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Top Story Compliance Related


FTC identifies enforcement priorities for investigations

The Federal Trade Commission has voted to approve a series of resolutions authorizing investigations into key law enforcement priorities for the next decade. Specifically, the resolutions direct agency staff to use “compulsory process,” such as subpoenas, to investigate seven specific enforcement priorities. Priority targets include repeat offenders; technology companies and digital platforms; and healthcare businesses such as pharmaceutical companies, pharmacy benefits managers, and hospitals. The agency is also prioritizing investigations into harms against workers and small businesses, along with harms related to the COVID-19 pandemic. Finally, at a time when merger filings are surging, the agency is ramping up enforcement against illegal mergers, both proposed and consummated.


Tennessee bank pays for Flood Act violations

The Federal Reserve Board, on June 30, 2021, ordered a Tullahoma, Tennessee, bank to pay an $8,000 civil money penalty for its pattern or practice of unspecified violations of section 208.25 of Federal Reserve Board Regulation H, which implements the requirements of the National Flood Insurance Act.


FinCEN likely to issue No-Action Letters

FinCEN yesterday announced it has completed a report on its assessment of whether to establish a process for the issuance of no-action letters in response to inquiries concerning the application of the Bank Secrecy Act and other anti-money laundering and countering the financing of terrorism laws to specific conduct. As required by section 6305 of the Anti-Money Laundering Act of 2020 (AML Act), the report was delivered on June 28 to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services. FinCEN’s assessment included consultation with the Attorney General, the federal functional regulators, state bank supervisors, state credit union supervisors, and other federal agencies, as required by the AML Act.

Acting FinCEN Director Michael Mosier said "FinCEN concludes that a no-action letter process would be a useful complement to its current forms of regulatory guidance and relief. FinCEN looks forward to continuing to engage with our government partners and the public during a future rulemaking process to ensure all constructive feedback is considered on this important issue.”

As set forth in the report, FinCEN concluded that it should plan towards a rulemaking to create a process for issuing no-action letters in addition to its current forms of regulatory guidance and relief, with the timing subject to resource limitations and competing priorities.


California bank employee and friend charged with insider trading

The SEC has announced it has settled insider trading charges against Bay Area bank employee Mounir N. Gad and his friend Nathan E. Guido.

According to the SEC’s orders against Gad and Guido, Gad worked for a Northern California-based bank in its group that assisted private equity firms in financing acquisitions of companies. On three occasions in 2015 and 2016, Gad tipped Guido, his friend of several years, using material, nonpublic information about upcoming acquisitions (two of which involved tender offers), which Gad learned about in the course of his employment. Gad used an encrypted messaging platform and code words to provide the tips to Guido. According to the orders, Guido bought stock in the target companies based on those tips and sold the stock after the acquisitions were announced, resulting in illegal gains of $51,700. Guido shared about $11,000 of these gains with Gad by giving him cash.

The SEC’s orders find that Gad and Guido violated the antifraud and tender-offer provisions of the Securities Exchange Act of 1934. Both consented to the entry of a cease-and-desist order. Gad agreed to pay a civil penalty of $51,700 and Guido to pay a civil penalty of $40,700. The Commission’s order against Guido notes the cooperation he provided to the Commission’s staff.


FTC sues online marketer of COVID-19 masks

The Federal Trade Commission has filed a federal court complaint charging an online marketer with falsely promising consumers that he could quickly deliver face masks and other personal protective equipment during the COVID-19 pandemic, then failing to deliver on customers’ orders or offer cancellations or refunds.

The complaint alleges that Frank Romero (d/b/a Trend Deploy) took advantage of consumers’ fear of COVID-19 by advertising the availability and quick delivery of PPE, including N95 face masks, even though he had no basis to make those promises. Romero allegedly failed to deliver PPE on time (if at all), failed to notify consumers of delayed shipments, failed to offer the cancellations and refunds required by the Commission’s Mail Order Rule, and failed to honor requests for refunds so consumers could buy these products elsewhere. When Romero eventually did deliver, the complaint states, he often sent products inferior to those consumers ordered. Most notably, he advertised N95 masks, but allegedly delivered cloth masks instead.

