Wednesday, October 18, 2017
The Securities and Exchange Commission announced that a whistleblower has earned an award of more than $1 million for providing the SEC with new information and substantial corroborating documentation of a securities law violation by a registered entity that impacted retail customers.
“Today’s award reflects the impact that whistleblower information can have in uncovering violations that harm the retail investor,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “We welcome high-quality information about potential securities-law violations from those in and outside a company.”
More than $162 million has been awarded to 47 whistleblowers. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.
Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money is taken or withheld from harmed investors to pay whistleblower awards.
Tuesday, October 17, 2017
Will Equifax Executives Face SEC Charges For Selling Their Shares Before the Public Disclosure of 145 Million Hacked Consumer Files Led to Share Price Collapse?
From mid-May 2017 through July 2017 Equifax, one of the nation’s three major credit reporting agencies, allowed the personal and financial records of 145.5 million American consumers to be collected by nefarious criminal actors. On March 8, 2017, reports the New York Post, Equifax had been warned by the Department of Homeland Security about the software flaw that could lead to the breach, but Equifax did not patch the flaw.
Equifax, as reported by teh Federal Trade Commission, allowed access to people’s names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. They also stole credit card numbers for about 209,000 people and dispute documents with personal identifying information for about 182,000 people. UK and Canada personal information was also hacked.
“Equifax generates substantial income as a gatekeeper and fiduciary of the public’s financial information and credit backgrounds and thus must be held to the highest standard of public trust. Insider trading undermines investor confidence in the fairness and integrity of the securities markets, said Professor William Byrnes of Texas A&M Law School. “Because this insider trading investigation involves Equifax executives, it is imperative that the SEC transparently and fully investigate to determine when each became ‘aware’ of the massive cyber breach. SEC Rule 10b5-1 provides that an insider trades on the basis of material nonpublic information if the insider is ‘aware’ of the material nonpublic information when making the purchase or sale.”
Byrnes continued “It has been reported that the CFO John Gamble sold 13 percent of his Equifax stake and Joseph Loughranth the president of U.S. information solutions sold nine percent two days after Equifax employees discovered the massive data breach of the company, when the share price hovered around $146. On September 7, 2017, the day before news of the extensive data breach was released to the public, Equifax shares still traded around $142, but a day later upon the announcement of the data breach, Equifax shares fell to $123 and today its shares sit around $106. If the SEC discovers through interviews and searching emails and internal memos that Equifax employees informed any of the three executives of the data breach before August 1, 2017, it is probable that the SEC will seek disgorgement of the profits and a civil penalty up to three times the loss avoided by the early sale.
Byrnes cautioned, “But if the evidence is strong of being informed and then instructing a sale, it is possible that the SEC also seeks a criminal indictment which carries a maximum prison sentence of 20 years and fine of $5 million.”
“Moreover, Equifax itself carries risk of corporate civil or criminal indictment from the investigation. If the investigation uncovers insider trading by the executives, then Equifax may be charged either civilly or criminally if a controlling superior of one of the executives knew or recklessly disregarded that an executive was informed of the data breach and was then likely to engage in selling shares before the public announcement. The company would be able to defend itself by showing that it took appropriate steps to prevent the sales. The most likely risk concerns the CFO because of the size of his share sale two days after employees at Equifax discovered the data breach and the CFO is probably a controlling superior of the other two executives. A corporate civil insider trading penalty may be up to a minimum of one million dollars or a maximum of three times the loss avoided,” warned Byrnes.
The Washington Post reported that the share sells were not part of a pre-planned transaction. Bloomberg reported that the DOJ has opened a criminal investigation into several issues resulting from the data breach, including securities laws.
Monday, October 16, 2017
SEC Obtains $58 Million Judgment against Perpetrator of International Pump-and-Dump Scheme Involving Marley Coffee
The Securities and Exchange Commission obtained a $58 million judgment against a UK and Canadian resident charged with perpetrating a multimillion-dollar, international pump-and-dump scheme involving the stock of Jammin' Java Corp., a company that used trademarks of the late reggae artist Bob Marley to sell coffee products.
The final judgment against Wayne Weaver, entered on October 2, 2017, permanently enjoins Weaver from violating Section 5 of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder; permanently bars Weaver from participating in penny stock offerings; and orders Weaver to pay disgorgement of $26,371,585, prejudgment interest of $5,221,809, and a civil penalty of $26,371,585, for a total of $57,964,979. On September 15, 2017, Weaver filed a notice of appeal.
The SEC previously obtained consent judgments against all other defendants named in the action, ordering the payment of more than $8 million in disgorgement, interest, and penalties. The judgments, entered from July 2016 to May 2017, permanently enjoin:
- Jammin' Java, Shane Whittle, Stephen Wheatley, Michael Sun, Kevin Miller, Mohammed Al-Barwani, and Rene Berlinger from violating Section 5 of the Securities Act;
- Alexander Hunter (now known as John Alexander) and Thomas Hunter from violating Section 17(a) of the Securities Act;
- Whittle, Alexander Hunter, and Thomas Hunter from violating Section 10(b) of the Exchange Act and Rule 10b-5;
- Whittle and Sun from violating Section 13(d) of the Exchange Act and RulesÂ 13d-1 and 13d-2; and
- Whittle from violating Section 16(a) of the Exchange Act and Rule 16a-3.
The judgments also order:
- Jammin' Java to pay $605,331 in disgorgement, together with $94,669 in prejudgment interest, for a total of $700,000;
- Whittle to pay disgorgement of $1,894,669, prejudgment interest of $360,940, and a civil penalty of $250,000, for a total of $2,505,609;
- Alexander Hunter and Thomas Hunter each to pay a civil penalty of $300,000;
- Wheatley to pay $2,364,125 in disgorgement, together with $385,875 in prejudgment interest, for a total of $2.75 million;
- Sun to pay disgorgement of $400,000 and prejudgment interest of $33,796;
- Miller to pay disgorgement of $783,369 and prejudgment interest of $116,631;
- Al-Barwani to pay disgorgement of $270,000 and prejudgment interest of $41,204; and
- Berlinger to pay disgorgement of $47,070 and prejudgment interest of $6,692.
The judgments also bar:
- Wheatley and Miller from participating in penny stock offerings permanently;
- Whittle from serving as an officer or director or participating in penny stock offerings for ten years; and
- Alexander Hunter, Thomas Hunter, Sun, Al-Barwani, and Berlinger from participating in penny stock offerings for five years.
Jammin' Java, Shane Whittle, Alexander Hunter, Thomas Hunter, Stephen Wheatley, Michael Sun, Kevin Miller, Mohammed Al-Barwani, and Rene Berlinger each consented to entry of the judgments against them without admitting or denying the SEC's allegations.
