of calls resulting in violations of the Telemarketing Sales Rule (TSR) and the Telephone Consumer Protection Act, among other things. The $280 million in civil penalties, with a record $168 million going to the FTC, is the largest civil penalty ever awarded for violation of the FTC Act.
Additionally, the court issued a permanent injunction order against the service provider. Among the requirements in the order, the service provider will show within 90 days of the order effective date that they are “fully complying with the safe harbor provisions” and “have made no prerecorded telemarketing calls at any time during the five (5) years immediately preceding the effective date.” The service provider must also hire an expert to ensure compliance with the injunction and telemarketing laws, provide semi-annual compliance materials, and ensure their compliance with the TSR.
City Agrees to Settlement of Housing Discrimination Suit with DOJ
On May 26, the Department of Justice (DOJ) and the city of Jacksonville, Florida (city), agreed on a settlement over claims that the city violated the Fair Housing Act (FHA) and the Americans with Disabilities Act (ADA). The DOJ alleged that the city denied permission for the development of permanent supportive housing for individuals with disabilities in an historic district and discriminated on the basis of the intended residents’ disabilities.
The settlement provides for a civil penalty of $25,000 to be paid to the U.S. Treasury as well as the creation by the city of a $1.5 million grant to be awarded to a qualified developer of permanent supportive housing in the community. The city also agreed to take additional specific steps to comply with the requirements of the ADA and FHA.
Two other plaintiffs whose suits were consolidated with the DOJ’s—Ability Housing, Inc. and Disability Rights Florida, Inc.—also received compensation for reasonable attorneys’ fees and other costs.
As part of the settlement, the city denied any wrongdoing alleged by the DOJ.
Government Settles False Claims Act Suit for $23 Million
On May 26, the DOJ ended a False Claims Act case with a $23 million settlement. The case, brought by whistleblowers against a pharmacy goods provider (company), involved alleged fraudulent Medicaid claims and kickbacks to pharmacies that prescribed one of the company’s drugs. The qui tam action, originally filed in 2007, resulted in the company agreeing to pay nearly $13 million to the U.S. within seven business days of the settlement, of which the government will pay the whistleblowers $3.7 million. Additionally, the company will pay over $10 million toward state Medicaid settlements.
Former Mining Company Management Group Consultant Sentenced to Two Years in Prison
On May 31, the son of a former Prime Minister of Gabon, a former consultant to a joint venture between a mining company management group and an entity incorporated in the Turks and Caicos, was sentenced to two years in prison for conspiring to violate the FCPA by bribing government officials in several African countries.
As previously reported here, the former consultant previously pleaded guilty to allegations related to payments of approximately $3 million to high-level government officials in Niger, in addition to providing luxury cars, in order to obtain uranium mining concessions. Similarly, the DOJ charged him with bribing a high-ranking government official in Chad with luxury foreign travel to obtain a uranium mining concession there, and with bribing government officials in Guinea with cash, the use of private jets, and a luxury car in order to obtain confidential government information. Prior Scorecard coverage regarding the mining company management group is here.
Payday Lenders Argue Case for Operation Choke Point Injunction, Claim Regulator Activities Violate Their Rights to Due Process
On May 19, a group of payday lenders filed a brief with the Court of Appeals for the District of Columbia claiming a U.S. district court judge was wrong to deny their request for a preliminary injunction against regulator activities they claim violate their rights to due process. (See Advance America v. FDIC, et al, 2017 WL 2212168 (C.A.D.C.).) As previously discussed in InfoBytes, the lenders claim the DOJ’s “Operation Choke Point” initiative—designed to target fraud by investigating U.S. banks and the business they do with companies believed to be a higher risk for fraud and money laundering—is a threat to their survival. The lenders’ brief alleges that federal agencies, including the DOJ and the FDIC, began as early as June 2008 to expand the interpretation of “reputation risk.” According to the lenders, reputation risk originally referred to risk to a bank’s reputation that arose from its own actions; however, the regulators expanded that to apply to risks that could arise from activities of a bank’s customers, which meant “bank servicing businesses identified as ‘high risk’ would be required to incur significant additional regulatory compliance costs and face the risk of increased regulatory scrutiny.” This, the lenders assert, became a justification to pressure banks to sever their banking relationships with payday lenders.
Notably, the U.S. district court judge refused to issue a preliminary injunction and was not persuaded that the lenders would be able to prove that these regulatory actions caused banks to deny services the lenders needed to operate.
However, the lenders claim in their brief that they can show a violation of their procedural due process rights under three theories: “stigma-plus,” “reputation-plus,” and “broad preclusion.”
