“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.'”

Read the article.

“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.”

Read the article.

“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.”

Read the article.

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.

For nearly seven years, a small South Carolina law firm allegedly helped operate a nationwide scheme that authorities say preyed on desperate military veterans, misled investors and netted millions of dollars in profit, reports The Post and Courier of Charleston.

The Upstate Law Group, owned by Candy Kern-Fuller, allegedly worked with a network of salesmen to lure in cash-strapped veterans and persuade them to sign over their monthly pensions and disability payments, according to Post and Courier reporter Andrew Brown.

The businesses then persuaded retirees to invest in the federal benefit payments, promising up to an 8 percent return on their money. Participating veterans received a lump-sum payout for handing over several years of future income to the investors.

“The problem is the entire arrangement is illegal, according to state and federal authorities. Federal law prohibits veterans from assigning their pension or disability payments to another person,” Brown explains.

In a similar case, federal officials have arrested the alleged ringleader of a nationwide business in which veterans sold their military pensions.

Read the Post and Courier article.

Reuters is reporting that former Wall Street investment banker Sean Stewart was found guilty on Monday of insider trading a second time for passing tips about healthcare industry mergers to his father.

“Prosecutors said Stewart, who worked at JPMorgan Chase & Co and Perella Weinberg Partners, passed tips to his father Robert from 2011 to 2015,” reports Reuters’ Brendan Pierson. “They said the tips yielded $1.16 million of profit for Robert Stewart and his friend Richard Cunniffe, to whom he had forwarded some of them.”

Stewart was convicted on the charges in 2017, but an appeals court ordered a new trial. He had served about a year of his three-year sentence.

Read the Reuters article.

By Shane Randolph and Jeff Nicholson
Opportune LLP

With over $370 trillion of global financial contracts referencing LIBOR (London Inter-bank Offered Rate), many oil and gas companies are curious about how the phase-out of LIBOR by 2021 could impact their organization. Many companies are beginning to ask how this transition will impact their organization and what steps can be taken now. The following is a discussion of:

• why LIBOR is being phased out;
• the transition plan for the phase-out;
• items companies should consider; and
• the steps that can be taken now.

Why is LIBOR Being Phased Out?
LIBOR has been the default local and international benchmark interest rate for a diverse range of financial products for decades. The rate is based on various banks’ proprietary observations rather than robust market transactions. This has left the rate vulnerable to manipulation and major rate-fixing scandals came to light starting in 2007. As a result, the U.K.’s Financial Conduct Authority (FCA) decided that it will no longer compel banks to submit LIBOR estimates by the end of 2021.

What is the Transition Plan?
As a response to the issue in the U.S., the U.S. Federal Reserve Board (the “Fed”) convened the Alternative Reference Rates Committee (ARRC) in 2014 to establish a viable alternative to the U.S. dollar LIBOR. The ARRC determined in 2017 that the overnight indexed swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR), a broad treasury repurchase agreement financing rate used when banks borrow or loan treasuries overnight, would be its preferred alternative reference rate. Accordingly, the Fed began publishing the SOFR daily rate on April 3, 2018 to prepare for its use as a benchmark rate.

The current transition timeline proposed by AARC has SOFR being the primary replacement for LIBOR in the U.S. by the end of 2021. The table below shows the ARRC’s anticipated completion dates and milestones to be achieved by those dates.

There are concerns about utilizing SOFR as a benchmark rate, and it will take time for enough liquidity to develop in the SOFR market to alleviate concerns regarding its viability as a benchmark. One issue is that SOFR is a spot rate from the median of overnight transactions, and it is likely to vary materially from day-to-day. Another issue is that SOFR has only a one-day tenor, whereas LIBOR has many different tenors.

What Should Companies Consider?
Companies should inventory all agreements that reference LIBOR. Also, when executing new agreements, management should carefully consider language addressing alternative or fallback rates if LIBOR is unable to be determined. If contracts are not amended to include alternative rates or fallback provisions in the absence of LIBOR before the relevant LIBOR index is discontinued, it could cause settlement issues or render contracts invalid.

From an accounting and financial reporting standpoint, the impact could be substantial. The primary areas affected include hedge accounting and accounting for debt modifications. In addition, discount rates for impairment testing, lease accounting, asset retirement obligations and fair value estimates will need to be assessed. Fortunately, both the U.S. and international accounting regulatory bodies, FASB and IASB, appear to be aligned and will provide significant relief for the transition, particularly in the areas of hedge accounting and debt modifications. As of now, the actions by the FASB and IASB are tentative proposals, but additional guidance should be provided by the end of 2019.