The SEC's litigation was conducted by Timothy S. Leiman, Daniel J. Hayes, Robert M. Moye, and Peter Senechalle in the Chicago Regional Office. The investigation that led to the SEC's charges was led by Paul M. G. Helms, who also assisted with the litigation.
The SEC acknowledges the assistance of the Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Capital Markets Board of Turkey, the Cayman Islands Monetary Authority, the Jersey Financial Services Commission, the Mexican ComisiÃ³n Nacional Bancaria y de Valores, the Ontario Securities Commission, the Republic of the Marshall Islands Banking Commission, the Swiss Financial Market Supervisory Authority, the United Kingdom Financial Conduct Authority, the Superintendencia del Mercado de Valores de PanamÃ¡, and the Financial Market Authority Liechtenstein.
Tuesday, October 10, 2017
Spectrum Brands Ordered to Pay Civil Penalty for Failure to Report and Post-Recall Sales of Defective Black & Decker Coffee Carafes
A federal court in Madison, Wisconsin, ordered Spectrum Brands Inc., a large consumer products distributor, to pay $1.9 million in civil penalties for failing to timely report dangerously defective Black & Decker SpaceMaker coffee carafes and for continuing to distribute the carafes following a recall, the Department of Justice announced.
The civil penalty and a related permanent injunction, imposed by U.S. District Judge William M. Conley, follows a 2016 court ruling that Spectrum and its former subsidiary, Applica Consumer Products Inc., violated the Consumer Product Safety Act by waiting years to inform the Consumer Product Safety Commission (CPSC) of customer reports about handles that suddenly broke or separated from carafes of hot coffee. The court noted that between 2008 and 2012, Spectrum received approximately 1,600 reports of broken SpaceMaker carafe handles, with about 66 consumers referencing burns from spilled coffee, and three others referencing cuts from broken carafe glass. The court noted that one consumer reported to the company in 2009 that she sought medical attention after hot coffee burned her stomach.
“When a company learns that one of its products could seriously injure customers, it must immediately report that information to the CPSC,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Waiting until someone is hurt before taking action is irresponsible and illegal. We will continue to enforce safety laws that protect consumers from unreasonable harm.”
The Consumer Product Safety Act (CPSA) requires manufacturers, retailers, and distributors of consumer products to report “immediately” to the CPSC information that reasonably supports the conclusion a product contains a defect which could create a substantial product hazard or creates an unreasonable risk of serious injury. In its summary judgment ruling, the court held that Spectrum knowingly failed to report information it was required to report to the CPSC. The court found that by May 2009, the company knew of 60 reports of broken handles and four reports of burns, and had identified a similar cause of the breakages in two separately returned carafes. While the company implemented a design change in 2009 to remedy the handle issue, it continued to sell the old carafes through the end of that year. By June 2010, the court found, Spectrum knew of 714 complaints regarding carafe-handle failures.
As set out in the court orders, Spectrum did not report the carafe-handle incidents to the CPSC until April 2012, after the company was served with a private class action complaint alleging the carafes were defectively designed. Spectrum subsequently recalled the coffeemakers in consultation with the CPSC. As the company acknowledged, however, it distributed more than 600 additional carafes after the recall announcement. The United States filed suit against Spectrum in 2015 in the Western District of Wisconsin over the company’s failure to timely report the carafe hazard and the company’s sales of recalled products.
“I am pleased with the court’s order for a permanent injunction and a civil penalty against Spectrum Brands Inc.,” said CPSC Acting Chairman Ann Marie Buerkle. “Companies who fail to immediately report hazards with their products to CPSC put consumers at risk. Consumer safety should be the top priority for companies making consumer products.”
As detailed in the court’s summary judgment ruling, Applica and Spectrum received reports over the years from customers who said that they believed the carafe handle was dangerous. Numerous consumers told the company that spills related to broken handles caused burns to themselves or to family members. Other consumers reported near misses.
Along with the $1,936,675 in civil penalties, the court entered a permanent injunction against the company. The court ordered Spectrum to maintain systems and internal controls to ensure future compliance with the CPSA. The court further ordered Spectrum to provide copies of its rulings to officers and managers at the company. Under the terms of the injunction, Spectrum must report back to the court in six months to verify the company has made improvements to avoid repeating the CPSA violations.
The government was represented in the case by former Trial Attorney Thomas Ross and Assistant Director Alan Phelps of the Civil Division’s Consumer Protection Branch, with the assistance of Harriet Kerwin of the CPSC Office of the General Counsel and the U.S. Attorney’s Office for the Western District of Wisconsin.
Saturday, October 7, 2017
New EU Commission Guidelines Tackling Illegal Content Online Requires Enhanced Responsibility of Online Platforms
This Communication lays down a set of guidelines and principles for online platforms to step up the fight against illegal content online in cooperation with national authorities, Member States and other relevant stakeholders. It aims to facilitate and intensify the implementation of good practices for preventing, detecting, removing and disabling access to illegal content so as to ensure the effective removal of illegal content, increased transparency and the protection of fundamental rights online.
The Commission announced in the Digital Single Market Strategy mid-term review that it would publish guidance on illegal content removal by end 2017.
The Communication on "tackling illegal content online, towards enhanced responsibility of online platforms", adopted on 28 September 2017, concerns the removal of illegal content online – incitement to terrorism, illegal hate speech, or child sexual abuse material, as well as infringements of Intellectual Property rights and consumer protection online. The Commission expects online platforms to take swift action over the coming months, in particular in the area of terrorism and illegal hate speech – which is already illegal under EU law, both online and offline.
Online platforms need to exercise a greater responsibility in content governance. The Communication proposes common tools to swiftly and proactively detect, remove and prevent the reapparence of content online:
- Detection and notification: Online platforms should cooperate more closely with competent national authorities, by appointing points of contact to ensure they can be contacted rapidly to remove illegal content.
- Effective removal: Illegal content should be removed as fast as possible, and can be subject to specific timeframes, where serious harm is at stake, for instance in cases of incitement to terrorist acts;
- Prevention of reappearance: Platforms should take measures to dissuade users from repeatedly uploading illegal content. The Commission strongly encourages the further use and development of automatic tools to prevent the reappearance of previously removed content.
The Commission considers that online intermediaries can put in place proactive measures without fearing to lose the liability exemption under the e-Commerce Directive.
The Commission services have conducted several workshops, dialogues with industry and launched an ongoing study on the topic which have provided input into the Communication.
The approach is fully aligned and consistent with the proposed Copyright Directive, including those aspects on the liability of online platforms that are currently widely debated. It is also fully consistent with the proposed revision of the Audio-visual Media Directive.
