BuckleySandler Secures Major Victory on Behalf of Mortgage Servicer in Putative Class Action Suit

On August 25, BuckleySandler secured a substantial victory in a putative class action in the Northern District of Illinois. McGann v. PNC, No. 11-c-6894 (N.D. Ill. Aug. 25, 2015). The suit alleged that a major mortgage servicer failed to convert Home Affordable Modification Program (HAMP) Trial Period Plans (TPPs) into permanent modifications. The Seventh Circuit Court of Appeals, with jurisdiction over the Northern District of Illinois, has allowed similar claims to survive dismissal. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012). And the Ninth Circuit has allowed such claims to go forward on a classwide basis. See Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013).

Despite this potentially adverse precedent relevant to the pleadings stage, BuckleySandler secured summary judgment in its client’s favor following extensive discovery by extracting key admissions from Plaintiff. These admissions established that the servicer “repeatedly told her either that her application was being reviewed or that it had been rejected but would be reinstated. A promise to review or even to reinstate an application is not a promise that the application will result in a permanent loan modification . . . she still had to meet HAMP’s requirements. That was clear from the TPP agreement itself.” Opinion at 9. The Court further held that even if these statements led Plaintiff to a subjective belief that the loan would be modified, Plaintiff could not show any actions she took in reliance, nor that any reliance would be reasonable. Opinion at 11.

Finally, the Court also held that the servicer did not engage in any unfair conduct under Illinois’ UDAAP statute, the Illinois Consumer Fraud and Deceptive Business Practices Act. The plaintiff in the matter was not a borrower on the note, but rather a non-borrower mortgagor, for whom HAMP was not available during the time in question. The Court agreed the servicer complied with HAMP guidelines in denying the permanent modification. Opinion at 16-17. And the Court went on to hold that the servicer was entitled to summary judgment for the additional reason that the evidence in discovery established that the cause of the plaintiff’s injuries was her non-qualification for HAMP, her inability to pay the mortgage, and the resulting foreclosure of the home, none of which was proximately caused by any wrongful conduct of the servicer. Opinion at 15-16.

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U.S. District Court Grants FBME Preliminary Injunction; Effective Date of FinCEN’s “Special Measure Five” Final Rule Delayed

On August 28, FinCEN issued a notice regarding the agency’s July 29 final rule imposing “special measure five” against FBME Bank Ltd. (“FBME”), which would prohibit financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME. Per FinCEN’s most recent notice, the originally scheduled effective date of August 28, 2015 has been postponed. On August 7, FBME filed suit in the United States Court for the District of Columbia and moved for a preliminary injunction, which the Court granted on August 27. The Court “ordered the parties to meet and confer as to an expedited briefing schedule on the merits of FBME’s Complaint and to file a joint proposed schedule, or separate schedules if mutual agreement cannot be reached.” The rule will not take effect until a final judgment is entered.

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Leading International Financial Services Institution Pays $1.7 Million to Settle Sanctions Liability

On August 27, Treasury’s OFAC announced a settlement agreement requiring a Switzerland-based financial institution to pay slightly over $1.7 million to resolve potential liability over alleged violations of the Global Terrorism Sanctions Regulations, 31 C.F.R. part 594. According to OFAC, over a five-year period ending in 2013, the financial institution processed over 220 securities and other investment transactions involving an individual included on OFAC’s Specially Designated Nationals and Blocked Persons List. As part of the agreement, OFAC highlighted important mitigating factors leading to its reduced settlement amount with the financial institution noting that the bank has in place an adequate global sanctions compliance program, and that the “[institution] took remedial action in response to the apparent violations, including by conducting a thorough internal investigation regarding the apparent violations.”

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California Department of Business Oversight Issues Opinion Letter Declaring Foreign Check Clearing Services Not Subject to State’s Money Transmission Act

On August 24, the California Department of Business Oversight issued a redacted opinion letter clarifying that foreign check clearing services are not considered money transmission subject to the Money Transmission Act. In order to fall under the state’s Financial Code’s definition of money transmission, a financial institution must receive money or monetary value for transmission within the United States. Emphasizing the domestic prerequisite outlined in the code, the DBO’s opinion indicates that if a bank establishes an exchange rate for an American financial institution that has received a check for deposit written against a foreign bank, the exchange rate service provided by the bank is considered a foreign check clearing service and not “receiving money or monetary value in the United States.” Accordingly, such check clearing activity does not fall under the California Financial Code’s definition of money transmission.