What Steps Can Be Taken Now?
At this stage in the process, companies should increase organizational awareness, carefully monitor the execution of new agreements referencing LIBOR and create an inventory of existing agreements and valuation models.

Increasing organizational awareness will be key for the transition away from LIBOR. While some may be aware of the impending LIBOR replacement, there may be a lack of appreciation of how broadly the event will impact the organization beyond hedging and debt activities. Increasing awareness throughout the organization will also assist in monitoring the execution of new agreements referencing LIBOR.

In summary, the replacement of LIBOR will have a significant impact globally. Oil and gas companies are encouraged to consider the impact to their organization and take steps to assess existing agreements and carefully monitor the execution of new agreements.

As a Managing Director at Opportune, Shane Randolph assists companies and financial institutions throughout North America, South America, Europe and Asia-Pacific in their understanding of what is possible as they deal with the challenges of implementing risk management programs and highly technical accounting pronouncements. He oversees the risk management, derivatives, stock-based compensation and complex securities service offerings of Opportune. He assists clients with the entire risk management life cycle, including strategy, execution, compliance, valuation and hedge accounting. He has undergraduate and graduate degrees in accounting from Oklahoma State University. He also is a member of the American Institute of Certified Public Accountants and maintains a Series 3 Securities License.

Jeff Nicholson is a Senior Consultant in the complex securities, hedging and stock-based compensation practice of Opportune LLP. He holds a Bachelor’s degree in Business Administration and Management from the University of Colorado, Boulder and a Graduate degree in Finance from the University of Colorado, Denver.

A Madoff whistleblower accused General Electric of using accounting tricks to mask the extent of its financial problems and called it “a bigger fraud than Enron,” reports The Washington Post.

“Harry Markopolos, who alerted regulators about Bernie Madoff, published a report Thursday that said GE’s accounting irregularities added up to $38 billion,” writes the Post‘s Jonelle Marte. “The investigator, who is collaborating with a hedge fund that wasn’t named, says GE understated its costs and liabilities and misled investors in its financial statements.”

GE chief executive Lawrence Culp responded that the allegation is “market manipulation — pure and simple.” He also said Markopolos never talked to company officials about his allegations.

Read the Post article.

Bloomberg Law reports that Fifth Third Mortgage Co. beat an appeal by an attorney found personally liable for his role in a mortgage fraud scheme.

Ira Kaufman argued the district court erred in finding him personally liable for aiding the fraud in his capacity as owner of Traditional Title Co., LLC, because the Illinois Limited Liability Company Act shields individuals for liability for wrongs committed in their capacity as members of an LLC, writes Bloomberg’s Julie Steinberg.

“But he was sued in his individual capacity, the appeals court said. The LLC law doesn’t shield him here because he was found liable for his individual acts, the Seventh Circuit said Aug. 9,” according to Steinberg.

Read the Bloomberg Law article.

Law firm Sidley Austin was one of the professional services firms that reached a proposed $234 million settlement July 10 in a class-action case alleging links to Aequitas Securities LLC’s “Ponzi-like” scheme, reports Bloomberg Law.

A plaintiff’s firm said the settlement is the largest ever for a securities lawsuit in Oregon.

The case was brought by investors in Aequitas Securities, which unraveled in early 2016 when the Securities and Exchange Commission said the once high-flying investment management firm was operating “in a Ponzi-like fashion.” Rather than investing clients’ funds in new assets, new clients were found to pay out older ones, the SEC’s complaint said.

Plaintiffs said Sidley provided legal advice for Aequitas’ securities offerings since as early as 2014.

Read the Bloomberg Law article.

Financial Advisor reports that a Nevada man has settled charges with the SEC that he took inside information while a guest at the home of a longtime friend — Cintas Corp.’s general counsel — and used it to generate $250,000 in illegal profits.

The SEC’s complaint in the U.S. Southern District of Florida alleges that Brian Fettner, 51, of Henderson, Nev., “surreptiously viewed documents contemplating an acquisition of G&K Services Inc. by Cintas [Corp.]” while changing his golf shoes in the den of a longtime friend who was also the general counsel of Cintas.