Tuesday, October 3, 2017
Norwegian Company Agrees To Plead Guilty To Price Fixing On Ocean Shipping Services For Cars And Trucks
A Norwegian corporation has agreed to plead guilty and pay a $21 million criminal fine for its involvement in a conspiracy to fix prices, allocate customers, and rig bids, the Department of Justice announced. Download Us_v._hoegh_autoliners_information_0
According to a one-count felony charge filed today in the U.S. District Court for the District of Maryland, Höegh Autoliners AS conspired with competitors to suppress and eliminate competition by allocating customers and routes, rigging bids, and fixing prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States and elsewhere, including the Port of Baltimore. Höegh participated in this conspiracy from as early as January 2001 until at least September 2012.
In addition to the fine, Höegh has agreed to be placed on corporate probation for three years to ensure full compliance with the antitrust laws. Höegh has also agreed to cooperate with the department’s ongoing investigation.
“With today’s charge, the United States has brought to justice another participant in a long-running global conspiracy to subvert competition for shipping services,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. “We expect Höegh to reform its corporate culture and prevent criminal conduct from recurring.”
“Today’s plea announcement is significant and highlights the FBI’s collaboration with our partner agencies as we hold this company accountable for this elaborate antitrust scheme,” said Special Agent in Charge Gordon B. Johnson of the FBI’s Baltimore Division. “The effort by investigators and prosecutors in this case cannot be overstated and will play a part in restoring confidence in the shipping industry. Our job is to protect victims who don’t see these crimes occurring, but who always end up paying the price.”
Höegh is the fifth company to plead guilty in this investigation—bringing the total criminal fines to over $255 million. Four executives have already pleaded guilty and been sentenced to prison terms. An additional seven executives are known to have been indicted, but remain fugitives.
Today’s charge is the result of an ongoing federal antitrust investigation into price fixing, bid rigging, and other anticompetitive conduct in the international roll-on, roll-off ocean shipping industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Baltimore Field Office, along with assistance from the U.S. Customs and Border Protection Office of Professional Responsibility, Special Agent in Charge Washington/Special Investigations Unit.
Monday, October 2, 2017
FINRA Sanctions Morgan Stanley $13 Million in Fines and Restitution for Failing to Supervise Sales of UITs
The Financial Industry Regulatory Authority (FINRA) announced that it has fined Morgan Stanley Smith Barney LLC $3.25 million and required the firm to pay approximately $9.78 million in restitution to more than 3,000 affected customers for failing to supervise its representatives’ short-term trades of unit investment trusts (UITs).
A UIT is an investment company that offers units in a portfolio of securities that terminates on a specific maturity date, often after 15 or 24 months. UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95 percent for a typical 24-month UIT. A registered representative who repeatedly recommends that a customer sell his or her UIT position before the maturity date and then “rolls over” those funds into a new UIT causes the customer to incur increased sale charges over time, raising suitability concerns.
FINRA found that from January 2012 through June 2015, hundreds of Morgan Stanley representatives executed short-term UIT rollovers, including UITs rolled over more than 100 days before maturity, in thousands of customer accounts. FINRA further found that Morgan Stanley failed to adequately supervise representatives’ sales of UITs by providing insufficient guidance to supervisors regarding how they should review UIT transactions to detect unsuitable short-term trading, failing to implement an adequate system to detect short-term UIT rollovers, and failing to provide for supervisory review of rollovers prior to execution within the firm’s order entry system. Morgan Stanley also failed to conduct training for registered representatives specific to UITs.
Susan Schroeder, FINRA Executive Vice President and Head of Enforcement, said, “Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns. Firms must adequately supervise representatives’ sales of UITs –including providing sufficient training –and have in place a system to detect potentially unsuitable short-term UIT rollovers.”
In assessing sanctions, FINRA has recognized Morgan Stanley’s cooperation in having initiated a firmwide investigation that included, among other things, interviewing more than 65 firm personnel and the retention of an outside consultant to conduct a statistical analysis of UIT rollovers at the firm; identified customers affected and establishing a plan to provide remediation to those customers; and provided substantial assistance to FINRA in its investigation.
As a result of this case, FINRA launched a targeted exam in September 2016 focused on UIT rollovers. In addition, in its 2017 Exam Priorities Letter, FINRA highlighted that it was evaluating firms’ ability to monitor for short-term trading of long-term products.
In settling this matter, Morgan Stanley nether admitted or denied the charges, but consented to the entry of FINRA’s findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2016, members of the public used this service to conduct 111 million reviews of broker or firm records. Investors can access BrokerCheck at http://www.finra.org/brokercheck
Tuesday, September 26, 2017
Owners must disclose material connections in future posts; FTC staff also sends 21 warning letters to prominent social media influencers
Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, two social media influencers who are widely followed in the online gaming community, have settled Federal Trade Commission charges that they deceptively endorsed the online gambling service CSGO Lotto, while failing to disclose they jointly owned the company.
They also allegedly paid other well-known influencers thousands of dollars to promote the site on YouTube, Twitch, Twitter, and Facebook, without requiring them to disclose the payments in their social media posts.
The Commission order settling the charges requires Martin and Cassell to clearly and conspicuously disclose any material connections with an endorser or between an endorser and any promoted product or service.
“Consumers need to know when social media influencers are being paid or have any other material connection to the brands endorsed in their posts,” said FTC Acting Chairman Maureen Ohlhausen. “This action, the FTC’s first against individual influencers, should send a message that such connections must be clearly disclosed so consumers can make informed purchasing decisions.”
Also today, the FTC announced that staff has both sent warning letters to 21 social media influencers it contacted earlier this year regarding their Instagram posts, and updated staff guidance for social media influencers and endorsers.
According to the FTC, beginning in late 2015, Martin, Cassell, and their company, CSGOLotto, Inc., operated and advertised the csglotto.com website. The CSGO Lotto name was based on Counter-Strike: Global Offensive, also known as “CS: GO,” an online multi-player, first-person shooter game. The game uses collectible virtual items called “skins” that can be used to cover weapons in distinctive patterns. Skins can be bought, sold, and traded for real money. CSGO Lotto enabled consumers to gamble, using skins as virtual currency.
Martin is the company’s president and Cassell is its vice president. As alleged in the complaint, each posted YouTube videos of themselves gambling on their website and encouraging others to use the service. Martin’s videos had titles such as, “HOW TO WIN $13,000 IN 5 MINUTES (CS-GO Betting)” and “$24,000 COIN FLIP (HUGE CSGO BETTING!) + Giveaway.”
Cassell posted videos with titles such as “INSANE KNIFE BETS! (CS:GO Betting),” and “ALL OR NOTHING! (CS:GO Betting).” In all, Cassell’s videos promoting the CSGO Lotto website were viewed more than 5.7 million times. Martin and Cassell allegedly also promoted the site on Twitter without adequately disclosing their connection to CSGO Lotto.
