On January 19, 2021, the FDIC’s Board of Directors approved revised Guidelines for Appeals of Material Supervisory Determinations (the “Guidelines”), which are applicable to insured depository institutions (“IDIs”) the FDIC supervises as well as other IDIs for which the FDIC makes material supervisory determinations. The FDIC stated that the amendments are intended to: (1) improve the independence of appeals decisions via the implementation of an independent, standalone office—the Office of Supervisory Appeals (the “Office”)—that will replace the existing Supervision Appeals Review Committee (the “SARC”); and (2) clarify the procedures and timeframes applicable to appeals, including those relating to formal enforcement actions.
Continue Reading FDIC Adopts Revised Guidelines for Appeals of Material Supervisory Determinations

On May 20th the U.S. Commodities Futures Trading Commission (the “CFTC”) Division of Enforcement (the “Division”) announced new guidance for Division staff to consider when recommending civil monetary penalties in an enforcement action (the “CMP Guidance” or the “Guidance”).  As a former CFTC regulator who brought dozens of cases over a 13 year career in

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 April 29, 2019 the New York State Department of Financial Services (“DFS”) announced that it has created a new division, called the Consumer Protection and Financial Enforcement Division, which combines the previously separate Enforcement Division and Financial Frauds and Consumer Protection Division.

The new division will be “responsible for protecting and educating consumers and

[This article was also published in Law360]

Despite enduring the longest government shutdown in U.S. history, the U.S. Securities and Exchange Commission’s Division of Enforcement filed more cases in the first six months of this fiscal year than in the same period last year. From October 2018 through the end of March, the division filed 216 new “stand-alone” actions,[1] compared to just 149 during the first six months of FY 2018.

This increase was largely due to 79 cases filed on a single day in March against investment advisers for alleged disclosure failures relating to conflicts of interests associated with certain mutual fund fees. With the addition of these cases, enforcement actions against investment advisers made up nearly 50% of all cases filed so far this fiscal year.

Excluding the 79 March settlements from the half-year results, the division filed only 137 stand-alone enforcement actions — 12 fewer than at the same point last year, though perhaps more in line with our expectations, considering the time lost during the shutdown.

Overview of FY 2019 Enforcement

Despite bringing fewer cases involving broker dealer misconduct, insider trading and public finance abuse, the division is outpacing its FY 2018 results in the areas of issuer reporting/audit and accounting, Foreign Corrupt Practices Act and, as mentioned above, investment adviser misconduct.

The division is also close to where it was in FY 2018 with respect to market manipulation cases, just 10% off last year’s pace. Below is a chart comparing this year’s performance to FY 2018. For a comprehensive analysis of FY 2018, see our earlier article here.

As the chart above shows, the government shutdown assuredly had a negative impact on several program areas. Every enforcement area but investment adviser misconduct, FCPA and issuer reporting/audit and accounting has seen a decline relative to the same period last year. Most notable is the decline in securities offering cases, which had increased each of the past two years.

Nevertheless, some enforcement activity continued during the shutdown and even a few enforcement actions were brought. According to Chairman Clayton,[2] during the shutdown, the SEC “focused on monitoring the functioning of our markets and, as necessary to prevent imminent threats to property, taking action.” That action involved filing only 10 new cases during the lull.

Notably, during the shutdown, the division sued nine individuals and entities accused of hacking into the SEC’s EDGAR system — the electronic portal used by the public to make SEC filings — in 2016. The defendants purportedly accessed the system to extract nonpublic information for use in illegal trading.

Before the shutdown, the SEC brought several significant cases against public companies for disclosure violations and fraudulent or otherwise deficient financial statements or internal controls. Once the shutdown ended, the agency picked up where it left off, ending with 20% more cases in these areas than during the same period last year.

In addition to significant cases against the Hertz Corporation,[3] Lumber Liquidators Holdings Inc.[4] and Volkswagen Aktiengesellschaft,[5] the SEC punctuated those efforts with two mini-sweeps — one addressing alleged longstanding but unaddressed internal controls failures and another focused on alleged failures to disclose that required quarterly reviews by external auditors had not occurred.

Continue Reading SEC Has Been Busy in FY 2019

On October 24, 2018, the Bureau of Consumer Financial Protection (“BCFP” or the “Bureau”) announced that it had reached a settlement with Tennessee-based small-dollar lender and check casher, Cash Express LLC, which agreed to resolve the Bureau’s claims by paying a $200,000 fine and approximately $32,000 in restitution to affected consumers.  The consent order includes a finding that, among other allegations, Cash Express had engaged in “abusive” acts and practices in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), notwithstanding recent indications from Acting Director Mick Mulvaney that the “abusive” standard lacks clarity.

Continue Reading BCFP Reaches Settlement with Small-Dollar Lender in Connection with Allegedly “Abusive” Practice

On October 10, the North American Securities Administrators Association (“NASAA”)—an association of state, provincial, and territorial securities regulators in the United States, Mexico, and Canada—released its annual Enforcement Report (the “Report”). The Report demonstrates that, while stepped-up enforcement activity has been observed at the federal level with respect to cryptoasset markets, state regulators are increasingly getting in on the action.

Continue Reading State Securities Regulators Step Up Scrutiny of Cryptoassets and ICOs

On September 11, 2018, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Bureau of Consumer Financial Protection (the “Bureau”, and, collectively, the “Agencies”) issued a statement “clarifying the role of supervisory guidance.” The release affirms that the Agencies “do not take enforcement actions based on supervisory guidance” and that such guidance “does not have the force and effect of law.” This statement continues a recent pattern in regulatory policy of downplaying the force of guidance documents, at least as they relate to enforcement actions.

The statement explains that, rather than create binding rules with the force and effect of law, guidance “outlines supervisory expectations or priorities” and/or provides examples of practices the Agencies consider acceptable under applicable legal standards, such as safety and soundness standards. Further, the Agencies state that guidance is often issued in part as a response to requests from supervised institutions to “provide insight to industry” and help “ensure consistency in the supervisory approach.”

Continue Reading Banking Regulators Issue Joint Policy Statement Downplaying the Role of Supervisory Guidance in Enforcement

On August 10, 2018, the Bureau of Consumer Financial Protection announced that a federal district court in the Western District of Missouri approved a consent order in a case against a set of twenty corporate entities and two individual principals (collectively, “Hydra Group”). The BCFP alleged violations of the Consumer Financial Protection Act of 2010

The enforcement and regulatory priorities of the Securities and Exchange Commission (SEC) have begun to come into focus now that SEC Chairman Jay Clayton has been in office for over a year. Courts have also issued decisions that will significantly impact securities enforcement moving forward.

This practice note discusses the Supreme Court’s recent decision holding