The FTC alleges that in addition to violating the COVID-19 Consumer Protection Act and the Mail Order Rule, Romero’s deceptive and unfair conduct also violated the FTC Act's UDAP prohibitions. In its complaint, the agency is seeking monetary relief for consumers and civil penalties.


FinCEN issues national AML/CFT priorities and statements

Yesterday, FinCEN announced it had issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (the “Priorities”), following consultation with other relevant Department of the Treasury offices, as well as federal and state regulators, law enforcement, and national security agencies. In no particular order, these include: corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.

FinCEN also issued two statements — one from FinCEN and an interagency statement from the federal banking agencies, state bank and credit union regulators, and FinCEN — to provide guidance to covered institutions on how to approach the Priorities.

The Anti-Money Laundering Act of 2020 (the “AML Act”) requires the Secretary of the Treasury, in consultation with the Attorney General, federal functional regulators, relevant state financial regulators, and relevant national security agencies, to establish and make public priorities for anti-money laundering and countering the financing of terrorism policy (AML/CFT Priorities).

Yesterday’s publication of the AML/CFT Priorities does not create an immediate change to Bank Secrecy Act (BSA) requirements or supervisory expectations for banks. The AML Act requires that, within 180 days of the establishment of the AML/CFT Priorities, FinCEN (in consultation with federal functional regulators and relevant state financial regulators) shall, as appropriate, promulgate regulations regarding the AML/CFT Priorities. Although not required by the AML Act, the federal banking agencies plan to revise their BSA regulations, as necessary, to address how the AML/CFT Priorities will be incorporated into banks’ BSA requirements.

Banks are not required to incorporate the AML/CFT Priorities into their risk-based BSA compliance programs until the effective date of the final revised regulations. Nevertheless, in preparation for any new requirements when those final rules are published, banks may wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based BSA compliance programs, such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.

FinCEN also issued a message from Acting Director Michael Mosier listing FinCEN's achievements toward implementation of the AML Act in the 180-days since its enactment.

Additional information on FinCEN’s ongoing efforts related to the Anti-Money Laundering Act of 2020 can be found at a dedicated page on FinCEN’s website.


CFPB files action against Burlington Financial Group

The CFPB has announced it has filed a proposed order in federal district court against Burlington Financial Group and its owners and executives, Richard Burnham, Katherine Burnham, and Sang Yi, for allegedly deceiving consumers into hiring the company to lower or eliminate credit-card debts and improve consumers’ credit scores.

The CFPB also filed a joint complaint against the company and its owners and executives with the Attorney General for the State of Georgia.

The CFPB alleges that Burlington Financial violated the Telemarketing Sales Rule and the Consumer Financial Protection Act through deceptive marketing and operation of its debt-relief credit-repair services. The company advertised to potential customers, through direct mailers and third-party lead generators, that its so-called “debt validation” program used a legally vetted process to eliminate debt. The company’s marketing materials stated that their debt-reduction program takes between 8 to 12 months, but the CFPB’s investigation found that the company failed to produce any evidence showing that it had invalidated, eliminated, or lowered any of its customers debt.

The CFPB’s investigation also found that the company encouraged its customers to stop paying their debts, thereby causing customers to suffer additional consequences, such as collection lawsuits and damaged credit scores. Meanwhile, for its services, the company charged its customers upfront fees of 40% of the debt amount owed, with an average cost of $21,000 per customer or $552 in monthly payments.

The CFPB also alleges that Burlington Financial Group violated the TSR and CFPA by telling customers that it could restore their credit scores and that it had a “credit restoration team.” The CFPB’s investigation found that these claims are false or unsubstantiated. For example, the company did not obtain its customers’ original credit scores prior to enrollment into their program – nor did the company track its customers credit scores during or after their departure from the program. In contrast to the company’s marketing materials, the CFPB found that many of its customers showed their actual credit scores worsened as a result of using the company’s services.