According to the FTC’s complaint, Martin, Cassell, and their company also had an “influencer program” and paid other gaming influencers between $2,500 and $55,000 to promote the CSGO Lotto website to their social media circles, while prohibiting them from saying anything negative about the site.
The Commission’s complaint alleges that Martin, Cassell, and their company misrepresented that videos of themselves and other influencers gambling on the CSGO Lotto website and their social media posts about the website reflected the independent opinions of impartial users of the service. The complaint charges that, in truth, Martin and Cassell are owners and officers of the company operating the CSGO Lotto website and the other influencers were paid to promote the website and were prohibited from impugning its reputation.
Finally, the complaint alleges that a number of Martin’s, Cassell’s, and the gaming influencers’ CSGO Lotto videos and social media posts deceptively failed to adequately disclose that Martin and Cassell are owners and officers of the company operating the gambling service, or that the influencers received compensation to promote it.
The proposed order settling the FTC’s charges prohibits Martin, Cassell, and CSGOLotto, Inc. from misrepresenting that any endorser is an independent user or ordinary consumer of a product or service. The order also requires clear and conspicuous disclosures of any unexpected material connections with endorsers.
New Instagram Influencer Warning Letters
Following up on the more than 90 educational letters FTC staff sent to social media influencers and brands in April of this year, the staff has sent warning letters to 21 of the influencers previously contacted. The earlier educational letters informed the influencers that if they are endorsing a brand and have a “material connection” to the marketer, this must be clearly and conspicuously disclosed, unless the connection is already clear from the context of the endorsement.
The warning letters cite specific social media posts of concern to staff and provide details on why they may not be in compliance with the FTC Act as explained in the Commission’s Endorsement Guides. For example, some of the letters point out that tagging a brand in an Instagram picture is an endorsement of the brand and requires an appropriate disclosure.
The letters ask that the recipients advise FTC staff as to whether they have material connections to the brands in the identified posts, and if so, what actions they will be taking to ensure that all of their social media posts endorsing brands and businesses with which they have material connections clearly and conspicuously disclose their relationships. The FTC is not disclosing the names of the 21 influencers who received the warning letters.
Updated Guidance to Influencers and Marketers
The Commission today also issued an updated version of The FTC’s Endorsement Guides: What People are Asking, a staff guidance document that answers frequently asked questions. Previously revised in 2015, the newly updated version includes more than 20 additional questions and answers addressing specific questions social media influencers and marketers may have about whether and how to disclose material connections in their posts.
The new information covers a range of topics, including tags in pictures, Instagram disclosures, Snapchat disclosures, obligations of foreign influencers, disclosure of free travel, whether a disclosure must be at the beginning of a post, and the adequacy of various disclosures like “#ambassador.”
The Commission vote to issue the administrative complaint and to accept the consent agreement was 2-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly.
The agreement will be subject to public comment for 30 days, beginning today and continuing through October 10, 2017, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit comments electronically by following the instructions in the “Invitation to Comment” part of the “Supplementary Information” section.
Monday, September 25, 2017
The Bureau of Consumer Financial Protection is issuing a final rule that amends Regulation B to permit creditors additional flexibility in complying with Regulation B in order to facilitate compliance with Regulation C, adds certain model forms and removes others from Regulation B, and makes various other amendments to Regulation B and its commentary to facilitate the collection and retention of information about the ethnicity, sex, and race of certain mortgage applicants.
Friday, September 22, 2017
A former Citigroup broker was suspended by FINRA and fined for allegedly making an unsuitable recommendation to a retired couple to invest in muni bond (a U.S. law school). The bond was canceled based on a restructuring agreement with the bondholders and Citigroup paid restitution to the retired couple to compensate them for their losses.
read the full story at Bank Investment Consultant
Sunday, September 17, 2017
A group of online marketers will pay more than $2.5 million to settle Federal Trade Commission charges that they deceived consumers with “free” and “risk-free” trials for cooking and golfing products.
According to an FTC complaint filed in March 2017, the defendants offered “free” products, without clearly disclosing that by accepting the “free” product consumers were agreeing to be charged each month for a subscription if they did not cancel. They also allegedly misrepresented their return, refund and cancellation policies.
Under settlement orders announced today, the defendants are prohibited from misrepresenting the cost of any good or service, that consumers will not be charged, that consumers can get something for a processing or shipping fee with no further obligation, and that a product or service is free.
The orders also require the defendants to clearly disclose important details about any online negative option where consumers’ enter billing information, to get consumers’ informed consent before charging them, and to offer a simple way for consumers to cancel recurring charges. The orders also bar them from billing consumers who were first charged before March 1, 2016, and from selling or otherwise benefitting from consumers’ personal information and failing to dispose of it properly.
The order against Brian Bernheim and Joshua Bernheim imposes a $1,869,690 judgment that they must pay in four installments within one year. To secure the payment, they granted the FTC a security interest in real estate and other assets valued at more than two and a half million dollars.
The order against Robert Koch imposes a $632,304 judgment that he must pay in three installments within one year. To secure the payments, Koch granted the FTC a security interest in real estate worth more than one million dollars.
The Commission vote approving the proposed stipulated orders was 2-0. The U.S. District Court for the Southern District of California entered the orders on August 31, 2017.
NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.
Tuesday, August 15, 2017
Uber Technologies, Inc. has agreed to implement a comprehensive privacy program and obtain regular, independent audits to settle Federal Trade Commission charges that the ride-sharing company deceived consumers by failing to monitor employee access to consumer personal information and by failing to reasonably secure sensitive consumer data stored in the cloud.
In its complaint, the FTC alleged that the San Francisco-based firm failed to live up to its claims that it closely monitored employee access to consumer and driver data and that it deployed reasonable measures to secure personal information it stored on a third-party cloud provider’s servers.
“Uber failed consumers in two key ways: First by misrepresenting the extent to which it monitored its employees’ access to personal information about users and drivers, and second by misrepresenting that it took reasonable steps to secure that data,” said FTC Acting Chairman Maureen K. Ohlhausen. “This case shows that, even if you’re a fast growing company, you can’t leave consumers behind: you must honor your privacy and security promises.”
In the wake of news reports alleging Uber employees were improperly accessing consumer data, the company issued a statement in November 2014 that it had a “strict policy prohibiting” employees from accessing rider and driver data – except for a limited set of legitimate business purposes – and that employee access would be closely monitored on an ongoing basis.
In December 2014, Uber developed an automated system for monitoring employee access to consumer personal information, but the company stopped using it less than a year after it was put in place. The FTC’s complaint alleges that Uber, for more than nine months afterwards, rarely monitored internal access to personal information about users and drivers.
