While Wells Fargo’s new chief executive has responded to his company’s recent unauthorized-accounts scandal by saying his “immediate and highest priority is to restore trust in Wells Fargo,” the bank has been taking a different approach with individual customers, reports The New York Times.

“The bank has sought to kill lawsuits that its customers have filed over the creation of as many as two million sham accounts by moving the cases into private arbitration — a secretive legal process that often favors corporations,” write reporters Michael Corkery and Stacy Cowley.

Customers argue that they couldn’t have agreed to arbitration, considering they didn’t sign up for the accounts in the first place. The bank counters that the agreements in the customers’ original contracts also cover the disputed accounts.

Read the NYT article.

Image by 401(K) 2012

The Federal Reserve looks ready to raise interest rates, predicts The New York Times.

When the Fed increased its benchmark interest rate late last year after keeping it near zero for seven years, Fed officials were in general agreement that they might raise rates as many as four times in 2016, write Binyamin Appelbaum and Kevin Granville. But their meeting on Dec. 13 and 14 gives the Fed the opportunity to raise rates for the first time this year.

The authors discuss life in a low-interest world and explain that the Fed is wrestling with three big, intertwined questions: How many people want jobs? How low are interest rates? And what damage is done by doing nothing?

Read the NYT article.

Image by Insider Monkey

Senior Morgan Stanley executives, including the firm’s chief legal officer, collectively earned about $10.5 million over the past week by exercising options and selling shares, Reuters is reporting.

Reporter Olivia Oran writes that most of the profits came from an election-fueled rally in bank stocks, according to securities filings.

“The executives made the sales after shares of Morgan Stanley, which traded as low as $22 in the last 12 months, reversed course to become the best performing of the six largest U.S. banks so far this year, closing Monday at $39.35,” she reports.

Chief Legal Officer Eric Grossman exercised options and sold stock on Friday, earning $475,206.

Read the Reuters article.

The U.S. Consumer Financial Protection Bureau, already in legal limbo after an October court decision, could find its powers scaled back by President-elect Donald Trump and a Republican-led Congress, according to members of both political parties, lobbyists and lawyers, Reuters reports.

The agency, created in response to the 2007-09 financial crisis, is a target for some critics for such proposals an attempt to stop companies from blocking customers from class action lawsuits and another one to limit payday lending.

“Many Republicans opposed the agency’s creation. They now say they dislike its structure and believe it oversteps its authority in enforcement,” writes reporter Lisa Lambert.

Read the Reuters article.

The Ninth U.S. Circuit Court of Appeals overturned an arbitration award in a multimillion-dollar investment case Friday because the lead arbitrator impersonated a California attorney — something he did in dozens of cases before being exposed, the San Francisco Chronicle reports.

Image by firedoglakedotcom

In the latest hit to the battered bank, Wells Fargo has agreed to pay $50 million to settle a class-action lawsuit that accused the bank of overcharging hundreds of thousands of homeowners for appraisals ordered after the homeowners defaulted on their mortgage loans, reports The New York Times.

Under the settlement, Wells Fargo will mail checks to more than 250,000 customers whose home loans were serviced by the bank between 2005 and 2010.

“The checks will typically be for $120, according to Roland Tellis, a lawyer with Baron & Budd, the law firm that represented Wells Fargo’s customers,” writes Stacy Cowley. “If a judge signs off on the settlement, as expected, the checks will be distributed next year.”

The settlement is the latest blow for Wells Fargo, after a scandal involving the creation of millions of unauthorized accounts for existing customers.

Read the article.

The sixth installment in Bryan Cave LLP’s series about banks’ third-party vendor service contracts covers two subjects: first, ownership of trademarks, copyrights, patents and other trade secrets, source code escrow agreements; and second, confidentialty.

Jerry Blanchard wrote the article for the firm’s Bank Bryan Cave blog.

“The contract should include intellectual property provisions that clearly define each party’s intellectual property rights for their pre-existing materials and materials developed as part of the contract,” he explains.

And: “The bank will want the vendor to maintain the confidentiality of all information provided by the bank. This includes preventing the vendor or its subcontractors from using the information in a manner that is not anticipated by the contract.”

Read the article.

DLA Piper has been recognized with the President’s Award by the Alternative and Direct Investment Securities Association (ADISA) for the firm’s  service to the alternative investment securities industry.