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Eighth Circuit Denies Consumers’ Appeal to Intervene in FTC Suit

On August 25, a three judge panel of the U.S. Court of Appeals for the Eighth Circuit affirmed a lower court’s decision to deny consumers’ motion to intervene in the FTC’s suit against BF Labs, Inc. d/b/a/ Butterfly Labs (“Butterfly”). Alexander v. Fed. Trade Comm’n, No. 14-3286 (8th Cir. Aug. 25, 2015). Butterfly marketed and sold bitcoin mining computers. In April 2014, two consumers filed a class action suit against Butterfly, alleging “deceptive and unconscionable business practices.” In September 2014, the FTC also filed suit against Butterfly, alleging “deceptive acts or practices.” The FTC sought preliminary injunctive relief, including staying all suits against Butterfly, which the district court granted. The consumers moved to intervene permissively and of right but the district court denied their motion; the consumers appealed the denial of their motion to intervene of right. In order to have standing to intervene, a party must establish injury, causation, and redressability. The Court of Appeals found the consumers failed to show injury because their alleged injury (risk of financial harm) is contingent on various factors, including the FTC winning its case and precluding their recovery. Even if the consumers had standing to intervene, the consumers must meet the requirements of Rule 24(a) of the Federal Rules of Civil Procedure; the intervenor must (i) have a recognized interest in the subject matter of the litigation that; (ii) might be impaired by the disposition of the case; and that (iii) will not be adequately protected by the existing parties. Any government entity, such as the FTC is presumed to be representing the interests of the public. Thus, the consumers had to meet a very high burden to show the FTC was not adequately protecting their interests in the case, which they did not.

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Third Circuit Affirms District Court’s Decision Asserting FTC’s Authority over Companies’ Data Security Practices

On August 24, the U.S. Court of Appeals for the Third Circuit affirmed the Federal Trade Commission’s authority to hold companies accountable for their data security practices under Section 5 of the FTC Act (15 U.S.C. § 45(a)), which declares unlawful “unfair or deceptive acts or practices in or affecting commerce.” FTC v. Wyndham Worldwide Corp., No. 14-3514 (3rd Cir. Aug. 24, 2015). The unanimous ruling found that deficient cybersecurity practices that fail to protect consumer data against hackers may be found to be “unfair” practices under the Act, subject to FTC enforcement. The FTC had sued Wyndham for allegedly deficient cybersecurity practices that enabled hackers to obtain payment card information from over 619,000 consumers. Wyndham argued that it lacked fair notice that the FTC had the authority to police data security practices under Section 5, but the Third Circuit disagreed, pointing out that the FTC has offered specific public guidance on data security over the years, and has filed multiple complaints and consent decrees raising unfairness claims based on inadequate cybersecurity that put companies on notice of its enforcement authority in this space.

 

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Former Ohio Deputy Treasurer Extradited to Serve 15 Years in Prison for Role in Bribery and Money Laundering Scheme

On August 26, a former deputy treasurer of Ohio was extradited from Pakistan to serve a 15-year prison term in the U.S. for his involvement in a bribery and money laundering scheme spanning from January 2009 through January 2011. According to his 2013 guilty plea, the former deputy treasurer misused his position as a state official to direct official state of Ohio business to a securities broker in return for bribes. With the assistance of a Chicago businessman, the deputy treasurer concealed the broker’s payments by funneling them through (i) accounts connected to a landscaping business; and (ii) an attorney and lobbyist who was both a friend and business partner. The broker, who paid more than $500,000 in bribes, collected roughly $3.2 million in commissions as a result of 360 securities trades on behalf of the Office of the Ohio Treasurer.

