On May 13, 2020, the Small Business Administration (“SBA”) released two FAQs, numbers 46 and 47, regarding two safe harbors from an SBA inquiry into a borrower’s statutorily required certification of economic necessity for a loan under the Paycheck Protection Program  (“PPP”).  FAQ 46 states that the SBA will deem any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million to have made the required certification in good faith.  FAQ 47 relates to an existing safe harbor for PPP loans repaid by a specific date; the FAQ extends the deadline from May 14, 2020, to Monday, May 18, 2020.  Accompanying the FAQs was an interim final rule that memorialized an earlier FAQ (number 43) that had set the repayment deadline of May 14.

The net effect of the FAQs is that a borrower that, with its affiliates, has PPP loans of more than $2 million must decide whether to repay the loan by May 18, or to undergo SBA’s review of the good-faith basis for the certification of economic necessity when the borrower’s loan forgiveness application is filed.  The SBA has outlined the nature of its review in only general terms.  Borrowers with PPP loans of $2 million or less are generally safe from such a review.

Continue Reading The PPP Economic Necessity Certification: SBA Provides Additional Guidance

On March 31, 2020, the Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) announced the release of a targeted, temporary no-action letter aimed at foreign affiliates of futures commission merchants (FCMs).  This relief is meant to ease regulatory burdens in the face of the global COVID-19 pandemic.  In short, the relief relaxes restrictions on CFTC registrants’ affiliated foreign brokers by allowing them to address the needs of the registrants’ U.S.-based customers without having to register as introducing brokers.   The CFTC has now issued four waves of no-action relief.  It issued the first two waves on March 17, 2020, and a third wave three days later.

Continue Reading CFTC Announces Fourth Wave of No-Action Relief in Response to COVID-19

On April 1, 2020, the Consumer Financial Protection Bureau (“CFPB”) released a statement on “Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act.” This statement provides guidance outlining the CFPB’s expectations of furnishers and consumer reporting agencies (“CRAs”) during the COVID-19 pandemic, and signals that the CFPB will take a flexible supervisory and enforcement approach to compliance with the Fair Credit Reporting Act (“FCRA”) and its implementing regulation, Regulation V.

The key points of the CFPB’s guidance are discussed below.
Continue Reading CFPB Releases Guidance on FCRA and Regulation V Compliance During COVID-19

On March 18, the Commodity Futures Trading Commission (“CFTC”) issued a Customer Advisory cautioning the public to be on alert for increased fraudulent activity amidst the COVID-19 pandemic. The agency’s alert followed a series of similar warnings published by other agencies. The CFTC advised that fraudsters may be attempting to profit by taking advantage of investors’ desire to recoup losses or seek safety in the wake of recent market volatility. Fraudsters may promise investors special insider knowledge or insights, unusually large returns, guarantees, surefire trading signals, or low costs to open accounts.

Continue Reading CFTC Warns of Fraudsters Capitalizing on Investors’ COVID-19 Concerns and Promises Aggressive Enforcement Action

This week, on March 17, 2020, the Commodity Futures Trading Commission (CFTC) released two announcements (see here and here) regarding a series of no-action letters in response to the ongoing global COVID-19 pandemic.  The CFTC’s announcements come in the wake of high-profile efforts by other financial regulators to quickly address the financial and regulatory

On February 12, 2020, the Board of the International Organization of Securities Commissions (“IOSCO”) released a report titled Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms.  The report describes the risks associated with crypto-asset trading platforms (“CTPs”) and sets forth key considerations for regulators in addressing such risks.  IOSCO is an association of primary securities and futures regulators from over 100 different nations.  The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission are ordinary and associate members, respectively, of IOSCO.

To prepare this report, IOSCO first issued a consultation report on May 28, 2019, which included a survey of the approaches member jurisdictions were currently undertaking or considering with respect to CTPs.  The final report draws upon the consultation report and includes a summary of the survey’s findings.

