The Supreme Court Agrees to Determine Whether SEC Actions Seeking Disgorgement are Subject to the Five-Year Limitations Period Set Forth in 28 U.S.C. § 2462

Posted in SEC, U.S. Supreme Court

At the urging of both an individual petitioner and the SEC, the Supreme Court has agreed to resolve a recent circuit split as to whether the five-year limitations period applicable to SEC enforcement actions applies to the remedy of disgorgement. Kokesh v. SEC, __ S. Ct. __, No. 16-529, 2017 WL 125673 (U.S. Jan. 13, 2017). The issue is whether disgorgement is a “penalty” or “forfeiture” for purposes of the five-year limitations period in 28 U.S.C. § 2462, which applies to government actions seeking a “civil fine, penalty, or forfeiture.” If, on the other hand, disgorgement is an equitable remedy akin to injunctive relief, a long line of cases holds that the statute would not apply. Last year two U.S. Courts of Appeal reach diametrically opposed conclusions on this question. In May, the Eleventh Circuit held that disgorgement is a “forfeiture” subject to the five-year limitations period. See SEC v. Graham, 823 F.3d 1357, 1363-64 (11th Cir. 2016). Three months later, the Tenth Circuit held that disgorgement is neither a “penalty” nor a “forfeiture” and therefore is not subject to the five-year limitations period. See SEC v. Kokesh, 834 F.3d 1158, 1166-67 (10th Cir. 2016).

To learn more, please see GT AlertThe Supreme Court Agrees to Determine Whether SEC Actions Seeking Disgorgement are Subject to the Five-Year Limitations Period Set Forth in 28 U.S.C. § 2462.”

Ninth Circuit Holds that Foreclosure Trustee is Not Subject to FDCPA

Posted in FDCPA, Mortgage

In Ho v. ReconTrust Co., No. 10-56884, 9th Cir.; 2016 U.S. App. LEXIS 18836 (October 19, 2016), a borrower sued a foreclosure trustee, ReconTrust, and others, asserting that recording a notice of default and other statutorily mandated notices violated the FDCPA because they misrepresented the amount owed on the mortgage loan. The district court granted the trustee’s motion to dismiss, and the plaintiff appealed. In a two-to-one decision, the Ninth Circuit affirmed the district court.

The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes.” “Debt is synonymous with money.” 15 U.S.C. § 1692a(5). A trustee’s notice of default and a notice of sale do not demand payment of money. Rather, they are statutorily-required notices that must be recorded before a trustee may exercise the power of sale. The majority explained that while default notices may “induce” a borrower to repay all or part of the mortgage arrearage, these inducements arise from the underlying lien and risk of foreclosure, not the debt. Chief Judge Kozinski analogized the situation to parking tickets: “[t]he fear of having your car impounded may induce you to pay off a stack of accumulated parking tickets, but that does not make the guy with the tow truck a debt collector.”

The FDCPA specifically discusses “security interests” and contains provisions governing when those who seek to enforce them come within the statutory definition of “debt collector.” Enforcement of a security interest falls within the narrow purview of 15 U.S.C. § 1692f (6), which only prohibits the taking, or threatening to take, non-judicial action to dispossess a consumer of his or her property when there is no right or intent to do so. The court held that Congress intended a narrower definition to apply to those seeking to enforce a security interest rather than the general definition of “debt collector.” Otherwise, the provision containing the narrower definition would be rendered superfluous. However, the court limited its holding, noting that “[I]f entities that enforce security interests engage in activities that constitute debt collection, they are debt collectors.”

Finally, the court expressed concern that subjecting trustees to FDCPA duties would frustrate their ability to comply with California law. California’s non-judicial foreclosure law required the trustee to send the notices in question and required that notices be published in ways that might be deemed illegal communications with third parties under the FDCPA. The FDCPA’s debt verification requirements also could conflict with state law notice deadlines, the majority warned. Given a choice between two reasonable interpretations of federal law–one that might conflict with state law and one that would not–principles of federalism dictate that the court select the latter, the majority explained.

One judge dissented, arguing that “the only reasonable reading” of the FDCPA required the court to find that ReconTrust was a “debt collector.” A foreclosure causes the sale of a property and uses the sale proceeds to pay off some or all the mortgagor’s debt. Thus, the dissent explained, the purpose of a foreclosure is the payment of money. Because the FDCPA applies to entities who collect debts on behalf of others, the act applies to trustees who carry out foreclosure sales. This view is shared by the Fourth and Sixth Circuits, which hold that foreclosure-related-activity is subject to the FDCPA.

Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs Issued Their First Research Paper on Blockchain Technology

Posted in Cybersecurity, Financial Regulation, Fintech, Government, Risk Management, Securities, Virtual Currency

Last month, the Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs issued their first research paper on blockchain technology, entitled “Distributed Ledger Technology in Payments, Clearing, and Settlement.” The Report identifies both the opportunities and challenges entailed in widespread adoption of distributed ledger technology. The Report suggests that blockchain technology has the potential to provide new ways to transfer and record the ownership of digital assets; securely store information; provide for identity management; and other evolving operations through peer-to-peer networking, access to a distributed but common ledger among participants and cryptography. Potential use cases in payments, clearing and settlement include cross-border payments and the post-trade clearing and settlement of securities transactions. Blockchain technology could reduce or eliminate operational and financial frictions around existing services. Nonetheless, the paper notes that the application of this technology is still in its infancy, and widespread adoption is unlikely before technological hurdles, legal considerations and risk management considerations are addressed.