Sentenced in abstentia on December 1, 2014 by a Ohio federal judge, the former state official was also ordered to forfeit $3.2 million in illegal profits. The securities broker, lobbyist, and the Chicago businessman were each sentenced in late 2014 to serve 45 months, 48 months, and 18 months in prison, respectively, for their roles in the scheme.

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DOJ and SEC Announce Parallel Action Against Former Investment Banking Analyst and Two Individuals for Alleged Involvement in Insider Trading Scheme

On August 25, the DOJ unsealed an indictment charging three defendants each with (i) one count of conspiracy to commit securities and tender offer fraud; (ii) 13 counts of securities fraud; (iii) 13 counts of tender offer fraud; and (iv) three counts of wire fraud. In a parallel action, the SEC filed a complaint in the Central District of California against the same three individuals, asserting that the three individuals violated certain provisions of the Securities Exchange Act by participating in a scheme that involved “coordinated, illegal trading in stock and stock options of two separate companies that participated in merger activity” in which the same investment bank played an advisory role. According to the SEC, having learned of impending acquisitions involving two of the investment bank’s clients and other companies, one of the investment bank’s former analysts allegedly provided information regarding the transaction to a friend before any public announcements were made. The friend then communicated the information to a third individual, and the two made a series of trades in the two companies’ securities. When the acquisitions were publicly announced, both companies’ stock prices increased, resulting in profits of more than $670,000 for the two individuals on the receiving end of the former analyst’s inside information. The SEC’s complaint seeks a final judgment ordering the three defendants “to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of [certain] provisions of the federal securities laws.”

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CFPB Spotlights Credit Reporting Industry in Latest Complaints Report

On August 25, the CFPB released the second of its monthly complaint reports, highlighting complaints received from consumers regarding the credit reporting industry. In its latest snapshot report, the CFPB revealed a 56 percent increase in the number of credit reporting complaints submitted by consumers between June 2015 and July 2015, and a 45 percent increase in credit reporting complaints from last year. The report also stated that 77 percent of credit reporting complaints involved inaccurate information on consumers’ credit reports. Despite the large volume of data used to prepare the report, the Bureau cautioned that the data is not normalized and that company-specific information should be considered in context of a company’s size.

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Fannie Mae Announces New Mortgage Product for Low- and Moderate-Income Borrowers

On August 25, Fannie Mae announced that it will begin offering HomeReady, a mortgage loan product featuring new flexibilities for lower to moderate income borrowers. For the first time, income from a non-borrower household member can be considered as a means to qualify for a Fannie loan. In addition, borrowers can include funds received from other sources, such as income from non-occupant parents or rental income from a basement apartment, to satisfy income requirements. Both first-time and repeat homebuyers can qualify for a HomeReady mortgage with a down payment as low as 3 percent. The new product requires borrowers to complete an online housing-counseling course. Fannie Mae is expecting to begin accepting deliveries under the HomeReady guidelines towards the end of 2015, and will soon issue additional details to assist lenders through a Selling Guide announcement.

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FinCEN Issues NPRM Establishing BSA/AML Requirements for Investment Advisers

On August 25, FinCEN issued a Notice of Proposed Rulemaking (NPRM) seeking to adopt minimum Bank Secrecy Act (BSA) and anti-money laundering (AML) standards that would be applicable to investment advisers. Under the proposal, investment advisers would be required to implement AML programs and report suspicious activity, among other safeguards. The NPRM states that the proposal would cover investment advisers registered or required to register with the SEC. The proposal would also add such investment advisers to the definition of “financial institution.” This would result in investment advisers being required to file currency transaction reports and to comply with recordkeeping and other requirements applicable to financial institutions. With respect to supervisory authority, FinCEN stated that it would delegate its authority to the SEC for purposes of examining investment advisers for compliance with the proposed requirements.

