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Top Story Compliance Related


State Street to pay $115M for overcharging clients

State Street Corporation, Boston, Massachusetts, has entered into a deferred prosecution agreement and agreed to pay a $115 million criminal penalty to resolve charges that it engaged in a scheme to defraud a number of the bank’s clients by secretly overcharging for expenses related to the bank’s custody of client assets, according to a May 13 press release from the U.S. Attorney's Office for the District of Massachusetts.

According to State Street’s admissions, between 1998 and 2015, bank executives conspired to add secret markups to “out-of-pocket” (OOP) expenses charged to the bank’s clients while letting clients believe that State Street was billing OOP expenses as pass-through charges on which the bank was not earning a profit. These markups were charged on top of fees that the clients had agreed to pay the bank, and despite written agreements that caused clients to believe the expenses would be passed through to them without a mark-up. State Street executives also took steps to conceal the mark-ups from clients, including by not disclosing the details underlying OOP expenses on invoices and by misleading clients when they inquired about what they were being charged for OOP-related activities. Through this scheme, State Street defrauded its clients out of more than $290 million.

State Street also agreed to fully reimburse the victims of the overcharges, and the Deferred Prosecution Agreement states that State Street had paid about $88 million in connection with a settlement with the SEC, and paid civil penalties to state regulators in the amount of $8.575 million. For further information and links to court documents in the case, see "State Street to pay $115M in overcharge case," in BankersOnline's Penalties pages.


Broker-dealer charged with failure to file SARs

The SEC has settled charges against GWFS Equities Inc., a Colorado-based registered broker-dealer and affiliate of Great-West Life & Annuity Insurance Company, for violating the federal securities laws governing the filing of suspicious activity reports. GWFS provides services to employer-sponsored retirement plans.

According to the order filed by the SEC, from September 2015 through October 2018, GWFS was aware of increasing attempts by external bad actors to gain access to the retirement accounts of individual plan participants. The order further finds that GWFS was aware that the bad actors attempted or gained access by, among other things, using improperly obtained personal identifying information of the plan participants, and that the bad actors frequently were in possession of electronic login information such as user names, email addresses, and passwords.

The order stated that GWFS failed to file approximately 130 SARs, including in cases when it had detected external bad actors gaining, or attempting to gain, access to the retirement accounts of participants in the employer-sponsored retirement plans it serviced. Further, for nearly 300 SARs that GWFS did file, the order finds that GWFS did not include the “five essential elements” of information it knew and was required to report about the suspicious activity and suspicious actors, including cyber-related data such as URL addresses and IP addresses.

Without admitting or denying the SEC’s findings, GWFS agreed to a settlement that imposes a $1.5 million penalty, a censure, and an order to cease and desist from future violations.


Indiana housing providers charged by HUD

HUD has charged Bloomington, Indiana’s Burnham Rentals, LLC, Burnham Place Apartments, LLC, two of their employees, and others with violating the Fair Housing Act’s bar on disability discrimination. HUD’s charge alleges that the housing providers refused to permit a rising Indiana University graduate student, who has depression and post-traumatic stress disorder, to keep an assistance animal in an apartment. In addition, HUD’s charge alleges that the housing providers used the building’s “no pets” policy as justification to deny the student’s request to live with her assistance animal, effectively denying her access to the housing.


Treasury identifies Sinaloa-based drug trafficker and network

The Treasury Department announced on Wednesday that OFAC has identified Jesus González Peñuelas and the González Peñuelas Drug Trafficking Organization as Significant Foreign Narcotics Traffickers in accordance with the Foreign Narcotics Kingpin Designation Act. OFAC also designated today six individuals and one entity as Specially Designated Narcotics Traffickers pursuant to the Kingpin Act for their links to the González Peñuelas DTO.

As a result of yesterday’s OFAC action, all property and interests in property of the identified or designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC’s regulations generally prohibit all transactions by U.S. persons or persons within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons.

Penalties for violations of the Kingpin Act range from civil penalties of up to $1,548,075 per violation to more severe criminal penalties. Criminal penalties for corporate officers may include up to 30 years in prison and fines of up to $5 million. Criminal fines for corporations may reach $10 million. Other individuals could face up to 10 years in prison and fines under Title 18 of the United States Code for criminal violations of the Kingpin Act.

For identification information on the individuals and entities designated by OFAC in this action, see this BankersOnline OFAC Update.


HUD takes over Michigan housing authority

HUD has announced that it has taken possession of the Highland Park (Michigan) Housing Commission's programs, projects, and assets to reverse years of financial mismanagement, increase occupancy rates, and improve physical conditions. Citing a decade of neglect, a high number of unit vacancies, poor physical condition of units and properties, and un-auditable financials and records, HUD will help the housing commission get on the right path and improve the quality of life for its residents.

