“Deutsche Bank AG agreed Tuesday to pay a $150 million penalty to settle ‘significant compliance failures’ in its dealings with convicted sex offender and financier Jeffrey Epstein,” reports VOA News.

“The New York State Department of Financial Services said the bank did not properly monitor Epstein’s transactions, despite widespread public knowledge about his sexual misconduct.”

“It said Deutsche Bank’s failure led to its processing of hundreds of Epstein’s transactions that should have been more closely scrutinized, including payments to victims and law firms representing him and his accomplices.”

“The state regulator said Deutsche Bank also failed in its relationships with Danske Bank Estonia and FBME Bank by not properly monitoring their correspondent and clearing operations.”

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“The Tezos (XTZ) class-action lawsuit from law firm Block & Leviton will likely conclude in a $25-million settlement on August 27. Tezos, like many initial coin offerings (ICO) from 2017, has come under scrutiny from both investors and regulators alike alleging that its token sale constituted an illegal offering of securities,” reports Osato Avan-Nomayo in Coin Telegraph.

“Indeed, the U.S. Securities and Exchange Commission (SEC) has come down hard on numerous 2017-era ICOs demanding penalties for securities violation. Even distributions to non-U.S. citizens have also come under the SEC’s radar, as was the case with Telegram.”

“The SEC has consistently maintained that most ICOs are indeed unlicensed securities offerings despite pushback from stakeholders in the country to exempt a wider range of tokens from securities regulation. With more jurisdictions paying greater attention to crypto-based fundraising, the ICO model appears to be a thing of the past with more focus on regulated token sales.”

Read the article.

“Wirecard AG’s former chief executive officer was detained by Munich prosecutors after 1.9 billion euros ($2.1 billion) went missing from the digital-payment company, in a scandal that has rattled Germany’s financial industry,” report Karin Matussek, Sarah Syed and Bloomberg in Fortune’s International.

“Markus Braun, who resigned last week, turned himself in Monday evening in Munich as part of a probe into the company’s accounting practices, prosecutors said in an e-mailed statement. A judge will review whether he can be kept in custody Tuesday afternoon.”

“The company is fighting for survival after acknowledging the missing funds probably don’t exist. The payment processor said it’s in discussions with creditors and is considering a full-scale restructuring after pulling its financial results for fiscal 2019 and the first quarter of 2020.”

“In less than a week, the fintech company once hyped as the future of German finance has lost most of its market value.”

Read the article.

“A coalition of 34 state attorneys general announced on May 19, 2020, that it had secured a settlement with one of the nation’s largest subprime auto financing companies for alleged violations of state consumer protection laws. Under the settlement agreement, the terms of which are discussed in detail below, the auto financing company is required to provide significant monetary relief to consumers, $550 million in total, and substantially adjust its lending practices moving forward,” report Anthony E. DiResta and David L. Haller in Holland & Knight’s Insights.

“Without admitting any liability and to resolve the allegations without litigation, the auto financing company agreed to the entry of a consent judgment with each of the 34 state attorneys general participating in the multistate investigation and resulting enforcement actions. Collectively, those consent judgements require the auto financing company to provide $550 million in monetary relief to consumers, including $478 million in deficiency balance waivers, $65 million in restitution and $7 million in restitution management. The consent judgments do not stop at monetary relief. They also require considerable changes to the auto financing company’s lending practices.”

Read the article.

“Britain’s biggest domestic bank Lloyds has been fined 64 million pounds ($81.2 million) by the Financial Conduct Authority for mistreating hundreds of thousands of mortgage customers in financial difficulties,” reports in Reuters’ Business News.

“Lloyds and its Bank of Scotland and The Mortgage Business units were also in the process of paying around 300 million pounds in redress to 526,000 customers, the FCA said in a statement on Thursday.”

“The fine is the largest imposed by the watchdog for mortgage-related failures, and would have been 91.5 million pounds had Lloyds not agreed to accept the watchdog’s findings early on.”

“The hefty penalty comes at a sensitive time for Lloyds, which along with rival banks has millions of customers struggling to make ends meet in the coronavirus pandemic, with many taking repayment holidays on mortgages.”

Read the article.

“The bank has asked the U.S. to review demands that any settlement include a guilty plea to a felony charge, according to people briefed on the matter,” reports Matthew Goldstein in The New York Times Business.

