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 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.

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.

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.

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.

Image by Elliott Brown

Deutsche Bank AB is saying it has no intention of paying the U.S. Justice Department’s demand of $14 billion to settle high-profile probes into its packaging of mortgages in the run-up to the financial crisis, reports MarketWatch.

The Justice Department’s investigations are connected with the bank’s issuance and underwriting of residential mortgage-backed securities between 2005 and 2007, writes reporter Sara Sjolin.

In a statement, the German bank said, “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

“The bank expects that they will lead to an outcome similar to those of peer banks, which have settled at materially lower amounts,” it added, saying it has been asked to make a counterproposal.

The Justice Department has settled mortgage-related claims with Goldman Sachs Group Inc.  for $5.1 billion and J.P. Morgan Chase & Co. for $13 billion.

Read the article.

Cincinnati-based Fifth Third Bancorp has reportedly fired its general counsel, Heather Russell Koenig, over what the bank called “a personal matter,” reports the Cincinnati Business Courier. She was the bank’s chief legal officer and corporate secretary.

In a statement, the bank said: “A personal matter has been brought to our attention that Fifth Third believes represents a conflict of interest. To resolve this, we have determined that the best course of action was a separation. Heather is a very qualified lawyer, and this matter had nothing to do with any of the legal work done by Heather during her tenure at Fifth Third.”

She previously worked at Bank of New York Mellon, Bank of America and Skadden, Arps in its Washington and London offices, reports Erin Caproni.

Read the article.

Reuters is reporting that the FBI in New York City has undisclosed probes into about 30 suspected insider trading schemes, in a sign investigators remain focused on building cases despite a court ruling that could curtail such prosecutions.

Nate Raymond writes that the investigations come amid a resurgence of insider trading cases, with prosecutors in Manhattan charging 11 people so far in 2016, up from just four in 2015.

“The probes follow a 2014 ruling by the 2nd U.S. Circuit Court of Appeals that authorities have said could allow some individuals to avoid prosecution and that has already led to charges being dropped or reversed for 14 defendants,” the report says.

Read the article.

Recognizing that the incentive for long-term investment is broken, leading institutional investors are developing a new paradigm for corporate governance that prioritizes sustainable value over short-termism, integrates long-term corporate strategy with substantive corporate governance and requires transparency as to director involvement, according to an article by Martin Lipton of Wachtell, Lipton, Rosen & Katz.

The article is posted on the Harvard Law School Forum on Corporate Governance and Financial Regulation.

He wrote that he believes the new paradigm can reduce or even eliminate the outsourcing of corporate governance and portfolio oversight to ISS and activist hedge funds.

Among the topics he covers in the article are: Make the case for long-term investments, reinvesting in the business for growth and pursuing R&D and Innovation; Explain why the right mix of directors is in the boardroom; Articulate the link between compensation design and corporate strategy; Discuss how board practices and board culture support independent oversight.

Read the article.

In today’s business environment, bank officers are heavily recruited by competitors, and these competitors offer opportunities for promotion and higher salaries and benefits, write Amber M. Rogers and Alan J. Marcuis for Hunton & Williams.

If a bank doesn’t have a contract with its officers, it must consider the legal ramifications of an officer departing to work for a competitor when an agreement is not in place.

“Having an employment agreement with an officer and other key employees is advisable, as it is the easiest way to protect the bank’s interest when an officer departs,” the authors explain. “With proper planning and preparation, any financial institution can proactively prevent the disruptive event and potential loss of business that can be caused by the announcement of an officer’s resignation.”

Read the article.

Financial regulators have proposed new rules limiting the incentive pay of employees and other service providers at financial institutions, report Mark Jones and Robert L. Tian of Pillsbury Winthrop Shaw Pittman LLP.

“The new rules seek to establish general requirements applicable to the incentive-based compensation arrangements of covered persons working in covered institutions. Covered persons are any executive officers, employees, directors or principal shareholders who receive incentive-based compensation at a covered institution. Additional restrictions apply to senior executive officers and significant risk-takers,” they write.

Their article discusses the prohibition of excessive compensation, appropriate performance measures, effective controls, approval by the board of directors, and disclosure and record-keeping.

Read the article.

A federal judge sentenced the leader of digital currency company Liberty Reserve to 20 years in prison for running a global money-laundering scheme that prosecutors said was unprecedented in size and scope, reports Reuters.

Arthur Budovsky, 42, had earlier pleaded guilty to one count of conspiracy to launder money related to his role in Liberty Reserve, which allowed cybercriminals to conceal and move their illegal proceeds anonymously through a digital currency. Authorities shut down the company in 2013.

“Liberty Reserve operated a widely used digital currency, processing more than $8 billion in financial transactions and earning Budovsky over $25 million, prosecutors said,” according to the report. “Much of its business came from criminals seeking to launder proceeds from Ponzi schemes, credit card trafficking, identity thefts and computer hacking, prosecutors said.”

Read the article.

The Consumer Financial Protection Bureau proposed a rule Thursday that would ban arbitration clauses, which would affect the entire financial industry and the hundreds of millions of bank accounts, credit cards and other financial services Americans use, reports the Associated Press.

“The CFPB’s proposal does have a significant limitation,” the report explains. “The ban would only apply when consumers want to create or join a class-action lawsuit. Financial companies will still be able to force individuals to settle disputes through arbitration; however cases where a lone customer wants to sue his or her bank are far less common.”

The financial industry claims that arbitration is a more efficient way for customers to resolve disputes, and a study commissioned by the CFPB in lends that claim some credence. “However, when large numbers of customers were negatively impacted by the same issue, the same study showed arbitration clauses hinder the ability for customers to seek relief,” the AP report says.

Read the article.