ADISA is a national trade association of decision makers who influence over 30,000 professionals involved in alternative investments, primarily non-traded alternatives. These typically include non-traded Real Estate Investment Trusts (REITs), Business Development Companies (BDCs), Master Limited Partnerships (MLPs) and private and public funds (LPs/LLCs), 1031 exchange programs (DSTs/TICs), energy and oil and gas interests, equipment leasing programs, and other alternative and direct investment offerings.

DLA Piper received the award on September 27, 2016 at ADISA’s Annual Conference and Trade Show in Las Vegas. John Grady, a partner in DLA Piper’s Philadelphia office, is the President-Elect of ADISA, and currently chairs its Legislative and Regulatory Committee. He will take over from the current President, Mike Bendix, on January 1, 2017. Darryl Steinhause, a partner in DLA Piper’s San Diego office, currently serves as general counsel to ADISA and its Board of Directors. Darryl Steinhause has been active in the association since its formation and in the past has been a member of the Board of Directors and numerous committees and has been active in ADISA’s interaction with the SEC and FINRA.

Bloomberg News reports on a Wall Street club that’s virtually unknown on Wall Street.

“The attendees are top in-house lawyers for some of the world’s most powerful banks — people who sit at the table for decisions that can shape multibillion-dollar litigation tabs for the likes of Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., Deutsche Bank AG and JPMorgan Chase & Co.,” write Greg Farrell and Keri Geiger.

They report that attendees at the recent gathering wanted to discuss a common foe: “class-action lawyers who seek billions of dollars from top banks for alleged market manipulations and related bad behavior. Eric Grossman, chief legal officer at Morgan Stanley, implored his confederates to hang together and resist the temptation to settle quickly.”

Read the article.

In a Fortune article, Paul Pendergrass analyzes the fall of Wells Fargo former CEO John Stumpf, finding that Stumpf underestimated the gravity of the situation three times, and each time his responses have been only strong enough to make things worse.

“When a corporation suddenly faces a public crisis of any kind – financial scandal, product recall, executive misbehavior, etc – the big question is always, ‘How strongly do we react?’ It’s often a tough call that has to be made under extreme time pressure, without all the essential facts fully known,” writes Pendergrass. “Overreact, and you can make the problem bigger than it actually is. But underreact, and you can find yourself in an irreversible nosedive.”

The writer traces the executive’s handling of the crisis, pointing to the three times he responded with too little too late.

Read the article.

A federal appeals court has found the structure of the U.S. Consumer Financial Protection Bureau to be unconstitutional but has left the agency in place to “continue to operate and perform its many duties.”

The court said the way the CFPB is organized violates the Constitution’s separation of powers because it limits the president’s ability to remove the agency’s director, currently Richard Cordray, reports James Peltz for the Los Angeles Times.

The court said the law that now allows the bureau’s director to be removed only “for cause” conflicted with the Constitution, which allows the president to remove executives for any reason.

In his written ruling, Judge Brett Kavanaugh of the U.S. Court of Appeals for the District of Columbia, rejected the notion of shutting down the CFPB and said that the bureau instead “will continue to operate and perform its many duties,” Peltz reports.

Read the article.

Elizabeth Holmes

Photo by Max Morse for TechCrunch

Partner Fund Management, a San Francisco-based hedge fund that reportedly wrote out a $96 million check to Theranos in 2014, is now suing the blood-testing startup and its founder, Elizabeth Holmes, reports TechCrunch.

In its filing, the plaintiff says Theranos duped it into investing “through a series of lies, material misstatements, and omissions,” and accusing the firm of engaging in “securities fraud and other violations by fraudulently inducing” it to invest and to maintain its investment in the company reports Connie Loizos.

Reports says that the plaintiff claims says Holmes and another former Theranos executive blatantly lied to the hedge fund by claiming it had developed “proprietary technologies that worked” and that it was nearing regulatory approvals.

Read the article.

New York State has proposed a new regulation that requires insurance companies, banks, and other financial services institutions regulated by the New York State Department of Financial Services (DFS) to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry, reports Jason O. Balogh, a partner with Hickey Smith LLP.

If enacted, this change would bring the first statewide regulation mandating that insurance companies, banks, and other financial institutions create such a program. The regulation would set forth fairly general minimum standards, Balogh explains in the article published on the firm’s website.