“Lawyers for the bank have asked Deputy Attorney General Jeffrey Rosen to review demands by some federal prosecutors that Goldman pay more than $2 billion in fines and plead guilty to a felony charge…”

“The bank has sought to pay a lower fine and avoid a guilty plea, according to the people, who spoke on condition of anonymity because the talks are continuing.”

“Authorities in the United States and Malaysia say more than $2.7 billion was diverted from the fund, known as 1MDB, in a scheme that involved the flamboyant financier Jho Low, the country’s former prime minister, and other powerful people. The fund was meant to finance projects for the benefit of the people of Malaysia, but some of the cash went to buy luxury apartments, yachts, paintings and even finance the movie ‘The Wolf of Wall Street.'”

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“J.P. Morgan Chase agreed to pay $9 million to settle allegations by current and former participants in the company’s 401(k) plan that fiduciaries violated their ERISA duties by retaining expensive investment options and failing to look for cheaper and better-performing replacements,” reports Robert Steyer in Pensions & Investments Courts.

“Terms of the preliminary settlement, which still requires court approval, were filed May 22 in U.S. District Court in New York. The parties had announced in early April that they had reached a tentative agreement in the case of Beach et al. vs. J.P. Morgan Chase Bank et al.”

“J.P. Morgan and its affiliated defendants declared there was no wrongdoing, according to the settlement document.”

Read the article.

“Santander Consumer USA will pay $65 million to states and forgive hundreds of millions more in consumer debt as part of a settlement with a group of attorneys general over practices in its subprime auto lending business,” reports Laura Alix in American Banker.

“The attorneys general, representing 33 states and the District of Columbia, said the Dallas-based lender had exposed borrowers to unnecessarily risky loans with a high chance of default. In addition to paying $65 million in restitution, Santander Consumer has also agreed to forgive nearly $500 million in car loan debt to borrower nationwide.”

“Santander defrauded desperate consumers by placing them into auto loans the company knew these customers could never afford to pay, resulting in defaults and negative ratings on consumers’ credit reports.”

“The agreement announced Tuesday caps an investigation the attorneys general launched early in 2015 into the U.S. consumer lending unit of the Spanish banking giant Banco Santander. The coalition said its investigation revealed Santander Consumer knew that certain groups of consumers had a high risk of default, but still steered them into loans with high loan-to-value ratios, significant backend fees and high payment-to-income ratios.”

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“Four of America’s biggest banks have been accused of harming thousands of coronavirus-hit small businesses by unfairly prioritizing emergency loan requests from large customers to earn fatter fees,” reports Matt Egan in CNN Business.

“BAC, Wells Fargo, JPMorgan Chase and US Bank were sued Sunday for allegedly failing to process forgivable loans in the $349 billion Paycheck Protection Program (PPP) on a first-come first-served basis.”

“Each bank ‘concealed from the public that it was reshuffling the PPP applications it received and prioritizing the applications that would make the bank the most money,’ each of the four lawsuits said.”

“As a result of this ‘dishonest and deplorable behavior,’ the lawsuit said thousands of small businesses ‘were left with nothing’ when PPP ran out of money earlier this month.”

“The legal action was brought by a range of California small businesses, including a frozen yogurt shop, law firms, an auto repair company and a cybersecurity firm.”

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“Equifax will pay Massachusetts $18.2 million and change its security practices as part of a settlement between the credit reporting agency and the state stemming from a major 2017 data breach, Attorney General Maura Healey announced Friday,” reports Chris Lisinski in WBUR’s Bostonomix.

“Healey sued Equifax shortly after the company’s alleged missteps exposed personal data, including Social Security numbers and driver’s license numbers, of 147 million Americans and 3 million Massachusetts residents. The attorney general said the company also failed to notify consumers in a timely manner once the breach occurred.”

“Her office reached its own settlement with Equifax about nine months after declining to join other states in July 2019 agreements, which the attorney general told reporters allowed Massachusetts to secure a larger payment and more strict conditions on the company.”

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“Former Wells Fargo & Co. general counsel C. Allen Parker Jr. took home outsized pay of more than $9.6 million last year thanks to his elevation to interim CEO,” reports Brian Baxter in Bloomberg Law’s Banking Law News.

“Parker’s compensation is all the more notable since Wells Fargo’s top in-house lawyer has rarely, if ever, been one of the highest-paid executives at the company, according to three former lawyers for the bank.”