- The lenders describe the “stigma-plus” theory as requiring them to show they were stigmatized in connection with an “alteration of their background legal rights” without any due process protections. They believe they can prove this occurred because they were labeled as high-risk customers and denied access to the banking system with no legal protections.
- The “reputation-plus” theory would require a deprivation of banking services in connection with defamatory statements that harmed their reputation, the lenders claim. The lenders contend this can be proved because the “’stigmatizing charges certainly occurred in the course of the termination of the accounts, which is all that is required for a reputation-plus claim to succeed.” Each lender claims to have lost a relationship with at least one bank due to false regulator claims that the relationships could threaten the bank’s stability.
- The “broad preclusion” theory also applies, the lenders assert, because the regulators’ statements to banks have prevented them “pursuing their chosen line of business.”
Furthermore, the lenders take issue with the U.S. district court judge’s position that they are required to show they lost all access to banking services in order to show a due process violation. They also argue that a loss of their constitutional right to due process is a sufficient irreparable injury to justify a preliminary injunction.
California-Based Financial Institution Reaches Agreement with DOJ, Forfeits More Than $97 Million for Bank Secrecy Act Violations
On May 22, the U.S. Department of Justice announced that a California-based financial institution and its parent company have agreed to forfeit over $97 million to resolve an investigation into alleged Bank Secrecy Act (BSA) violations. The May 18 agreement between the Bank and the DOJ included a Statement of Facts in which the Bank admitted to criminal violations for willfully failing to maintain an effective anti-money laundering compliance program with appropriate policies, procedures, and controls to guard against money laundering, as well as willfully failing to file suspicious activity reports (SARs). It further admitted that from at least 2007 until at least 2012, it processed more than 30 million remittance transactions to Mexico with a total value of more than $8.8 billion, but, while its monitoring system issued more than 18,000 alerts involving more than $142 million in potentially suspicious remittance transactions, it conducted fewer than 10 investigations and filed only nine SARs. Notably, the nine SARs covered only 700 transactions totaling overall approximately $341,307. Furthermore, the financial institution recognized that over the same time period it needed to improve its monitoring of its money services businesses’ (MSBs) remittances but failed to provide appropriate staffing and resources, which led to its BSA department being unable to “conduct appropriate transaction monitoring.” This resulted in a failure to file SARs on suspicious remittance transactions. Although the financial institution recognized the need to enhance its monitoring process as early as 2004, it continued to expand its MSB business without adding staffing resources and failed to make necessary improvements to its transaction monitoring controls.
However, the DOJ stated its decision to enter into a non-prosecution agreement with the financial institution was based on evidence of extensive remedial actions. According to the DOJ’s press release, the financial institution devoted significant resources to remediation of its BSA and anti-money laundering (AML) deficiencies, exited its MSB business entirely, and ultimately ceased all banking operations. It was further credited for its cooperation with the DOJ’s criminal investigation by: (i) providing factual presentations; (ii) voluntarily making available foreign-based employees for interviews in the U.S.; (iii) producing foreign documents without implicating foreign data privacy laws; and (iv) collecting, analyzing, and organizing voluminous evidence and information for the DOJ. Under the terms of the agreement, the financial institution and its parent company have agreed to fully cooperate in this and any future DOJ investigations relating to violations of the BSA and AML statutes, as well as report, for a period of one year, any evidence or allegations of such violations. The parent company has also agreed to report to the DOJ “regarding [the] implementation of compliance measures to improve oversight of its subsidiaries’ BSA compliance.”
FTC, Federal, State, and International Partners Announce Crackdown on Tech Support Scams
On May 12, the FTC, along with federal, state and international law enforcement partners, announced new enforcement actions in its “Operation Tech Trap” program. The program is designed to crack down on tech support scams that, among other things, deceive consumers into believing their computers are infected with viruses and malware and then charge them for unnecessary repairs. According to FTC, its Operation Tech Trap partners have brought 29 law enforcement actions against deceptive tech support operations in the last year. Among the four new complaints announced on May 12, the FTC has already been granted temporary restraining orders in three of the cases to stop the tech support companies’ deceptive practices, freeze their assets, and appoint a temporary receiver to take control of them.