The report notes that many of the issues and risks associated with trading on CTPs are similar to the issues and risks associated with trading traditional securities or financial instruments on trading venues.  Consequently, IOSCO states that the three core objectives of securities regulation are relevant in the crypto-asset context.  The three core objectives are: (1) protection of investors; (2) ensuring that markets are fair, efficient and transparent; and (3) reduction of systemic risk.  Supporting these objectives are principles that foster efficient markets, including: effective price discovery, appropriate transparency, market integrity, and fair access.  The final report, to assist regulators in evaluating CTPs under their purview, sets forth the following list of key considerations:

Continue Reading IOSCO Issues Report on Risks Relating to Crypto-Asset Trading Platforms

On December 10, the Federal Trade Commission (“FTC”) and Consumer Financial Protection Bureau (“CFPB”) held a joint workshop on accuracy in consumer reporting. The workshop included remarks from FTC Commissioner Noah Joshua Phillips, CFPB Assistant Director for Supervision Policy Peggy Twohig, CFPB Deputy Director Brian Johnson, and FTC Deputy Director for the Bureau of Economics Andrew Stivers. The workshop included four panels:

  • Panel 1: Furnisher Practices and Compliance with Accuracy Requirements
  • Panel 2: Current Accuracy Topics for Traditional Credit Reporting
  • Panel 3: Accuracy Considerations for Background Screening
  • Panel 4: Navigating the Dispute Process

Panelists included a range of stakeholders in the consumer reporting ecosystem, including representatives from consumer reporting agencies (“CRAs”), trade associations, furnishers, and consumer advocacy organizations.

In her closing remarks, Maneesha Mithal, Associate Director in the FTC’s Division of Privacy & Identity Protection, discussed three key takeaways and themes from the workshop:

  • (1) Alternative Data: Mithal noted that the issue of alternative data came up on almost every panel, and that there appeared to be a consensus that using some types of alternative data may benefit consumers and the industry. Mithal noted that a number of panelists expressed caution about using “fringe data,” including social media data.In a panel discussion, Michael Turner, founder and President of the Policy and Economic Research Council (“PERC”), drew a distinction between “proven payment data,” including payments for utilities, media, and rent, and unproven “fringe data” or “unstructured data,” including information from social media. Turner, along with a number of other panelists, believed that reporting proven payment data would be beneficial for consumers. Francis Creighton, President and CEO of the Consumer Data Industry Association (“CDIA”), noted that consumers are currently experiencing the “downside” impacts of the reporting of negative information about the non-payment or late payment of obligations for utilities, media, and rental housing, but are not receiving the “upside” benefits of reporting on the positive payment histories on those recurring obligations. Consumer advocates, such as Ed Mierzwinski of U.S. Public Interest Research Group (“PIRG”), expressed skepticism regarding the use of certain alternative data, such as utility payment data, and the ability of the industry to ensure the accuracy of such data.
  • (2) Role of Technology: Mithal also noted that there was some consensus that technology, including Artificial Intelligence (“AI”) and pattern recognition, may improve the quality and accuracy of consumer report information. Mithal stated that there appeared to be less consensus regarding the use of technology in data matching, with some panelists expressing the view that manual review is still necessary to ensure maximum possible accuracy. Mithal also noted that some panelists expressed the view that the CFPB should exercise its supervisory authority to examine CRAs and furnishers’ use of technology in consumer reporting.
    • In general, industry panelists spoke favorably about the prospects for AI and other technologies. For example, Eric Ellman, Senior Vice President, Public Policy and Legal Affairs at CDIA, discussed the use of technology in dispute intake, including filtering credit repair disputes from legitimate consumer disputes. Chi Chi Wu of the National Consumer Law Center expressed skepticism about relying on AI and other technologies for data matching and dispute investigations.
  • (3) Accuracy: Mithal concluded by discussing the accuracy of consumer reporting more generally, and stated that some panelists believe that the regulators should issue specific guidance in this area. Mithal also noted that panelists discussed both the importance of data accuracy with respect to consumer reports and furnished data, including ways in which CRAs may oversee furnishers.
    • In general, industry panelists pointed to substantial improvements made in recent years with regard to the accuracy of consumer reports, with repeated emphasis on improvements brought about by the National Consumer Assistance Plan (“NCAP”), an outgrowth of a multi-state attorney general settlement with the three nationwide CRAs in May 2015. Turner discussed improvements between the early and more recent studies of data accuracy. Consumer advocates stressed continuing problems with data accuracy, including the reappearance of derogatory information on consumer reports.