“The bulk of Parker’s pay—approximately $8.3 million, including a $2 million grant of restricted stock—came from his service last year as Wells Fargo’s interim CEO from March through October, according to a 2019 proxy statement filed by the company March 16.”

“The proxy, which also revealed that the bank clawed back a $15 million stock award to former CEO Timothy Sloan, came less than a week after its hire of a new general counsel in Ellen Patterson, the soon-to-be former in-house legal chief at Toronto-Dominion Bank.”

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Reuters reports that Chris Collins, a former U.S. congressman from New York who was an early backer of President Donald Trump, was sentenced to 26 months in prison and fined $200,000 on Friday after pleading guilty to taking part in an insider trading scheme.

Collins, who resigned from Congress after being found guilty, was convicted of trading on insider information while a board member and 16.8% stakeholder of Australian biotechnology company Innate Immunotherapeutics Ltd.

Reuters’ Jonathan Allen explains Collins’ crime:

“After learning from an email sent by Innate Immunotherapeutics’ chief executive that an experimental multiple sclerosis drug had failed a clinical trial, Collins relayed the news to his son, enabling the son to sell shares before the news became public and eroded their value.”

Read the Reuters article.

Gray Reed partner Charles Sartain takes a look back at some of 2019’s malefactors in the energy business in a post in the firm’s Energy & the Law blog.

“To our bad guys, 2019 was a year flush with hope and opportunity; it ended with recidivism, more misery from Venezuela, a charlatan, an Okie who pulled a multi-million dollar fast-one on Chesapeake and, as in years past, a peek into the darker side of the human condition,” he writes.

The post describes six cases of fraud, conspiracy, money laundering, and outright theft.

Read the article.

A former solar company executive pleaded guilty to defrauding investors of $1 billion, leaving in the company’s wake a string of lawsuits from buyers, suppliers and fired employees, reports the San Francisco Chronicle.

DC Solar Solutions of California made solar generators mounted on trailers that provided event lighting and emergency power for communications companies, writes the Chronicle‘s Mallory Moench.

She explains the scheme: “Prosecutors allege DC Solar sold the generators through special funds for investors to get federal tax credits. The company then purported to lease those generators to third parties to generate revenue, little of which it actually made, prosecutors say; instead, they say, early investors were paid with funds from later investors — a classic Ponzi scheme.”

Read the  SF Chronicle article.

By Matt Smith
Opportune LLP

Lower natural gas prices are causing exploration and production companies to get creative with their hedging strategies to lock in near-term cash flows above the dismal levels the market is currently offering. When hedging with options, it’s not uncommon for oil and gas producers to sell options and roll the premium value of the sold option into another hedging instrument.

An example of this is a costless collar. With a costless collar, a company buys a put option to establish a floor price they’ll receive for the sale of their commodity. Rather than pay the premium for buying the put option, the company sells a call option with an equal premium to offset the purchased put premium. The sold call option establishes a ceiling price they’ll receive for the sale of their commodity. The result allows a company to participate in commodity prices above the floor price and below the ceiling price.

With calendar 2020 natural gas swap prices below $2.25/MMBtu, traditional swaps and costless collars aren’t appealing to many companies. This, combined with the fact that the NYMEX natural gas futures prices are in contango—where future prices are higher than the spot prices—has led some companies to sell options in future periods and roll the premium into near-term swaps. A strategy that’s gaining popularity is selling swaptions and rolling the premium into near-term swaps.

For example, let’s assume the current NYMEX swap prices are $2.25/MMBtu and $2.45/MMBtu for calendar years 2020 and 2021, respectively. Rather than hedge with swaps at these prices, a company may decide that it would rather sell an option giving the counterparty the right to enter into a swap for 2021 at $2.50/MMBtu (this is commonly referred to as a swaption as it’s the option to enter into a swap). When this option expires in December 2020 (or whichever expiry date is negotiated), if the swap price is above $2.50/MMBtu, the bank will execute their right to swap at $2.50/MMBtu, and if the prices are below $2.50/MMBtu, the bank will not.

A company is able to take the premium from selling the swaption and roll this value into a swap to get an above-market 2020 swap price. In this example, let’s assume the premium was $0.25/MMBtu, and the company would roll the $0.25/MMBtu premium into their 2020 swap to get an above-market swap price of $2.50/MMBtu, rather than $2.25/MMBtu. The downside is that the swaption doesn’t provide any price protection in 2021 if natural gas prices continue to go down and it limits upside potential if natural gas prices increase. However, it has become a viable alternative for many in this tough energy market.