Financial services lawyers are predicting that efforts by the Consumer Financial Protection Bureau to prevent companies from keeping consumer complaints out of a courtroom will wind up being challenged in court, reports The Wall Street Journal.

A rule proposed by the agency Thursday would prohibit financial companies from using mandatory-arbitration clauses as a way to block class-action lawsuits, according to the report. “While companies would still be able to require consumers to enter arbitration to resolve individual disputes, the elimination of the no-class arbitration provisions would strip away incentives for companies to include arbitration clauses in their contracts. And many are predicting that as a result, companies would discontinue using them.”

But the CFPB counters that class actions are a “more effective means for consumers to challenge problematic practices by … companies” than arbitration, which it says gives financial service providers an unfair advantage over customers.

Read the report.

Quyen Truong, former assistant director and deputy general counsel of the Consumer Financial Protection Bureau (CFPB), has joined Stroock & Stroock & Lavan LLP as a partner in the firm’s Washington, DC office.

Truong, a member of the firm’s national Financial Services/Class Action Practice Group, was instrumental in building the new federal agency while implementing the Dodd-Frank Act for finance reform, the firm says in a release. Among other responsibilities, she advised leadership on analysis of consumer financial laws, oversaw review of all enforcement actions and responded to legal challenges to the agency.

“Quyen’s proven track record bridging the technical complexities of financial reforms and their regulatory implications will complement our already prominent Financial Services/Class Action practice and enhance our ability to provide high level strategy and counsel to our clients,” stated Julia Strickland, chair of the Financial Services/Class Action Practice Group and a member of the firm’s Executive Committee.  “We are thrilled that she chose Stroock when she decided to return to the private legal sector.”

While at the CFPB from 2012-2016, Truong was instrumental in helping the Bureau to define the scope of its authorities and develop a new regulatory and enforcement framework for the financial industry.  As a senior leader at the CFPB, she represented the Bureau on the inter-agency Financial Stability Oversight Council (FSOC), managed enterprise risks, and coordinated activities with the Department of Justice, Federal Trade Commission, and banking regulators in high stakes litigation, regulatory and oversight proceedings.  As head of litigation, she also directed the CFPB’s amicus program to advance the agency’s policy and legal interpretations in private litigation.

“Stroock to me epitomizes an ideal law firm in which to work with the financial industry, because of the high quality of its lawyers, their focus on this industry, and their close relationships with market leaders,” says Truong.  “The firm and its clients share my belief that doing right by customers is crucial to achieving business success. I am confident that as we continue to build the practice, we will advance both business and consumer interests.”

Prior to joining the CFPB, Truong served at the Federal Deposit Insurance Corporation (FDIC) as risk management and litigation counsel where she oversaw the investigation and litigation of claims of regulatory violation, fraud, officer/director and other professional liability, following the financial crisis.  In addition, she has held public and private positions with Dow Lohnes PLLC, the Federal Communications Commission (FCC), Howrey LLP and Mayer Brown LLP.

“Quyen’s unique government background, coupled with her 25 years of regulatory policy, compliance and litigation experience adds significant value for our market-leading financial services clients,” noted Alan M. Klinger, Stroock’s co-managing partner.  “We embrace every opportunity to grow our Washington, DC office through highly talented and skilled legal leaders from the government sector.”

Truong received her J.D. from Yale Law School where she was a John M. Olin Fellow in Law, Economics & Public Policy, and her B.A. from Yale University, summa cum laude and Phi Beta Kappa.

As a result of the passage of the Dodd-Frank Act in 2010, the use of mandatory pre-dispute arbitration in consumer transactions has become tenuous, according to an article written by Maurice Shevin for Sirote & Permutt, PC.

He explains that the Consumer Financial Protection Bureau was instructed by law to study and evaluate the effect of such mandatory clauses, and it has been doing so almost since its inception.

“The CFPB holds yet another public forum on the subject in May. I won’t be surprised to see a Proposed Rule come out of this hearing that announces the intent of the CFPB to suppress the use of mandatory arbitration. If the CFPB stays true to form, it will give creditors a period of time to comply with any Rule that it may adopt, Shevin writes.”

Read the article.

Harvey Newkirk, a former lawyer at Bryan Cave LLP was sentenced to six months in prison for lying to lenders as part of a failed scheme to buy Maxim Magazine through impersonation, a false e-mail and stolen money, reports Bloomberg BNA.

New York prosecutors wanted the judge to sentence Newkirk, 39, to a “significant term of imprisonment,” describing him as “a facile liar lacking shame, remorse or sympathy for his many victims.” Newkirk’s lawyers sought probation, saying he was a “precocious only child born into a family of God” who lost his job and suffered from the shame of a criminal conviction.

Newkirk, while not part of the most “despicable aspects” of the scheme, “was a knowing and willful perpetrator of fraud in his own part,” U.S. District Judge Jed Rakoff in Manhattan said Thursday at his sentencing. “The jury’s verdict was amply deserved.” He could have been sentenced to more than 17 years in prison under federal sentencing guidelines, the Bloomberg report says.

Josh Stark, lawyer and head of operations and legal at blockchain consulting firm Ledger Labs, comments in an opinion piece on CoinDesk on “smart contracts” as an alternative form of legal agreement, speculating on how they could come to impact his industry.

“Banks, exchanges, and other financial institutions are actively developing blockchain technologies that will enable them to store and trade real assets over blockchain systems. Nasdaq, in partnership with blockchain startup Chain, has developed and begun testing a private-market equity trading platform,” he writes.

“The impact will not be limited to financial contracts, although these are the most obvious use cases. As techniques are developed that enable other types of property to be recorded and transacted on a blockchain, the possible applications for smart contracts will multiply,” he adds.

Read the article.