The FTC’s complaint also alleges that despite Uber’s claim that data was “securely stored within our databases,” Uber’s security practices failed to provide reasonable security to prevent unauthorized access to consumers’ personal information in databases Uber stored with a third-party cloud provider. As a result, an intruder accessed personal information about Uber drivers in May 2014, including more than 100,000 names and driver’s license numbers that Uber stored in a datastore operated by Amazon Web Services.
The FTC alleges that Uber did not take reasonable, low-cost measures that could have helped the company prevent the breach. For example, Uber did not require engineers and programmers to use distinct access keys to access personal information stored in the cloud. Instead, Uber allowed them to use a single key that gave them full administrative access to all the data, and did not require multi-factor authentication for accessing the data. In addition, Uber stored sensitive consumer information, including geolocation information, in plain readable text in database back-ups stored in the cloud.
Under its agreement with the Commission, Uber is:
- prohibited from misrepresenting how it monitors internal access to consumers’ personal information;
- prohibited from misrepresenting how it protects and secures that data;
- required to implement a comprehensive privacy program that addresses privacy risks related to new and existing products and services and protects the privacy and confidentiality of personal information collected by the company; and
- required to obtain within 180 days, and every two years after that for the next 20 years, independent, third-party audits certifying that it has a privacy program in place that meets or exceeds the requirements of the FTC order.
The Commission vote to issue the administrative complaint and to accept the consent agreement was 2-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through September 15, 2017, after which the Commission will decide whether to make the proposed consent order final.
Interested parties can submit comments electronically by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $40,654.
Monday, August 14, 2017
PHH Pays $74 Million for False Claims Act Liability Arising from Mortgage Lending, Whistleblower Earns $9 Million.
PHH Corp. PHH Mortgage Corp. and PHH Home Loans (collectively, PHH) have agreed to pay the United States $74,453,802 to resolve allegations that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that did not meet applicable requirements, the Justice Department announced today. PHH is headquartered in Mount Laurel, New Jersey, and PHH Home Loans operates in Edina, Minnesota. PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations.
“Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans,” said Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division. “The Department has and will continue to hold accountable lenders that knowingly cause the government to guarantee, insure, or purchase loans that are materially deficient and put both the homeowner and the taxpayers at risk.”
“PHH submitted defective loans for government insurance, and homeowners and taxpayers paid the price. This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,” said Acting U.S. Attorney for the District of Minnesota Gregory Brooker. “I commend the efforts of this Office’s Civil Division in reaching a successful resolution.”
“This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made,” Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said. “By failing to ensure the creditworthiness of borrowers and otherwise failing to make sure the loans met HUD underwriting requirements, loans were insured by FHA that should not have been.”
“By failing to comply with FHA regulations, PHH put taxpayers and borrowers at risk of sustaining significant financial losses,” stated Acting U.S. Attorney Benjamin G. Greenberg. “This case and the resulting $75 million dollar settlement demonstrate that U.S. Attorney’s Offices and our investigative partners across the country are committed to holding lenders accountable who knowingly submit unqualified loans and compromise needed governmental programs.”
“For government mortgage programs to assist homeowners but not take on ill-advised risk, all participants in the mortgage lending process must provide true and complete information,” stated Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York. “Today’s settlement with PHH demonstrates our continuing commitment to requiring such integrity in the process.”
The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting, and quality control requirements.
Since at least January 2006, PHH has participated as a Direct Endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.
As part of the settlement, PHH admitted to the following facts concerning the FHA loans:
Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s self-reporting requirements. Examples of loan defects that PHH admitted resulted in loans being ineligible for FHA mortgage insurance included:
- Failing to document the borrowers’ creditworthiness, including paystubs, verification of employment, proper credit reports, and verification of the borrowers’ earnest money deposit and funds to close.
- Failing to document the borrower’s claimed net equity in a prior residence or obtain documentation showing that the borrower had paid off significant debts. Including these debts in the borrower’s liabilities resulted in the borrower exceeding HUD’s debt-to-income ratio requirements for FHA-insured loans.
- Insuring a loan for FHA mortgage insurance even though the borrower did not meet HUD’s minimum statutory investment for the loan.
In 2007, PHH audited a targeted sample of government loans for closing or pre-insuring requirements and found that its “percent accurate” did not exceed 50 percent during 2007. Since at least 2006, HUD has required self-reporting of material violations of FHA requirements. However, between Jan. 1, 2006, and Dec. 31, 2011, PHH Home Loans did not self-report any loans to HUD; rather, PHH Home Loans did not self-report any loans to HUD until 2013, after the United States commenced its investigation resulting in this settlement.
As a result of PHH’s conduct and omissions, PHH admitted, HUD insured loans endorsed by PHH that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured. It admitted that HUD subsequently incurred substantial losses when it paid insurance claims on those loans.
In addition, from at least 2005 to 2012, PHH was a VA approved lender, originating and underwriting mortgage loans and obtaining VA loan guarantees. The VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners by guaranteeing a portion of home loans. VA home loans are provided by certain pre-approved private lenders, including banks and mortgage companies. By guaranteeing a portion of the loan, the VA enables the lender to provide Servicemembers, Veterans, and eligible surviving spouses with loan terms that are more favorable than would otherwise be available in the marketplace. In order to qualify for a VA guarantee, borrowers must comply with VA loan requirements. The settlement resolves the United States’ claims and potential claims that PHH originated loans that it submitted for guarantee by the VA that did not meet the VA’s requirements.
Also from at least 2009 to 2013, PHH sold mortgage loans to Fannie Mae and Freddie Mac. Congress created the two entities to provide stability and liquidity in the secondary housing market and established the Federal Housing Finance Agency (“FHFA”) to supervise, regulate, and oversee Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System. Since 2008, in response to the substantial deterioration in the housing markets that severely damaged Fannie Mae and Freddie Mac’s financial condition, Fannie Mae and Freddie Mac have been operating under a government conservatorship. The settlement resolves the United States’ contentions that PHH originated and sold loans to the Freddie Mac and Fannie Mae that did not meet their requirements.
“This case demonstrates HUD’s resolve in protecting the integrity of its mortgage insurance programs for the benefit of all Americans, and in particular, first time homebuyers,” said Dane Narode, HUD’s Associate General Counsel for Program Enforcement. “We are gratified that PHH has accepted responsibility for its actions.”
“This settlement resolves allegations of reckless origination and underwriting of VA guaranteed mortgage loans,” said Michael J. Missal, Inspector General, for the Office of Inspector General for the Department of Veterans Affairs (VA OIG). “It sends a clear message that the VA OIG will aggressively protect the integrity of this crucial program which helps so many of our veterans buy, build, or repair their homes. I would also like to thank the U.S. Attorney's Offices for partnering with us to achieve this significant result.”