Raymond Fazzi of Financial Advisor writes:

Without telling his friend, whom he attended middle school and high school with as a child, Fettner then started purchasing G&K Services stock that very same day on his mobile phone, as he played golf with his friend, the SEC said. He continued buying G&K stocks in the brokerage accounts of his ex-wife and a former girlfriend, and persuaded his father and another girlfriend to purchase G&K shares, the SEC said

Read the Financial Advisor article.

An associate at Dentons Canada fell victim to a scammer who posed as a mortgage company representative and two bank officials to persuade him to transfer $2.5 million into the fraudster’s account.

A decision in a Toronto court revealed that the associate sent the money from a property sale to a Hong Kong bank account after he received emails requesting the transfer in a business deal, according to a report in the ABA Journal.

The Journal‘s Debra Cassens Weiss reports:

“The fraudster had sent emails to the associate in early January 2017 advising that money from the property sale should be wired to Hong Kong because of an audit of the mortgage company’s account. Dentons called the mortgage company, Timbercreek Mortgage Servicing, to confirm the Hong Kong account information but did not receive a call back, according to [the judge].”

The case came to light over litigation involving the firm’s insurance coverage.

Read the ABA Journal article.

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Bloomberg Law is reporting that a former Hunton Andrews Kurth partner is stuck with securities fraud and conspiracy convictions after his drunken brag led to insider trading before a Pfizer merger, the Second Circuit said Jan. 10.

Robert Schulman was a Washington-based partner with Hunton & Williams, now Hunton Andrews Kurth, working on a patent dispute involving King Pharmaceuticals when he learned of the potential merger of King and Pfizer in August 2010.

He made reference to that deal to his investment adviser, Tibor Klein, at a dinner less than two weeks later. Klein “purchased 65,150 King shares for $585,217 in various accounts” and made a profit in less than two months when the merger became public, the opinion said.

Read the Bloomberg Law article.

The CEO of Dallas-based AriseBank was arrested by the FBI on Wednesday for allegedly duping hundreds of investors out of more than $4 million in a splashy cryptocurrency scheme that promised federally insured accounts and brand-name credit cards, The Dallas Morning News reports.

Jared Rice Sr.’s arrest followed his indictment on three counts each of securities fraud and wire fraud, said Erin Nealy Cox, U.S. Attorney for the Northern District of Texas, according to Morning News business editor Paul O’Donnell.

Rice was accused of lying to would-be investors by claiming that AriseBank could offer consumers FDIC-insured accounts and traditional banking services, including Visa-brand credit and debit cards, in addition to cryptocurrency services..

Read the Morning News article.

A former precious-metals trader said to have worked at JPMorgan Chase & Co. admitted he engaged in a six-year spoofing scheme that defrauded investors in futures contracts with the help of his colleagues and bosses, Bloomberg Law reports.

Prosecutors said John Edmonds placed hundreds of orders he never intended to execute — orders designed to move the market, but were canceled before being matched. Edmonds and other traders sought to manipulate futures markets for gold, silver, platinum and palladium on the Nymex and Comex exchanges for their own benefit.

The Bloomberg article continues: “Edmonds, who lives in Brooklyn, New York, said he learned the spoofing strategy from more senior traders at the bank and said his immediate supervisors approved of it, according to the Justice Department.”

Read the Bloomberg Law article.

A biotechnology billionaire faces charges from the Securities and Exchange Commission of being part of pump-and-dump schemes that netted $27 million and left retail investors holding the bag, reports MedCity News.

In a lawsuit filed in federal court in New York, the SEC alleged OPKO Health chairman and CEO Phillip Frost took part in three pump-and-dump schemes between 2013 and 2018.

Reporter Alaric Dearment explains that the complaint alleges that Frost was involved in schemes to promote the stock of some companies on the crowd-sourced investment content site Seeking Alpha, on which articles would appear promoting their shares and touting Frost’s involvement in the companies. After the stock prices were pumped up, the defendants would sell it off, the SEC alleges.

Read the MedCity article.

Image by Steve Jurvetson

CNBC reports that some securities lawyers said they were shocked by a tweet from Elon Musk that said Musk was mulling a take-private transaction for Tesla, his electric car company. The tweet even named a target price, $420 a share, and said financing was lined up.

Reporter Liz Moyer quotes Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, who told her, “I do not believe this is the appropriate way to suggest going private.”

If the content of the tweet wasn’t true, lawyers said, it could set up Musk and the company for regulatory action and private lawsuits.

Read the CNBC article.