Continue Reading FTC and CFPB Host Workshop on Accuracy in Consumer Reporting

The U.S. Government’s fiscal year-end filing rush has resulted in a wave of new spoofing enforcement.  In August, the Fraud Section of the Department of Justice’s (“DOJ”) Criminal Division charged four individuals with spoofing in precious metals futures markets.  In September, the Commodity Futures Trading Commission (“CFTC”) brought overlapping charges against three of those individuals, and separately charged two trading firms and their employees.  Finally, in an independent development, the United Kingdom’s Office of Gas and Electricity Markets (“Ofgem”) announced its first-ever spoofing charges against an energy trading firm in September.

The new cases show that the DOJ’s Criminal Fraud Section and the CFTC are continuing to coordinate their enforcement activities.  On the same day, September 16, 2019, the DOJ unsealed the August indictment and the CFTC announced civil charges for the same conduct.  The agencies first unveiled their heightened coordination in this area in January 2018, when they initiated parallel spoofing takedowns that have since resulted in several guilty pleas, settlements, an acquittal (Flotron), and a hung jury (Thakkar).

In their recent filings, the agencies reveal new charging strategies.  The DOJ’s unsealed indictment includes the first-ever RICO charge for spoofing.  Both agencies are also charging attempted manipulation under the Commodity Exchange Act (“CEA”) in certain cases.  While attempted manipulation previously has been applied to spoofing, the DOJ and CFTC omitted the charge in their parallel actions in January 2018.

The new strategies may be belated responses to the DOJ’s April 2018 trial defeat in Flotron, in which the jury acquitted a trader of a single count of conspiracy to commit spoofing.  A broader menu of charges allows the DOJ to introduce a wider array of evidence at trial, and gives the jury more options to convict.

Spoofing enforcement has taken a new turn overseas as well.  On September 5, Ofgem announced its finding that Engie Global Markets (“EGM”) engaged in spoofing to manipulate wholesale gas prices between June and August 2016.  Ofgem’s press release defined spoofing as “manipulating prices by placing bids or offers to trade with no intention of executing those bids or offers in order to buy or sell at a higher or lower price and increase trading profits.”

Ofgem found that EGM’s spoofing conduct violated Article 5 (prohibition on market manipulation) of Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency.  This appears to be the first time that Ofgem has issued a fine for spoofing.

As the DOJ and CFTC continue to dedicate significant resources to spoofing enforcement, and overseas regulators, such as Ofgem, increasingly enter the mix, it is safe to assume that spoofing will continue to be a key risk area for commodities and derivatives traders and the firms and institutions that employ them.

Continue Reading Spoofing Enforcement Heats Up with Recent Filing Wave and New Legal Charges

On August 14, 2019, the U.S. District Court for the Northern District of Illinois entered a consent order (the “Consent Order”)—agreed to by the U.S. Commodity Futures Trading Commission (the “CFTC”), Kraft Foods Group Inc. (“Kraft”) and Mondelēz Global LLC (“Mondelēz”)—to resolve long-running market manipulation litigation between the parties.

Continue Reading CFTC Settles Wheat Manipulation Case against Kraft and Mondelēz

On June 14, 2019, the Federal Reserve Board (“Federal Reserve”) released a Notice of Proposed Rulemaking (“NPR”) requesting public comment on updates to its regulations governing the disclosure of confidential supervisory information (“CSI”) and its Freedom of Information Act (“FOIA”) procedures. Although the Federal Reserve classified many of the proposed revisions as “clarifications” or “technical updates,” the NPR includes several important changes to this rule. Comments must be received by August 16, 2019.
Continue Reading Federal Reserve Issues Notice of Proposed Rulemaking Regarding Confidential Supervisory Information and FOIA Procedures