Some of the allegations resolved by these settlements included in a whistleblower lawsuit filed under the False Claims Act by a former employee of PHH, Mary Bozzelli against PHH Corp. and PHH Mortgage Corp. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. Ms. Bozzelli will receive $9,067,377.33 from the settlements.
The settlements were the result of joint investigations conducted by HUD, the HUD Office of Inspector General, the Veterans Administration’s Office of Inspector General, the FHFA Office of Inspector General, the Department of Justice’s Civil Division, and the U.S. Attorney’s Offices for the District of Minnesota, District of New Jersey, Southern District of Florida, and Eastern District of New York. The qui tam action is captioned United States ex rel. Mary Bozzelli v. PHH Mortgage Corporation and PHH Corporation, 13-cv-3084 (E.D.N.Y.). The claims asserted against PHH are allegations only, and there has been no determination of liability.
Sunday, August 13, 2017
You’ve probably seen online ads with offers to let you try a product – or a service – for a very low cost, or even for free. Sometimes they’re tempting: I mean, who doesn’t want whiter teeth for a dollar plus shipping? Until the great deal turns into a rip-off. That’s what the FTC says happened in a case it announced today.
The defendants sold tooth-whitening products under various names, and hired other companies to help them market the products. These affiliate marketers created online surveys, as well as ads for free or low-cost trials – all to drive people to the product’s website. What happens next is so complicated that we created an infographic to explain it.
In short, once people ended up on the product’s website, they filled in their info, put in their credit card number, and clicked “Complete Checkout.” When people clicked this button they not only got the free trial of the one product, but were actually agreeing to monthly shipments of the product at a cost of $94.31 each month.
Next, another screen came up and people were asked to click “Complete Checkout” again. But the second screen wasn’t a confirmation screen for the trial of the product. Instead, by clicking this button people were actually agreeing to monthly shipments of a second product. So, what started as a $1.03 (plus shipping) trial of one product wound up being an unexpected two products at a very unexpected $94.31 each – for a total monthly charge of $188.96 plus shipping.
Trial offers can be tricky – and there is often a catch. If you’re tempted, do some research first, and read the terms and conditions of the offer very closely. Sometimes, however, marketers might simply try to trick you – and it can be hard to spot. Look again at the infographic…would you have known what charges were about to hit your credit card? If you use your credit card for a low-cost trial offer, be sure to check your credit card statement closely. If you see charges you didn’t authorize, contact the company and your bank immediately. And then tell us about it.
Wednesday, August 9, 2017
E-Commerce Company and Top Executive Agree to Plead Guilty to Price-Fixing Conspiracy for Customized Promotional Products
An e-commerce company and its top executive have agreed to plead guilty to conspiring to fix prices for customized promotional products sold online to customers in the United States. Zaappaaz Inc. (d/b/a WB Promotions Inc., Wrist-Band.com and Customlanyard.net) and its president Azim Makanojiya agreed to plead guilty to a one-count criminal violation of the Sherman Act.
Acting Assistant Attorney General Andrew Finch of the Department of Justice’s Antitrust Division, Acting U.S. Attorney Abe Martinez and Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Division made the announcement.
According to the felony charges filed today in the U.S. District Court for the Southern District of Texas in Houston, the conspirators attended meetings and communicated in person and online. The investigation has revealed that the conspirators used social media platforms and encrypted messaging applications, such as Facebook, Skype and Whatsapp, to reach and implement their illegal agreements. Specifically, the defendants and their co-conspirators agreed, from as early as 2014 until June 2016, to fix the prices of customized promotional products sold online, including wristbands and lanyards. In addition to agreeing to plead guilty, Zaappaaz has agreed to pay a $1.9 million criminal fine.
“As today’s charges show, criminals cannot evade detection by conspiring online and using encrypted messaging,” said Acting Assistant Attorney General Andrew Finch. “In addition, today’s charges are a clear sign of the Division’s commitment to uncovering and prosecuting collusion that affects internet sales. American consumers have the right to a marketplace free of unlawful collusion, whether they are shopping at retail stores or online.”
“Schemes like the defendants’ cause financial harm to consumers who purchase goods and services and to businesses who sell goods and services in compliance with the laws of the United States,” said Acting U.S. Attorney Abe Martinez. “The United States will continue to investigate and prosecute individuals and businesses who seek to gain an illegal advantage.”
“The FBI stands ready to protect consumers from unscrupulous business practices,” said Special Agent in Charge Perrye K. Turner. “Antitrust laws help protect the competitive process for the benefit of all consumers.”
Makanojiya is charged with price fixing in violation of the Sherman Act which carries a maximum sentence of 10 years in federal prison and a maximum fine of $1 million for individuals. The maximum fine for an individual may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine.
Both defendants have agreed to cooperate with the Antitrust Division’s ongoing investigation. The plea agreements are subject to court approval.
This prosecution arose from an ongoing federal antitrust investigation into price fixing in the online promotional products industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section with the assistance of the FBI’s Houston Field Office. Anyone with information on price fixing or other anticompetitive conduct in the customized promotional products industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit www.justice.gov/atr/contact/newcase.html.
Friday, June 16, 2017
Please write in your comments against this cement and rock crushing plant across from the Gateway Park, Montessori School and down the street from Nolan Catholic.
1. Go to: http://www14.tceq.texas.gov/epic/eCommen...
2. list permit number: 146263
3. Add your comments and attach a Word or PDF (you may copy from my reasons below).
This stone and concrete crushing factory is seeking a second bite at the apple via a state TECQ permission for a heavy industry air pollution zoning for the same property across the street from the Montessori school. The comment period ends in 30 days in July.
The Texas Supreme Court ruled in favor of a cement crushing plant in 2013 that used its state-granted TECQ pollution permit to quash a city's attempt to stop it from locating next to a school. See Southern Crushed Concrete v City of Houston, 398 S.W.3d 676, (Supreme Court of Texas Feb. 15, 2013).
Last year Alice Barr reported about a proposed factory across the street of Gateway Park and Montessori school: "East Fort Worth Neighbors Upset Over Proposed Concrete Recycling Plant", May 16, 2016. http://www.nbcdfw.com/news/local/East-Fort-Worth-Neighbors-Upset-Over-Proposed-Concrete-Recycling-Plant-379719781.html In May 2016 over 800 neighborhood residents signed a petition against this “heavy industrial” proposed factory and approximately 400 residents attended the May 2016 public meeting to voice near unanimous objections. Fort Worth District 4 Councilperson Cary Moon, who attended the public meeting, surveyed more than 1,500 neighborhood residents of which near unanimity, 99 percent, disapproved of the development. Councilperson Cary Moon concluded:
“Through our discussion the developer came to understand the concrete recycling plant was not a good fit for our community and decided to discontinue their application for the zoning change,” Moon said. “The concrete recycling plant will not be built.” (See Planting Their Feet, Fort Worth Weekly, June 8, 2016. www.fwweekly.com/2016/06/08/planting-their-feet)
But the plant has gone around the city directly to the state and thus silencing the voices of the neighborhoods and schools that will be devastated.