“Among other requirements, under the proposed regulation, insurance companies, banks, and other financial institutions would be required to set out detailed plans for handling data breaches, increase their monitoring of how third-party vendors handle and secure data, and appoint a chief information security officer. While many insurance companies, banks, and other financial institutions will find that elements of the proposed regulation are similar to those found in existing regulatory and technical guidance, they have not previously been required as a matter of law,” Balogh writes.

Read the article.

The Federal Trade Commission, in its first public remarks since a federal judge last week entered a $1.3 billion judgment against payday loan businessman Scott Tucker, called the penalty the largest of its kind, reports The Kansas City Star.

The judgment against Tucker and related entities eclipses the FTC’s previous record judgment from litigation: a $478 million judgment in 2012 ($501.4 million, when adjusted for inflation) against John Beck, the perpetrator of a deceptive real estate get-rich-quick scheme, according to reporter Steve Vockrodt.

U.S. District Court Judge Gloria Navarro last week entered a $1.3 billion judgment against Tucker and others to wrap up a case brought by the FTC in 2012.

“The FTC tracked and sued Tucker, his brother Blaine Tucker and several corporations under their control on claims that they extended loans that deceived consumers about the true cost of their credit,” Vockrodt explains. “For example, the FTC said that $300 loans extended by Tucker’s companies cost $390, at a 30 percent interest rate. In reality, through deceptive loan terms and automatic loan renewals, the FTC said many consumers ended up paying nearly $1,000.”

Read the article.

If the goal of compensation clawbacks is to keep corporate executives honest, then they aren’t doing the job, according to a report by The New York Times.

As evidence, writer Gretchen Morgenson points to recent action by Wells Fargo’s board. The bank’s directors acted on Tuesday to recover $60 million in stock grants from two top executives after a phony-account-opening scandal rocked the company and its executives. But the move came almost three years after the improprieties came to light.

There are several reasons givebacks are rare, Morgenson reports: “One is that corporations limit the scope of their recovery policies. For example, the policies are written to cover only a portion of an executive’s pay.”

“Clawbacks extending to all types of compensation are uncommon,” James F. Reda, managing director of executive compensation consulting at Arthur J. Gallagher & Company, told the reporter. “They typically only apply to the cash portion and only to the top executives.”

Read the article.

Thomson Reuters and Clifford Chance have joined forces to help global financial institutions deal in a more cost-effective manner with regulatory obligations relating to margin rules for uncleared over-the-counter (OTC) derivatives, Thomson Reuters announced.

“Using an innovative approach to contract negotiation and documentation, the partnership offers a flexible, rapidly scalable, technology-enabled solution that will empower these financial institutions to meet their current multi-jurisdictional regulatory obligations and as they continue to evolve in the future,” the company says in a release.

The release continues:

Pressure on both buy-side and sell-side financial institutions is growing as new regulatory deadlines relating to margin for uncleared OTC derivatives loom large and the volume and complexity of contract work needed to meet compliance obligations increases. In addition, the internal challenge within all financial institutions to find further cost-efficient ways to operate has caused many to look again at their own internal processes, specifically their existing documentation and negotiation processes.

The collaboration between Thomson Reuters, one of the world’s most innovative providers of intelligent information and solutions, with Clifford Chance, one of the world’s pre-eminent international law firms, offers deep legal acumen and financial industry experience powered by highly efficient processes and advanced technology. Thomson Reuters is applying its proprietary contract automation software, Contract Express, and abstraction technology built specifically for OTC documentation. This Thomson Reuters technology platform enables its teams to rapidly generate compliant and consistent documentation to clients’ specifications, easily extract key terms from existing documentation and enable advanced analytics of the clients’ agreements, which ultimately results in cost and time savings.

“By working with Thomson Reuters we can combine our deep understanding of the difficult challenges financial institutions face with a powerful, scalable delivery platform to offer clients the best of both worlds,” said Paul Landless of Clifford Chance Singapore. “The fact that we can fully support from Clifford Chance teams across New York, London, Europe and Asia Pacific to work with Thomson Reuters places us perfectly to tackle both the local regulatory issues and the complex, international challenges our clients face.”

David Felsenthal of Clifford Chance New York said, “At Clifford Chance we are always exploring new ways of working to ensure we deliver our legal expertise in the best possible way for our clients across the globe, considering everything from deploying artificial intelligence to working with carefully chosen partners. This is particularly relevant for the complicated, multi-jurisdictional regulatory and documentation remediation challenges now facing the financial services sector.”