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CFPB & NYDFS File Suit Against Two Pension Advance Lenders Over Misleading Consumers Related to Costs, Risks Associated to Advance Payments

On August 20, the CFPB, along with the New York Department of Financial Services (NYDFS), filed a joint complaint in federal court against two pension advance lenders and three of their managers for allegedly misleading consumers regarding the costs and risks associated with the companies’ pension advance loans. The CFPB and NYDFS contend that both companies coerced consumers into borrowing against their pensions by marketing the product as a sale rather than a loan, and misrepresented or failed to disclose interest rates and fees on lump-sum cash advances offered for agreeing to redirect the full or partial amount of the consumer’s pension payments over an extended period. In separate allegations, the NYDFS contends that both companies violated New York state specific laws related to usury and deception, and unlawfully transmitted money without a proper license. The complaint follows guidance issued earlier this year highlighting three business practices consumers should avoid when conducting business with pension advance lenders.

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Former Bank Executive Sentenced to 30 Months in Prison for Role in TARP Fraud Scheme

On August 20, former bank executive Charles Antonucci was sentenced to 30 months in prison for his role in organizing a scheme involving self-dealing, bank bribery, embezzlement of bank funds, attempting to fraudulently obtain more than $11 million from the Troubled Asset Relief Program (TARP), and participating in a $37.5 million fraud scheme that left an Oklahoma insurance company in receivership. Antonucci pled guilty to the charges in 2010 pursuant to a cooperation agreement with the government. He was the first defendant convicted of fraud of TARP funds, which was a program established in 2008 to provide liquidity to troubled financial institutions during the financial crisis. The judge also ordered Antonucci to forfeit $11.2 million to the United States and to provide $54.6 million in restitution to the victims of his crimes, including, among others, the bank’s shareholders and the FDIC. Antonucci’s plea and sentencing was before U.S. District Judge Naomi Reice Buckwald of the Southern District of New York. The case was handled by the Southern District of New York’s Office of Complex Frauds and Asset Forfeiture Units, with investigative assistance from the Office of the Special Inspector General for TARP.

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United States District Court: Mortgagor Lacks Standing to Bring RESPA Claim

On August 11, the U.S. District Court for the District of New Hampshire rejected the addition of a potential RESPA claim to plaintiff’s complaint due to lack of standing, and the court dismissed the remaining counts for failure to state a claim. Sharp v. Deutsche Bank National Trust Company, As Trustee For Morgan Stanley ABS Capital Inc. Trust 2006-HE3, No. 14-cv-369 (D.N.H. Aug. 11, 2015). Although plaintiff and his father were both mortgagors on the mortgage document, the promissory note identified plaintiff’s father as the sole borrower for the loan. After plaintiff’s father died and plaintiff defaulted on the mortgage, plaintiff sought to enjoin the bank’s subsequent foreclosure proceedings. Plaintiff moved to amend his complaint to add a RESPA claim based on the bank’s allegedly inadequate responses to his requests for information pursuant to 12 C.F.R. § 1024.35 and 12 C.F.R. § 1024.36. The court determined that plaintiff lacked standing to assert his RESPA claim because the RESPA provisions at issue only applied to borrowers, not mortgagors like plaintiff. The court also rejected plaintiff’s argument that his status as the successor-in-interest to his father under 12 C.F.R. § 1024.38 established standing to bring the RESPA claim. The court confirmed that plaintiff was protected by 12 C.F.R. § 1024.38, but the court relied on the CFPB’s official interpretation of 12 C.F.R. § 1024.38 to determine that no private right of action existed to enforce the rule.  Read more…

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POSTED IN: Consumer Finance, Courts, Mortgages

Large Multinational Financial Services Company Settles FCPA Charges Relating to Internships

On August 18, the SEC announced a settlement with a large multinational financial services company over allegations that the company had violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The order entered as part of the settlement quoted emails between company employees purportedly demonstrating that the company gave the internships in hopes of keeping and growing the business relationship with the fund. The SEC also alleged that the company gave the internships to the family members without requiring that they pass through the competitive screening process the company typically requires for interns. Finally, the SEC alleged that the company had inadequate controls to prevent the improper hiring of relatives of government officials. The company paid $14.8 million to settle the charges, with $8.3 million in disgorgement, $1.5 million in pre-judgment interest, and a $5 million penalty.

The company previously disclosed in January 2015 that it had received a Wells Notice concerning possible FCPA violations in connection with the internships. The settlement follows earlier press reports of a broad SEC investigation into bank hiring practices in Asia, and appears to be the first settlement resulting from the investigation.

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