- Heavy Industrial Use Detrimental to Neighborhood Residents Health, Especially Schools and Retirement Community
Rock crushing factories, documented in numerous medical articles, produce fine dust particles and silica content for which exposure, especially prolonged, poses serious health problems. The inhalable dust and respirable particulate matter causes respiratory problems. This unacceptable health risk is particularly acute for the most vulnerable: the children and elderly neighborhood residents. East Fort Worth Montessori Academy located within two blocks of the proposed factory as well as Noland Catholic High School and Lakewood Village Retirement Community located within a mile, may become economically unviable. School enrollment will likely plunge when parents are made aware of the industrial factory locating next to the schools. The health risks of this factory would probably require that the proposed charter school for Randol Mill on the East side of Quanah Parker Park (West side of Riverbend Estates) seek an alternative neighborhood, which would be a tremendous loss for the low-income children of East Fort Worth.
- The City Of Fort Worth's Future Land Use Map Allocates This Neighborhood Area For Private Open Spaces And Single Family Residential, Not Industrial
The City of Fort Worth and partnering governments will have wasted millions of dollars the past two years renovating Gateway Park, Quanah Parker Park, and the Trinity Trail. Millions of dollars have been spent to transform Gateway Park into a 1,000 acre premier park for the city of Fort Worth with several sports fields for children and 80,000 trees planned.If a rock and cement crushing industrial factory
If a rock and cement crushing industrial factory is built across the street, then Gateway and Quanah Parker parks will no longer be desirable from a health perspective, environmental perspective, and a safety perspective. for after-school sports and weekend family activities. By example, the industrial traffic of the 100 to 200 heavy truck trips in and out of factory daily laden with concrete waste will create unacceptable traffic hazards for families and their children using the parks and the nearby Montessori school, as well as for the elderly who reside at the Lakewood Village Retirement Community that drive along Randol Mill Road and Oakland Road and walk to the Gateway and Quanah Parker parks. That is an industrial truck every two to five minutes on Randol Mill Road. The proposed industrial factory’s location next to the newly expanded Trinity Trail bike path may also render it unsafe for cyclists, and at least undesirable for use.Neighborhood Property Values Will Collapse Along With The Tax Base
- Neighborhood Property Values Will Collapse Along With The Tax BaseI am a nationally respected tax expert, the author of several highly regarded and cited tax treatises, of government tax and economic impact studies, and employed as a professor of law
It is well documented in studies over decades that health and amenity risks associated with environmental hazards, whether real or perceived, translate into economic harm both to individuals and to the tax base.
Studies have shown that negative attitudes toward facilities which pose nuisance, health or environmental risks are strong and geographically extensive.” (Quoting as one example, Undesirable facilities and property values: a summary of empirical studies, Dr. Stephen Farber, Ecological Economics 24 (1998) at p 1 - 14.)
The change to an industrial use, and location of a hazardous rock and cement crushing factory, will lead to a substantial drop of property value and thus the tax base. Based on a zoning change to heavy industrial, and the nature of the factory proposed, it is reasonable to estimate a drop of approximately twenty percent of the property value within 24 months for at least 1,500 residences in the neighborhood. By rough calculation, the property tax revenue loss from just 1,500 residences being impacted by approximately 20 percent of the property value would exceed $1.5 million annually by the third year. More devastating though is the human cost of residents permanently losing 20 percent of their home value, the primary method of family saving.
Besides the TECQ, you can also reach out to the news organizations below to get the word out.
-Star reporter who covered story in May 2016: email@example.com
- NBC local newstips: firstname.lastname@example.org
- FW Weekly: email@example.com
- Fox news: firstname.lastname@example.org
Wednesday, June 14, 2017
Personal note: The Bankruptcy section of the bill (banks should go bankrupt, not be bailed out). While I agree that the market should hold banks and their employees accountable for bad decisions and lack of foresight (such as through insolvency), an organized "work out" (not taxpayer funded bailout) should not be taken off the table as an aspect of the insolvency toolkit. Such workouts generally require a facilitator who sees the entire market, a role by example the FDIC has played fro decades for the betterment of the banking system and the public trust in it. Over 100 professors, including myself, signed onto a comment letter to this effect.
- The Dodd-Frank Off-Ramp for Strongly Capitalized, Well-Managed Banking Organizations Bankruptcy Not Bailouts
- Repeal of the Financial Stability Oversight Council’s SIFI Designation Authority
- Reform the Consumer Financial Protection Bureau
- Relief from Regulatory Burden for Community Financial Institutions
- Federal Reserve Reform
- Upholding Article I: Reining in the Administrative State
- Amend Dodd-Frank Title IV
- Repeal the Volcker Rule
- Repeal the Durbin Amendment
- Eliminate the Office of Financial Research
- SEC Enforcement Issues
- Reforms to Title IX of Dodd-Frank
- Capital Formation
- Repeal Specialized Public Company Disclosures for Conflict Minerals, Extractive Industries, and Mine Safety
- Improving Insurance Regulation by Reforming Dodd-Frank Title V
Tuesday, June 13, 2017
"There are good reasons why the fraud discovery rule has not been extended to Government civil penalty enforcement actions. The discovery rule exists in part to preserve the claims of parties who have no reason to suspect fraud. The Government is a different kind of plaintiff. The SEC’s very purpose, for example, is to root out fraud, and it has many legal tools at hand to aid in that pursuit".
Head Note: The Investment Advisers Act makes it illegal for investment advisers to defraud their clients, 15 U. S. C. §§80b–6(1), (2), and authorizes the Securities and Exchange Commission to bring enforcement actions against investment advisers who violate the Act, or against individuals who aid and abet such violations, §80b–9(d). If the SEC seeks civil penalties as part of those actions, it must file suit “within five years from the date when the claim first accrued,” pursuant to a general statute of limitations that governs many penalty provisions throughout the U. S. Code, 28 U. S. C. §2462.
In 2008, the SEC sought civil penalties from petitioners Alpert and Gabelli. The complaint alleged that they aided and abetted investment adviser fraud from 1999 until 2002. Petitioners moved to dismiss, arguing in part that the civil penalty claim was untimely. Invoking the five-year statute of limitations in §2462, they pointed out that the complaint alleged illegal activity up until August 2002 but was not filed until April 2008. The District Court agreed and dismissed the civil penalty claim as time barred. The Second Circuit reversed, accepting the SEC’s argument that because the underlying violations sounded in fraud, the “discovery rule” applied, meaning that the statute of limitations did not begin to run until the SEC discovered or reasonably could have discovered the fraud. Held: The five-year clock in §2462 begins to tick when the fraud occurs,
Held: The five-year clock in §2462 begins to tick when the fraud occurs, not when it is discovered. Pp. 4–11.