The FTC also announced a settlement in a pending action brought by the FTC and the Attorneys General of Connecticut and Pennsylvania against two defendants who allegedly participated in deceptive acts and practices in connection with the advertising, marketing, and sale of computer security or technical support products and services. Under the terms of the settlement, the defendants are subject to a money judgment in excess of $27 million. The stipulated final order has been entered by the U.S. District Court for the Eastern District of Pennsylvania. In addition to the FTC and state cases, DOJ brought federal criminal charges against seven individuals, two of whom have entered guilty pleas, for their participation in an international “Tech Support Scam.” Moreover, with respect to its international efforts, Operation Tech Trap is working with authorities in India to crack down on tech support scammers, and have also instituted consumer and business education outreach initiatives with Australia and Canada.
CFPB, DOJ Argue Against State AGs Request to Redirect Unused Consumer Redress Funds
On May 10, the CFPB filed a brief and the DOJ filed a separate “Statement of Interest of the United States of America” opposing a request by the Attorneys General of Connecticut, Indiana, Kansas, and Vermont (State AGs) to intervene in a CFPB lawsuit to address the distribution of unclaimed settlement funds.
As previously reported in InfoBytes, in December 2014 the CFPB sued a telecommunications company over allegations that it violated Dodd-Frank and the Consumer Financial Protection Act by knowingly allowing third-party aggregators to bill unauthorized charges to its wireless telephone customers and failing to respond to consumer complaints for nearly a decade. Under the terms of the 2015 Stipulated Final Judgment and Order, the company was required to set aside $50 million for consumer redress. The consumer claims period expired with approximately $15 million remaining unclaimed, and the State AGs sought to have those funds deposited with the National Association of Attorneys General to be used for “consumer protection purposes.” Specifically, in their January 3 Memorandum in Support of Joint Motion to Intervene to Modify Stipulated Final Judgment and Order, the State AGs asked that, “[a]ny funds not used for such equitable relief will be deposited . . . with the National Association of Attorneys General”—instead of being deposited in the Treasury as disgorgement—to be used to “train, support and improve the coordination of the state consumer protection attorneys charged with enforcement of the laws prohibiting the type of unfair and deceptive practices alleged by the CFPB in this [a]ction.”
In its memorandum opposing the joint request to intervene, the CFPB countered that although the redress plan provides that the Bureau may, in consultation with certain states and the FCC, apply unused redress funds to “other equitable relief reasonably related to the Complaint’s allegations,” it has not proposed doing so and any undistributed amounts are to be directed to the Treasury. The DOJ supported the CFPB’s position, arguing that the State AGs’ motion is untimely because that the States were “well aware of this action” over 18 months before filing their motion. The DOJ further asserted that “beyond being consulted by the CFPB if remaining funds were to be devoted to further equitable relief, the Consent Order afforded the States no role with respect to distribution of the remaining Redress Amount funds.”
DOJ Issues Strict Charging and Sentencing Policy for All Federal Crimes
On May 10, 2017, U.S. Attorney General Jeff Sessions issued a memorandum ordering all federal prosecutors, in all criminal cases, to “charge and pursue the most serious, readily provable offense,” and to “disclose to the sentencing court all facts that impact the sentencing guidelines or mandatory minimum sentences.” The new policy – which immediately rescinds Obama-era leniency policies – is likely primarily aimed at drug-related cases, but it will impact white collar and FCPA cases as well. For instance, under the policy, prosecutors may charge more defendants with money laundering or wire fraud in addition to FCPA violations, taking into account the FCPA’s relatively low five-year maximum sentences. Prosecutors seeking an exception must secure supervisory approval and document their reasoning in the case file, which may complicate plea deals. In a May 12 speech, Sessions said of the new policy: “Charging and sentencing recommendations are bedrock responsibilities of any prosecutor. And I trust our prosecutors in the field to make good judgments. They deserve to be unhandcuffed and not micro-managed from Washington.”
DOJ Enters $18 Million Settlement with Healthcare Providers Following False Claims Act Whistleblower Action
On April 27, the Department of Justice announced that two Indiana-based healthcare providers agreed to settle allegations that financial arrangements between the two entities violated the federal and state False Claims Act and the federal Anti-Kickback Statute. DOJ alleged that one of the providers made available to the other an interest-free line of credit consistently in excess of $10 million, the balance of which such other provider “was allegedly not expected to substantially repay” as a means of inducing referrals for obstetrics and gynecology patients to seek medical attention at a particular hospital. The Anti-Kickback Statute prohibits “the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal health care program, such as Medicaid,” and claims that are submitted to federal health care programs in violation of the Anti-Kickback Statute can also constitute false claims under the False Claims Act. The settlement resolves a qui tam case filed by an individual under the whistleblower provisions of the False Claims Act. Under the terms of the settlement, the providers agreed to pay a total of $18 million, with each of them paying $5.1 million to the United States and $3.9 million to the State of Indiana.