The U.S. Department of Justice (“DOJ”) financial fraud enforcement program’s actions in the wake of the 2007–2008 financial crisis have led to some of the largest settlements in the history of the DOJ. To date, 10 financial institutions have reached settlements with the DOJ resolving allegations of fraudulent packaging and sale of residential mortgage-backed securities (“RMBS”) in the run-up to the crisis. The government has recovered a total of nearly $62 billion in fines and penalties from these cases. While a few institutions have yet to resolve their RMBS cases with the DOJ, the RMBS cases have largely run their course. A decade out from the crisis, it is worth taking a look back at the conduct that led to these cases, the reasons the government was able to extract such large penalties and how financial institutions can prepare for such enforcement actions in the future.
In a January 4, 2018, memorandum regarding marijuana enforcement, U.S. Attorney General Jefferson B. Sessions rescinded, effective immediately, the previous guidance issued by the Department of Justice on marijuana, including the memorandum often referred to as the Cole Memo. To the extent a bank’s compliance program relating to marijuana-related businesses (MRBs) relied on the guidance in the Cole Memo, the bank should immediately re-evaluate what changes in that program, if any, may be appropriate.
To read the full text of this Alert, please visit the Duane Morris website.
On May 1, 2017, the FDIC released an update to its guidance on the de novo banking – “Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions.” The updated guidance purports to provide organizers with a “clear and transparent explanation of the path to obtaining deposit insurance.” This may be the FDIC’s response to the 2014 joint letter of the American Association of Bank Directors (AABD) and the Independent Community Bankers of America (ICBA) in which the AABD and the ICBA recommended that the FDIC issue a new Financial Institution Letter (FIL) to “to help dispel misconceptions and reaffirm the FDIC’s support for the formation of de novo banks.” These misconceptions relate to the uncertainty in the application process, the second-guessing of business plans for a de novo bank, capital requirements, examination schedules and the degree of regulatory oversight during the first seven years. The FDIC appears to be on a “get-out-the-message” campaign that de novo banking is back and the FDIC is poised to provide guidance on the process.
The banking group at Duane Morris has been involved in de-novo banking for over 40 years. We’ve advised on the de novo process and assisted in the formation of many banks throughout the Western United States and have represented these same banks throughout their life cycle. The recent recession which was sparked by excessive risk-taking by some financial institutions led to a shift in the FDIC’s regulatory philosophy towards more oversight and a period of consolidation. It appears that we are coming out of this period with a possible shift in the regulatory philosophy at the FDIC on de novo banking. To make this point, the FDIC has held industry outreach meetings in San Francisco, New York, Atlanta, and Dallas to inform industry participants about the FDIC’s application process and has planned additional outreach events on May 12, 2017, in Kansas City, Missouri, and May 31, 2017, in Chicago, Illinois.
It appears that we may be entering (finally) the cycle of de novo banks which would add to the health of the community banking industry. Small businesses may finally rejoice in the return of specialized relationship banking.
The FIL/Guidance can be found here: https://www.fdic.gov/news/news/financial/2017/fil17017.pdf
Since late last year, many banks in California, New York and Pennsylvania have received demand letters from two law firms that claim the websites of those banks violate Title III of the Americans with Disabilities Act (ADA). The demand letters assert that individuals with disabilities (typically the visually impaired) attempted to use the website of the banks, and faced unreasonable barriers to access, which made it impossible for the claimants to access the websites. The websites, according to the law firms, fail to comply with website standards developed by the World Wide Web Consortium called Web Content Accessibility Guidelines (WCAG 2.0). The law firms seek attorneys’ fees, costs and injunctive relief in connection with the demand letters.
Litigation has been commenced in several states, including California, over this issue of website accessibility by visually impaired individuals.
The ADA’s Title III became law in 2000 and protects disabled persons in public accommodation and commercial businesses. While Title III itself does not contemplate websites as a place of public accommodation, the Department of Justice (“DOJ”) along with several courts have reached that conclusion. The DOJ, which is charged with responsibility for promulgation of regulations, has promised to implement regulations by 2018. The DOJ has said in the interim WCAG 2.0 provides a minimum standard. A number of courts have agreed and allowed pending cases to continue despite motions to dismiss or stay the action until the DOJ issues its regulations. These decisions have meant that banks have been forced to defend these actions without really knowing what the DOJ regulations will provide. Several have settled with the law firms rather than litigate. Now there may be some relief for banks in California.
On March 20, 2017, a federal judge in Los Angeles granted Domino’s Pizza’s motion to dismiss a website accessibility lawsuit filed by a visually impaired person. In Robles v. Domino’s Pizza LLC the District Judge ratified the argument that in absence of a clear DOJ regulation of what “accessibility” means for a website, the defendant’s due process rights had been violated. The Court chastised the DOJ for failing to follow through on its July 2010 pronouncement to regulate website accommodation for public accommodation and ruled it was unfair to hold the defendant to an ambiguous legal obligation or the WCAG 2.0. The Court dismissed the action “pending the resolution of an issue with the special competence of an administrative agency.” This federal court parted ways with several other courts which had applied WCAG 2.0 as standards despite the DOJ’s failure to issue regulations.
While this ruling provides ammunition for clients seeking to fight these claims, it also leaves banks with uncertainty as to just how to improve websites to meet future ADA regulations by the DOJ. An unintended consequence of this ruling also strengthens the hands of bank vendors which have routinely denied any obligation to comply with WCAG 2.0.
Since, Robles was dismissed without prejudice, it can be refiled when the DOJ regulations are announced.
In the meantime, hopefully, the DOJ will act and provide the regulatory help which may actually assist the industry in this instance.
As we head into autumn, many of us change our seasonal wardrobes, replace the filters in our home heating/cooling systems, swap our summer screens for winter’s storm windows and ready our vehicles for winter. Bankers participating in a Federal Deposit Insurance Corporation (FDIC) shared-loss program should consider adding one more seasonal item to their list—a check-up on the status of your shared-loss participation, particularly your commercial shared-loss program. Many banks acquired assets and deposit accounts of failed institutions in the years following the Great Recession via purchase and assumption agreements entered into with the FDIC. Those agreements included an eight-year commercial shared-loss component, whereby the acquiring bank shares losses with the FDIC during the first five years and then shares recoveries for the remaining three years of the term.
To read the full text of the Alert, please visit the Duane Morris website.
On May 7, 2013, the U.S. Attorney’s Office for the Southern District of New York (SDNY) unsealed extraordinary criminal charges against two registered representatives of a U.S. broker-dealer and a high-level Venezuelan government official for engaging in a “Massive International Bribery Scheme.” What makes this fraud scheme remarkable is that it involves the activities of a U.S. broker-dealer, its client, a foreign-owned and controlled bank, the Foreign Corrupt Practices Act (FCPA) and several suspicious transactions that potentially should have raised concerns—a perfect storm. This case may be the catalyst that jump-starts a government FCPA sweep of Wall Street that has been predicted since 2011, but not realized.
A Missouri court recently handed down a judgement in an ACH/wire fraud dispute between Choice Escrow and BancorpSouth, and in a change from rulings in similar cases, this judgment favored the bank. The judge’s findings may well impact how other cases are decided in the future.