“Thomson Reuters supports financial institutions with their ongoing master documentation needs by leveraging a global team comprised of OTC derivatives documentation lawyers and professionals with direct experience working in major financial institutions,” said Gregory McPolin, chief operating officer of Thomson Reuters Legal Managed Services. “Plus we have developed an industry-leading approach to tackling the time sensitive documentation needs driven by new and changing regulations for financial institutions and other heavily regulated industries.”

Maria Garcia, head of Financial Documentation Services for Thomson Reuters Legal Managed Services explained that “combining those knowledgeable resources with advanced technology, such as Contract Express, uniform processes and efficient project management allows us to handle high volumes of work in tight timeframes. As a result, our clients have found their negotiations are propelled forward faster and at a lower cost. We believe this technology-enabled service model coupled with the derivatives-related legal knowledge and counsel from Clifford Chance presents a powerful and exciting proposition to the financial services industry.”

The Washington Post is reporting that the charitable Donald J. Trump Foundation — which has been sustained for years by donors outside the Trump family — has never obtained the certification that New York requires before charities can solicit money from the public, according to the state attorney general’s office.

New York state law requires any charity that solicits more than $25,000 a year from the public to obtain a special kind of registration before collecting contributions, reports The Post‘s David A. Fahrenthold. The law also requires large charaties to submit to a rigorous annual audit that asks — among other things — whether the charity spent any money for the personal benefit of its officers.

“If New York Attorney General Eric Schneiderman (D) finds that Trump’s foundation raised money in violation of the law, he could order the charity to stop raising money immediately,” writes Farenthold. “With a court’s permission, Schneiderman could also force Trump to return money that his foundation has already raised.”

Read the article.

Constant vigilance, skilled lawyering and good deal-making skills remain critical to the proper drafting of contractual arrangements, points out Glenn West in a post on Weil, Gotshal & Manges LLP’s Global Private Equity Watch.

He discusses the seriousness of drafting and interpreting contracts, and the care required in doing so, in light of the recent decision by the United States Court of Appeals for the Second Circuit in Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co., No. 15-2366-cv (7th Cir. Sept. 15, 2016). The appellate court affirmed the judgment of the district court awarding damages in favor of the noteholders against Chesapeake Energy for $438,717,561.67 for redeeming notes at par after the period specified for redemption at par, the second time the Second Circuit has addressed Chesapeake’s of its $1.3 billion in notes based on the company’s interpretation of the Notes’ Supplemental Indenture.

The actual subjective intent of an  agreement “may well have been to provide Chesapeake a four month period in which to provide the required 30-60 days’ notice of redemption rather that to complete the actual redemption, but the Second Circuit, reading the actual words used to convey that intent, concluded that the words unambiguously conveyed a contrary meaning,” according to West.

Read the article.

Image by firedoglakedotcom

As John G. Stumpf, the chief executive of Wells Fargo, prepares to face a congressional tribunal on Thursday for the second time in two weeks, questions are intensifying about the bank’s sham accounts scandal and its lethargic response to it, reports The New York Times.

The company announced late Tuesday that Stumpf would forfeit approximately $41 million worth of stock awards, forgo his salary during the inquiry and receive no bonus for 2016.

“The Wells Fargo board also announced the immediate retirement of Carrie L. Tolstedt, the former senior executive vice president of community banking, who ran the unit where the fake accounts were created,” writes Gretchen Morgenson of The Times. “She will forfeit $19 million in stock grants, will receive neither a bonus for this year nor a severance, and will be denied certain enhancements in retirement pay, the board said.”

Read the article.

NBC News reports that a class-action lawsuit filed against Wells Fargo might be hamstrung at the starting line, legal experts say.

Martha C. White writes that mandatory arbitration contract clauses may protect the bank from class-action suits brought by customers who had bank or credit card accounts opened in their names without their knowledge.

“Five years ago, a Supreme Court ruling said it was legal for companies to shield themselves from lawsuits by requiring that customers address grievances through a private arbitration system. Since then, consumers seeking redress from banks, even earlier cases against Wells Fargo in California, have been effectively stopped at the courthouse door,” according to the report.

“There’s no question that it’s very difficult to overturn an arbitration clause, although the facts in this case are pretty damning,” said Ed Mierzwinski, consumer program director for U.S. PIRG.

Read the article.