Swaptions can create financial reporting complexities when it comes to determining the appropriate fair value to record in financial statements. Implied volatility inputs for NYMEX options are generally readily available. However, implied volatilities for swaptions are not. Determining appropriate volatility is calculation-intensive and requires consideration of various inputs.

The uniqueness of these trades often leads to a significant amount of attention from auditors, the need for valuation specialists and generally requires additional financial statement disclosures. Opportune’s professionals offer the unique understanding of hedging and financial reporting processes that allow us to add value to clients and meet their fair value reporting needs.

About the Author:
Matt Smith is a director in Opportune LLP’s financial instruments group. He assists companies with their accounting for complex financial instruments under both U.S. GAAP and IFRS. He has experience in derivative valuation and hedge accounting, stock-based compensation, debt and equity financing activities, embedded derivative assessments, Dodd-Frank compliance and SEC reporting. Smith has an undergraduate degree in accounting from Oral Roberts University. He is also a member of the American Institute of Certified Public Accountants.

The Supreme Court will hear a slate of highly charged disputes when the justices return to the bench in the new year and resume one of the most politically volatile terms in recent memory, reports The Hill.

The court already has heard high-profile fights over LGBT rights in the workplace, the scope of the Second Amendment and the deportation status of nearly 700,000 young undocumented immigrants. But the remaining cases on the court’s docket are no less explosive, write The Hill‘s John Kruzel and Harper Neidig.

The top seven cases to be heard this session involve a separation of powers fight over President Trump’s financial records, Louisiana’s abortion law, religious school scholarships, religious exemptions from discrimination suits, the future of the Consumer Financial Protection Bureau, a fight over how copyright law treats software interfaces, and Bridgegate and public corruption.

Read the Hill article.

Faegre Baker Daniels is being sued for legal malpractice by a company that says the firm provided “erroneous” legal services relating to the launch and operation of a fund set up to acquire and manage crypto assets, according to a Bloomberg Law report.

Digital Capital Management’s complaint alleges that the law firm provided “inaccurate analysis and advice” to Digital Capital’s predecessor, Crypto Asset Management, LP, regarding how to register under the Investment Advisers Acts of 1940.

Crypto Asset Management alleges the firm advised the plaintiffs that “Crypto Assets are not securities” and to thus structure the fund’s business “accordingly.” The advice was “erroneous,” the complaint says, resulting in a censure and penalty from the SEC.

Read the Bloomberg Law article.

A post by Fredrikson & Byron P.A. highlights five of the most commonly overlooked IT/IP provisions and considerations for banks as they review and negotiate software contracts.

The authors discuss how the banking community has become increasingly reliant upon third-party resources, chief among them: software. This two-part series focuses on these partnerships with vendors that expose banks to a whole new world of risk and liability.

Banks need to ensure the products and vendors in which they invest will operate reliably, compliantly, and safely – and that the bank’s rights and remedies are preserved in the event of failure, according to Fredrikson & Byron’s Caitlin B. Houlton Kuntz and Nadja Baer .

Read the article.

The Morgan Lewis Tech & Sourcing blog discusses a model agreement developed by the Clearing House as a voluntary starting point to facilitate data sharing between financial institutions and fintech companies.

The model agreement covers such provisions and concepts as flow-down obligations, data breach, liability, warranties and disclaimers, intellectual property, disclosure and consent, termination and suspension, and assignment.

Read the article.

Legal cases concerning President Trump, his finances and his separation-of-powers disputes with Congress are arriving at the Supreme Court, and together provide both potential and challenge for the Roberts court in its aspiration to be seen as nonpartisan, reports The Washington Post.

On Dec. 13, the court will consider whether to schedule a full briefing and argument on the president’s request that it overturn a lower-court ruling giving New York prosecutors access to Trump’s tax returns and other financial records.

Authors Robert Barnes and Ann E. Marimow quote Walter Dellinger, who argued for President Bill Clinton before the Supreme Court:

“This will be a special moment for the independence of the judiciary and whether the hyperpartisanship that has infected so much of our culture has also infiltrated the Supreme Court.”

Read the  Post article.