Download here: Download Gabelli v SEC
Friday, June 9, 2017
With BREXIT Eliminating UK Voice, EU Ramps Up For More Regulation & Integration of Capital Markets. Or Is This A Shot At London?
The proposal in detail
The CMU Mid-term review sets out nine new priority actions:
- strengthen the powers of European Securities and Markets Authority to promote the effectiveness of consistent supervision across the EU and beyond;
- deliver a more proportionate regulatory environment for SME listing on public markets;
- review the prudential treatment of investment firms;
- assess the case for an EU licensing and passporting framework for FinTech activities;
- present measures to support secondary markets for non-performing loans (NPLs) and explore legislative initiatives to strengthen the ability of secured creditors to recover value from secured loans to corporates and entrepreneurs;
- ensure follow-up to the recommendations of the High Level Expert Group on Sustainable Finance;
- facilitate the cross-border distribution and supervision of UCITS and alternative investment funds (AIFs);
- provide guidance on existing EU rules for the treatment of cross-border EU investments and an adequate framework for the amicable resolution of investment disputes;
- propose a comprehensive EU strategy to explore measures to support local and regional capital market development.
In addition, the Commission will advance on outstanding actions under the 2015 Action Plan. In particular, the Commission will put forward:
- A legislative proposal on a pan-European personal pension product to help people finance their retirement;
- A legislative proposal for an EU-framework on covered bonds to help banks finance their lending activity;
- A legislative proposal on securities law to increase legal certainty on securities ownership in the cross-border context.
The CMU seeks to strengthen the flow of private capital to growing businesses, infrastructure investment, energy transition and other projects to underpin sustainable growth. Removing obstacles to the free flow of capital across borders will strengthen Economic and Monetary Union by supporting economic convergence and helping to cushion economic shocks in the euro area and beyond, making the European economy more resilient. Stronger capital markets, better connected to productive investment, will create better investment opportunities for pension funds and institutional and retail investors saving for the long-term and retirement.
In January 2017, the Commission launched a consultation on the CMU mid-term review, creating an opportunity for stakeholders to provide targeted input to complement and advance actions put forward in the CMU Action Plan. On 30 September 2015, the Commission adopted an Action Plan on Building a Capital Markets Union (CMU). The Action Plan sets out a programme of actions which aim to establish the building blocks of an integrated capital market in the European Union by 2019.
The Action Plan is built around the following key principles:
- Connecting financing to the real economy by developing non-bank funding sources
- Creating more opportunities for investors
- Fostering a stronger and more resilient financial system
- Deepening financial integration and increasing competition.
After almost two years since the launch of the CMU Action Plan, the Commission is presenting today a number of important new initiatives to ensure that this reform programme remains fit for purpose.
The CMU is a key pillar of the Commission's Investment Plan for Europe, the so-called Juncker Plan. Through a mix of regulatory and non-regulatory reforms, this project seeks to better connect savings to investments. It aims to strengthen Europe's financial system by providing alternative sources of financing and more opportunities for consumers and institutional investors. For companies, especially SMEs and start-ups, the CMU means accessing more funding opportunities, such as venture capital and crowdfunding. The rebooted CMU puts a strong focus on sustainable and green financing: as the financial sector begins to help sustainability-conscious investors to choose suitable projects and companies, the Commission is determined to lead global work on supporting these developments.
European Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: "The CMU remains at the heart of our efforts to boost European investment and create jobs and growth. As we face the departure of the largest EU financial centre, we are committed to stepping up our efforts to further strengthen and integrate the EU capital markets. This review makes clear the scale of the challenge and we count on the support of the European Parliament and Member States to rise to it.”
European Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth and Investment, said: "The Commission has worked hard to give decisive impetus to the CMU. In just twenty months, we have delivered two-thirds of our initial commitments and other important actions are in the pipeline. We are now expanding our scope to meet new challenges such as funding sustainable investment and harnessing the potential of FinTech. The new measures presented here today renew and reinforce the Commission's commitment and set us on an irreversible path towards the CMU.”
The Mid-Term Review reports on the good progress made so far in implementing the 2015 Action Plan, with around two-thirds of the 33 actions delivered in twenty months. Just recently, co-legislators agreed in principle on two major proposals. The securitisation package will free up capacity on banks' balance sheets and generate additional funding for households and fast growing companies. The venture capital funds reform will facilitate investment in small and medium-sized innovative companies. Moreover, last year we agreed on the new Prospectus regime that will allow easier access to public markets especially for SMEs. However, for the CMU to succeed, the full and constant support of the European Parliament, Member States and all market participants is paramount.
The Mid-Term Review also sets the timeline for the new actions that will be unveiled in the coming months. These will include a pan-European personal pension product to help people finance their retirement. Furthermore, the Commission will continue its work on enhancing the supervisory framework for integrated capital markets, increasing the proportionality of the rules for listed SMEs and investment firms, harnessing the potential of FinTech and promoting sustainable investment.
Alongside the CMU Mid-Term Review, the Commission is also unveiling measures to encourage long-term investment through a review of prudential calibration for investments in infrastructure corporates. We propose reducing the amount of capital that insurance companies need to hold when they invest in infrastructure corporates. These targeted changes to the Solvency II Delegated Regulation will further support investment in infrastructure.
Communication on Capital Markets Union- Accelerating Reform
Action Plan on Building a Capital Markets Union
Saturday, June 3, 2017
The Governors of the Global Economy Meeting welcome the publication of the FX Global Code, a single global code for the wholesale foreign exchange market, as well as the establishment of the Global Foreign Exchange Committee to maintain the Code in the future.
This represents the culmination of a two-year collaborative initiative between central banks and private sector market participants from across the globe. The Code is voluntary and covers important areas including ethics, governance, execution, information-sharing, risk management and compliance as well as confirmation and settlement. Download Global Code FOREX 2016
"The FX Global Code sets good practices for market participants to follow and will support a robust, fair and transparent market, underpinned by high ethical standards," said GEM Chair Agustín Carstens, Governor of the Bank of Mexico.
Central banks are strongly committed to supporting and promoting adherence to the Code. They confirm that they intend to adhere to the principles of the Code, and will expect the same of their regular FX counterparties, except where this would inhibit the discharge of their policy functions. Additionally, members of central bank sponsored foreign exchange committees will be expected to adhere to the Code.
Governors encourage market participants to evolve their practices to be consistent with the principles of the Code and to demonstrate their commitment by using the Statement of Commitment that was also published today. They also encourage the private sector, including associations and infrastructure providers, to raise awareness of the Code and to develop and establish mechanisms to support its adoption.