Starting on May 10, a HUD Recovery Administrator began serving as the housing commission's board, and will make decisions needed to ensure decent and safe housing by:

  • Taking over fiduciary responsibilities, establishing internal controls, procurement actions, and repositioning strategies
  • Working with the existing third-party management agent, Continental Management, to perform day-to-day operations for its public housing program
  • Assessing options to reposition Highland Park Housing Commission’s public housing


Treasury targets Hizballah finance official and shadow bankers

Treasury has announced that OFAC has designated seven individuals in connection with Hizballah and its finance firm, Al-Qard al-Hassan (AQAH). Ibrahim Ali Daher serves as the Chief of Hizballah’s Central Finance Unit, which oversees Hizballah’s overall budget and spending, including the group’s funding of its terrorist operations and killing of the group’s opponents. The other six individuals designated today used the cover of personal accounts at certain Lebanese banks, including U.S.-designated Jammal Trust Bank (JTB), to evade sanctions targeting AQAH and transfer approximately half a billion U.S. dollars on behalf of AQAH.

For identification of the seven individuals designated by OFAC, together with other OFAC changes, see this BankersOnline OFAC Update.


Registration deadline for FinCEN virtual program extended

FinCEN has extended the registration deadline for its special monthly virtual Innovation Hours Program on June 10, 2021. The program will focus on the important role of underserved groups in developing technology to fight illicit financial activity and protect the nation’s security. FinCEN encourages participation by financial technology (FinTech) and regulatory technology (RegTech) companies, venture capital and investment firms, and financial institutions majority founded, owned, or managed by underserved groups.

This event will highlight the important contributions that underserved groups provide to responsible innovation efforts and will ensure that FinCEN learns from an increasingly diverse audience. Interested companies should submit a request online no later than May 24, 2021, and provide applicable background information about their firm’s business and innovative products.


Umpqua pays UDAP CMP for collection practices

Umpqua Bank, Roseburg, Oregon, has agreed to the FDIC's issuance of an order that the bank pay a civil money penalty of $1,800,000 following the FDIC's determination that "the Bank has engaged in violations of Section 5 of the Federal Trade Commission Act (“Section 5”), 15 U.S.C. § 45(a)(1), in the commercial finance and leasing products issued by its wholly owned subsidiary, Financial Pacific Leasing, Inc. (FinPac), by engaging in deceptive and/or unfair practices related to certain collection fees and collection practices involving excessive or sequential calling, disclosure of debt information to nonborrowers, and failure to abide by requests to cease and desist continued collection calls."

The FDIC said that FinPac's collection fee practices were unfair and deceptive, because FinPac charged various undisclosed collection fees to borrowers whose accounts were past due, such as collection call and letter fees and third-party collection fees. The FDIC also said that FinPac engaged in excessive and sequential collection calls to customers, even when customers requested that FinPac stop these calls. FinPac also disclosed information about the customers’ debts to third parties. FinPac also advised borrowers FinPac would report delinquencies on commercial debt to the consumer reporting agencies, when its policy and practice was not to make such reports.

The FDIC's Order indicates that Umpqua Bank neither admitted nor denied any violation of law or regulations.


Kansas homeowners association charged with discrimination

HUD has announced it has charged The Apollo Gardens Homes Association, Inc. in Mission, Kansas, and its board president with violating the Fair Housing Act for allegedly refusing to allow a resident with a mobility impairment to expand her own sidewalk at her own expense. The requested modification would have enabled the resident to use her walker and have more stability. HUD’s charge also alleges that, rather than granting the requested accommodation from Association restrictions, Apollo Gardens retaliated against the resident by removing her from a position on the Association board and denying her reinstatement request.


FEMA schedules community suspensions from flood program

FEMA has published [86 FR 24739] in the May 10, 2021, Federal Register a notice identifying communities in Colorado, Iowa, Oklahoma, and Pennsylvania, that are scheduled for suspension from the National Flood Insurance Program on May 18, because of noncompliance with the floodplain management requirements of the program, unless the community meets the required floodplain management measures prior to that date.

  • Colorado: Fort Morgan, Morgan County (unincorporated areas), and Otis
  • Iowa: Clermont, Elgin, Fayette, Fayette County (unincorporated areas), Maynard, Oelwein, Waucoma, and West Union
  • Oklahoma: Hammon (town) and Roger Mills County (unincorporated areas)
  • Pennsylvania: Barry, Eldred, Foster, Frackville, Grandville, Mahanoy, Middleport, Minersville, New Castle, North Union, Norwegian, Pottsville, Reilly, Schuykill, Shenandoah, Tower City, Tremont (Borough), Tremont (Township), Union, and Wayne


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