Attempting to advance a novel theory of law, several banks filed a class action in Illinois federal court against a grocery store chain arising out of a data breach that resulted in the theft of 2.4 million credit and debit cards, reports Jackson Lewis PC.

After the breach, the banks were required to issue new cards and reimburse its customers as required by federal law for financial losses due to unauthorized purchases, estimated by the plaintiffs to be in the tens of millions of dollars. With the litigation, the financial institutions sought to recover some of their costs from the grocery store chain that was allegedly responsible for the loss of the data.

Jeffrey M. Schlossberg explains the outcome: “Despite seemingly compelling arguments, the Seventh Circuit ultimately upheld the lower court’s dismissal of the banks’ claims finding that they were bound by the contractual provisions of their agreements. Essentially, the court ruled, by joining the credit card system, the banks accepted some risk of not being fully reimbursed for the costs of another party’s mistakes.”

Read the article.

The $1 billion fine levied by federal regulators against Wells Fargo is unlikely to hobble or even slow down the bank, thanks to the massive corporate tax cut passed by Congress last year, reports The Washington Post.

Reporter Renae Merle explains: “Just in the first quarter, Wells Fargo’s effective tax rate fell from about 28 percent to 18 percent, saving it more than $600 million. For the entire year, the tax cut is expected to boost the company’s profits by $3.7 billion, according to the Goldman Sachs report.”

“Despite its regulatory headaches, Wells Fargo remains massively profitable. The bank reported Friday that although the fine drove down its first-quarter profits by $800 million, it still netted $4.7 billion,” Merle writes.

Read the Post article.

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Reuters reports that Wells Fargo & Co. has been offered a penalty of $1 billion by regulators to resolve outstanding investigations related to auto insurance and mortgage lending abuses, the third-largest U.S. bank by assets said on Friday.

The news agency previously had reported that the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency were preparing a fine of up to $1 billion for Wells Fargo’s auto insurance and mortgage lending abuses.

“The U.S. Federal Reserve has also imposed restrictions on the bank’s growth, forbidding it to expand its balance sheet beyond 2017 levels until it makes internal changes that addressed its board and risk management,” according to the latest Reuters report.

Read the Reuters article.

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In the 135 days since the Trump administration took control of the nation’s consumer watchdog agency, it has not recorded a single enforcement action against banks, credit card companies, debt collectors or any finance companies whatsoever, according to an Associated Press review.

Reporter Ken Sweet writes that’s likely no fluke: “Mick Mulvaney, appointed acting director of the Consumer Financial Protection Bureau in late November, promised to shrink the bureau’s mandate and take a much softer approach to enforcement, and records reviewed by The Associated Press indicate he has kept his word.”

Tthe bureau issued an average of two to four enforcement actions a month under former Director Richard Cordray, President Obama’s appointee. But the database shows zero enforcement actions have been taken since Nov. 21, 2017, three days before Cordray resigned.

Read the AP article.

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MarketWatch is reporting that the Federal Deposit Insurance Corp. could collect the largest damage award ever against a global public accounting firm when a federal judge decides what to award the agency after a verdict against PricewaterhouseCoopers.

The judge in the case has already ruled that PwC had been professionally negligent in not detecting the criminal fraud that led to the failure of Colonial Bank Group in 2009, according to reporter Francine McKenna.

The FDIC has asked Judge Barbara Rothstein to award it $625 million in compensation for the bank’s alleged net losses from a fraud with mortgage originator Taylor Bean and Whitaker, which also failed in 2009.

Even PwC’s estimate of damages based on the judge’s decision, per court filings, of $306 million would result in the largest-ever final judgment or jury verdict for accounting malpractice, MarketWatch reports.

Read the MarketWatch article.

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Irelsie Alvarez said she and fellow jurors wanted to send JPMorgan Chase & Co. a message with their startling $8 billion verdict in a Dallas probate case — an award that’s destined to be reduced to no more than $90 million, reports Bloomberg.

The trial was in late 2017, but lawyers for the bank company were back in court on Thursday, saying the defendant is entitled to a take-nothing verdict.

The widow of deceased American Airlines executive Max Hopper sued the bank for allegedly mismanaging the estate of her late husband.

Alvarez, a 26-year-old insurance agent, said she took the suggestion of lawyers for Hopper’s family that a big damage award was needed “in order to prevent this from happening again.”

Reporter Tom Korosec writes that the jury award was the largest of 2017 and the ninth-largest in U.S. history.

Read the Bloomberg article.

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The Washington Post is reporting that the Senate is slated to pass far-reaching legislation this week to roll back key components of financial regulations put in place after the global financial crisis.

If made into law, the legislation would weaken the Dodd-Frank Act and would free dozens of financial institutions from the strictest rules put in place by regulators after the crisis, explains reporter Renae Merle.