The proposed order would:

  • Permanently ban Burlington Financial and its owners and executives from telemarketing any consumer financial product or service and from offering, marketing, selling, or providing any financial-advisory, debt-relief, or credit-repair service;
  • Require Burlington Financial and its owners and executives to pay a total civil money penalty of $150,001, of which $15,000 will be remitted to the State of Georgia; and
  • Impose a judgment for redress of at least $30 million to be suspended upon payment of the $150,001 civil money penalty.


CFPB Report on 2020 law violations

The Bureau has issued its Summer 2021 Supervisory Highlights, a report on legal violations identified by the Bureau’s examinations in 2020. The report also highlights prior CFPB supervisory findings that led to public enforcement actions in 2020 resulting in more than $124 million in consumer remediation and civil money penalties.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has the authority to supervise large banks, thrifts, credit unions with assets over $10 billion, and certain nonbanks for compliance with Federal consumer financial law. Bureau-supervised nonbanks include mortgage companies, private student lenders, and payday lenders, as well as nonbanks the Bureau defines through rulemaking as “larger participants” of other consumer financial markets as defined by Bureau rules.

According to the Bureau's press release, there were four particularly concerning findings in the report:

  • Consumer reporting companies accepted consumer data from unreliable furnishers. CFPB examiners found that consumer reporting companies are accepting information from companies that furnish consumer data, even though there were ample signs that these furnishers were unreliable.
  • Redlining. Examiners observed discouragement of people in minority neighborhoods from applying for credit by, among other things, locating offices in almost exclusively majority-white neighborhoods, only using pictures of white people in direct mail marketing campaigns, and publishing loan officer headshots of almost exclusively white people. Examiners noted these practices lowered the number of applications from minority neighborhoods relative to other comparable lenders.
  • Foreclosure issues. Examiners found several violations of the mortgage servicing rules in Regulation X, including instances of some servicers making the first notice or filing for foreclosure when it was prohibited. For example, some servicers filed for foreclosure before they had evaluated borrowers’ appeals, and some servicers had failed to notify their foreclosure counsel to stop all legal filings at the time that the servicer received a completed loss mitigation application. Examiners also found that some servicers engaged in a deceptive act or practice when they represented to borrowers that they would not initiate a foreclosure action until a specified date, but nevertheless initiated foreclosures prior to that date.
  • Student loan borrowers misled about Public Service Loan Forgiveness. Examiners found significant problems in how student loan servicers informed consumers about the Public Service Loan Forgiveness (PSLF) program. For example, examiners found servicers misled consumers to believe they could not access PSLF if they had older loans under the Federal Family Education Loan Program (FFELP), even though they could access PSLF by consolidating FFELP loans into Direct Loans.


Unregistered broker-dealer pays $2.75M penalty

The Securities and Exchange Commission has announced that Neovest Inc., a provider of an order and execution management system (OEMS) that facilitates electronic trading, has agreed to pay a $2.75 million penalty for its failure to register as a broker-dealer in violation of the federal securities laws. This is the SEC’s first case charging an OEMS provider for operating as an unregistered broker-dealer.

According to the SEC’s order, Neovest, a subsidiary of JPMorgan Chase & Co., operates an OEMS that allows customers to route orders for stocks and options to more than 360 customer-selected destination brokers for execution. The SEC’s order finds that prior to being acquired by JPMorgan Chase, Neovest engaged in this activity through its registered broker-dealer, Neovest Trading Inc. The order finds that although Neovest withdrew its broker-dealer registration after it was acquired, it continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm’s website and direct outreach at industry conferences and trade shows. Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers. According to the order, in exchange for its OEMS services, Neovest also continued to receive transaction-based compensation by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest.


Environmental crimes – money laundering

The Financial Action Task Force (FATF) has posted a report on money laundering from environmental crimes. Environmental crime—such as forestry crime, illegal mining and waste trafficking—is an extremely profitable criminal enterprise, generating billions in criminal gains each year. It fuels corruption, and converges with many other serious and organized crimes, such as tax fraud, drug trafficking and forced labor. This report identifies methods that criminals use to launder proceeds from environmental crime, but also identifies tools that governments and private sector can apply to disrupt this activity.


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