The bill would raise the “too big to fail” standard for troubled banks, soften capital requirement for banks, offer small banks relief from the “Volcker rule” that bars banks from making risky wagers with their own money, and offers some banks relief from some restrictions on mortgage lending. The proposed legislation, however, would not weaken the Consumer Financial Protection Bureau.

Read the Post article.

Earlier this month, tax attorneys Steven Toscher and Michel R. Stein, principals at Hochman Salkin Rettig Toscher & Perez P.C., delivered a presentation titled “New IRS Scrutiny on Cryptocurrency Reporting: Filing Requirements and Exchange Treatment.”

Toscher and Stein’s presentation explains, “Cryptocurrency is drawing increased attention from government regulators.” They note that in November 2017, Coinbase was ordered to release information on approximately 14,000 customers.

They also discuss the means of obtaining virtual currency, problems posed by “fair market value,” and issues that are unresolved.

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U.S. Bank, the fifth-largest commercial bank by assets in the United States, was charged by the the Justice Department on Thursday with failing to guard against illegal activity and, in at least one instance, even abetting it, reports The New York Times.

The bank is charged with severely neglecting anti-money laundering rules, helping a payday lender operate an illegal business and lying to a regulator about its plans for tracking potential criminal activity by bank customers, writes reporter Emily Flitter.

The bank settled the Justice Department charges and cases brought by other regulators by agreeing to pay various fines and penalties totaling $613 million.

Read the NY Times article.

The ranks of women general counsel in the Fortune 500 continued to grow in 2017, particularly in the financial services industry, though it remains more male-dominated than other sectors, according to a Bloomberg Law report.

Cynthia Dow, head of the legal officers practice at executive search firm Russell Reynolds Associates, told Bloomberg that, of the 86 financial services companies in the Fortune 500, 11 hired new general counsel in 2017. And six of those were women.

“Despite the significant bump in 2017, women still lag behind in Fortune 500 financial services GC roles, making up only 22 percent, according to Dow,” writes Stephanie Russell-Kraft.

Read the Bloomberg Law article.

When the Federal Reserve announced its punishment of Wells Fargo in the company’s sales scandal, the agency also announced that the company would replace four members of its 16-person board.

In a commentary for The Washington Post, former treasury secretary Lawrence Summers discussed the question: Why aren’t the directors who are leaving being named and asked to resign effective immediately with an element of humiliation?

“There are compelling reasons for due process before anyone goes to jail, even if it undermines deterrence,” Summers writes. “There is no similar justification for due process before being fired, publicly, for being a failed fiduciary. The Fed and other regulatory agencies should change their procedures.”

Read the Post article.

The recent Parity wallet “freeze” provides yet another example of a coding vulnerability in a smart contract (rather than a flaw in the underlying blockchain or cryptography) resulting in an exploit that compromises cryptocurrency worth millions, according to Proskauer Rose LLP’s Blockchain and the Law.

Wai Choy and Pengtao Teng write: “It again highlights some of the pitfalls of insecure code in the context of digital assets and raises questions regarding the extent to which software developers can be held liable to its users for losses suffered due to those oversights. As blockchain-related software that serve as storage vaults for digital assets continue to proliferate, it will be interesting to see how industry standards and the existing software liability regime in the U.S. and other jurisdictions evolve to reflect the critical role of secure software in the ‘Internet of Value.'”

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The U.S. Court of Appeals for the Eighth Circuit issued an order dealing with indemnification for prior settlements, and it could have a hugely beneficial impact on potential indemnitors, including sellers of mortgage loans as well as insurers, reports Bilzin Sumberg in its Mortgage Crisis & Financial Services Watch.

The appellate court affirmed a lower court’s ruling that, when an insured seeks indemnification for settlements that encompassed both covered and non-covered claims, the insured must present sufficient evidence to establish with reasonable certainty the value that the settling parties attributed to the covered claims, explain Philip R. Stein and Shalia M. Sakona.

They discuss the background of the case, the limitations on using expert testimony to establish allocation, and the application of the holding to the mortgage industry.

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Regulatory compliance is an area of fundamental concern – not only for strategic investors – but also for financial institutions contracting for services from financial technology providers, warns Adam Chernichaw, a partner in the New York office of White & Case.

“Where a financial institution classifies a product or service being procured as an ‘outsourcing,’ its vendor risk management (VRM) function will carefully scrutinise the proposed relationship,” Chernichaw writes. “The VRM function will usually take the position that regulators will look at the service provider as an extension of the institution. Accordingly, the institution is required to impose contractual obligations on the provider so that the provider acts as the institution itself would act when it comes to compliance.”

In his article he emphasizes the importance of parties to align on the contractual VRM requirements that will be sought by the financial institution, and whether the fintech provider can meet those obligations.

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Trial lawyer Mark Werbner of Dallas litigation firm Sayles Werbner will address Texas lawyers about his decade-long quest to hold the Arab Bank responsible for providing financial support to U.S.-designated terror organizations.

Werbner will discuss Linde, et al. v. Arab Bank PLC in a presentation titled, “Fighting Terror-Financing in the Courtroom,” during the State Bar of Texas Litigation Update Institute’s 34th annual course Jan. 11–12, 2018.

In 2014, a jury in New York sided with Werbner, finding Jordan-based Arab Bank responsible for providing financial services to Hamas for 24 terror attacks during the “Second Intifada” in Israel and the Palestinian territories. The verdict was the culmination of a lawsuit filed in 2004 to obtain justice for nearly 300 American victims and their families. The case marked the first liability verdict against a foreign bank for violating the Anti-Terrorism Act.

Interview: Mark Werbner discussing Arab Bank case

Currently under review by the U.S. Supreme Court is Jesner, et al., v. Arab Bank, a related case that would clarify if the Alien Tort Statute (ATS) applies to corporations under the 1789 U.S. law.

The Linde verdict earned Werbner the 2016 Trial Lawyer of the Year Award from Public Justice, which honors attorneys who made the greatest contribution to the public interest through their work in precedent-setting, socially significant cases. His work has also been consistently recognized in top legal publications, such as The Best Lawyers in America.

Jay Clayton

In its latest fiscal year, Wall Street’s top regulator sought the smallest amount of penalties since 2013, a drop that took place as the agency went months without permanent leadership and could show a softer approach to policing wrongdoing, Bloomberg reports.

“The U.S. Securities and Exchange Commission tried to obtain $3.4 billion in fines and disgorgement from companies and individuals during the 12 months ended in September, according to data collected by Urska Velikonja, a Georgetown University law professor,” write reporters Matt Robinson and Benjamin Bain. “The SEC filed 612 enforcement cases, also the fewest in four years, Velikonja’s research shows.”

Velikonja points out that since Jay Clayton — the former Wall Street deals lawyer appointed by Trump — took over as SEC chair in May, the agency has pursued just two sanctions against large financial firms. But in the same period a year earlier, more than a dozen big financial companies faced SEC sanctions.

Read the Bloomberg article.

A lawsuit recently brought against General Electric Co. raises the question: Can your employer be trusted to manage your retirement fund exclusively for your own benefit?

Los Angeles Times reporter Michael Hiltzik explains that the suit alleges that GE managed the plan for its own benefit by loading it with mutual funds owned by its own subsidiary.

“The funds charged high fees while also underperforming the investment markets, a double-barreled drawback that cost employees millions in potential gains,” according to Hiltzik.

Plaintiffs claim that a large portion of the funds was invested in GE-owned mutual funds, and the company pocketed the management fees paid by its own employees. All but one of the five GE funds underperformed its benchmark investment index.

Read the LA Times article.

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Before Equifax discovered a massive computer breach that exposed sensitive information about millions of Americans, the company lobbied Congress on legislation to limit how much it could be forced to pay if sued by consumers, reports The Washington Post.

The company also pressed lawmakers to roll back the powers of its regulators, according to reporters Renae Merle and Hamza Shaban.

“Since at least 2015, the credit reporting agency has repeatedly lobbied lawmakers on issues related to ‘data security and breach notification,’ according to federal disclosure forms,” the Post reports.

Read the Post‘s article.

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Reuters is reporting that U.S. authorities announced insider trading charges accusing seven people of generating more than $5 million of profit based on tips from a Bank of America Corp. employee about dozens of pending corporate transactions.

The alleged tipster, Daniel Rivas, who later worked at Royal Bank of Canada, and James Moodhe, the father of Rivas’ girlfriend, both pleaded guilty to charges of fraud, conspiracy, and making false statements to Federal Bureau of Investigation agents, report Brendan Pierson and Jonathan Stempel.

“Prosecutors said Rivas, who worked in Bank of America’s capital markets technology group, leaked material nonpublic information about potential mergers, acquisitions and tender offers involving clients and prospective clients more than 50 times to co-conspirators, who then traded on the tips,” according to the report.

Read the Reuters article.

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Reuters is reporting that accounting company PricewaterhouseCoopers LLP will pay $1 million to settle a civil complaint alleging it conducted a flawed audit into Merrill Lynch’s compliance with federal brokerage customer protection rules, U.S. audit watchdogs said on Wednesday.

“The PCAOB’s penalty against PwC comes a little over a year after the Securities and Exchange Commission ordered Bank of America’s Merrill Lynch to pay $415 million to settle charges it had put its brokerage clients’ cash at risk in violation of customer protection rules,” writes Sarah N. Lynch.

Read the Reuters article.

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