SEC’s Office of Compliance Inspections and Examinations Releases Annual Examination Priorities

Posted in Financial Regulation, Investment Regulation, OCIE, SEC

On Jan. 12, 2017, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) issued its annual Examinations Priorities for 2017 (Exam Priorities), which is available for download here.  As in past years, the Exam Priorities focus around three thematic areas, the first and the last of which are similar to the thematic areas highlighted in 2016 (which we summarized in the GT Alert titled “2016 SEC Exam Priorities”) while the second is an expansion of a past focus of OCIE – (1) matters of importance to retail investors, (2) risks specific to elderly and retiring investors and (3) market-wide risks. OCIE also highlights its objective of conducting data-driven and risk-based exam initiatives and the use of data analytics in “the vast majority” of exam initiatives.

The Exam Priorities note the evolving choices faced by retail investors, as well as the “ever widening array of information, advice, products and services” available to retail investors. Many of the Exam Priorities cited with respect to this theme – e.g., focusing on share class selection, multi-branch advisers, ETFs and wrap fee programs – represent a continuation or expansion of previously identified priorities and initiatives and past focus areas. OCIE also intends to expand its never-before-examined investment adviser initiative to cover not only select advisers that have been registered for a longer period but have not been examined but also focused, risk-based exams of newly-registered advisers, and for the first time highlights a focus on providers of electronic investment advice, including ‘robo-advisers.’

In focusing on elderly and retiring investors, in 2017 OCIE intends to continue its multi-year “ReTIRE” initiative (focused on retirement accounts serviced by SEC-registered advisers and broker-dealers) as well as its focus on the practices of public pension advisers (including pay-to-play compliance). In addition, OCIE intends to have a new focus on how asset management firms interact with senior investors and identify financial exploitation of seniors.

Related to market-wide risks, while cybersecurity and Regulation SCI will remain focus areas, the Exam Priorities highlight a number of newer initiatives. These initiatives include assessing the implementation and oversight of the newly-effective money market fund rules adopted in 2014, examining broker-dealers to assess compliance with their best execution duties and enhancing OCIE’s oversight of FINRA – focusing resources not just FINRA’s operations and regulatory programs, but also on assessing FINRA’s examination of individual broker-dealers.

In addition to these focus areas, the Exam Priorities identify municipal advisors, private fund advisers, and transfer agents as other types of capital markets participants to which OCIE’s examination resources are expected to be deployed.

The Financial Regulatory and Compliance and Investment Regulation Groups of Greenberg Traurig anticipate publishing a GT Alert providing additional detail on the Exam Priorities release in the near future.

NYS Department of Financial Services Releases Revised Proposal Addressing Cybersecurity Requirements for Financial Institutions

Posted in Cybersecurity, Financial Regulation

On December 28th, 2016, the New York State Department of Financial Services (DFS or the Department) published a revised version of its proposed regulation governing cybersecurity requirements for all entities required to operate in New York under a license, registration, or similar authorization issued by the Department (the Revised Proposal). Its provisions are scheduled to take effect on March 1, 2017, with phased-in implementation dates. DFS received over 150 comments in response to its originally proposed cybersecurity regulation (the Original Proposal), which led to the issuance of the Revised Proposal. Many of the comments addressed the perceived rigidity and excessively prescriptive requirements of the Proposal’s core provisions. Although the Revised Proposal included some significant revisions addressing those comments, a number of open questions remain. The publication of the Revised Proposal triggers a new opportunity for public comment, which continues until January 27th, 2017. The final version of the regulation could have a significant impact on entities nationwide, as the DFS language has the potential to become a template used throughout the country.

To learn more about this, please see the GT Alert “NYS Department of Financial Services Releases Revised Proposed Addressing Cybersecurity Requirements for Financial Institutions.”

FINRA’s 2017 Annual Regulatory and Examination Priorities

Posted in FINRA

On Jan. 4, 2017, FINRA released its 12th annual Regulatory and Examination Priorities Letter in which it identifies its areas of examination focus for 2017, recurring challenges faced by firms, and possible risks impacting the financial sector. FINRA’s 2017 exam priorities do not appear to be revolutionary or new relative to its pronouncements during the past several years. For example, FINRA will continue its focus on interest sensitive securities, “high risk” brokers, senior investors, and management of cyber-security risks.  Other areas of examination focus, such as sales practices surrounding complex investment products, financial controls, and order routing practices, appear to be new for 2017.

To learn more, please see GT Alert “FINRA’s 2017 Annual Regulatory and Examination Priorities .”

The 10th Circuit Declares SEC’s Home Courts to be Unconstitutional and Creates Circuit Split

Posted in Client Alert, Litigation, SEC, Securities

Right after Christmas, the United States Court of Appeals for the Tenth Circuit delivered a lump of coal to the Securities and Exchange Commission in Bandimere v. U.S. SEC,1 ruling that the SEC’s administrative law judges (ALJs) who preside over SEC enforcement actions hold their positions in violation of the Appointments Clause of the United States Constitution. The Bandimere decision in its entirety may be found here. Concluding that SEC ALJs are inferior officers, rather than mere employees of the agency, the Tenth Circuit adopted the same arguments that plaintiffs such as Gray Financial Group, Inc. (Gray) and others successfully pressed in multiple district courts which ultimately enjoined unconstitutional administrative proceedings. SEC ALJs preside over many SEC enforcement actions, and the Bandimere holding potentially undermines the constitutionality of their proceedings, if not ultimate rulings, on a countless number of cases. And because ALJs are not used by only the SEC, but also by other administrative agencies as well, the Bandimere decision therefore may have broader implications beyond just the SEC. The Bandimere ruling creates a circuit split with the D.C. Circuit’s decision earlier this year in Lucia v. SEC,2 perhaps setting the stage for the United States Supreme Court to decide the issue of SEC ALJ constitutional officer status.

To read more, please view the GT Alert,The 10th Circuit Declares SEC’s Home Courts to be Unconstitutional and Creates Circuit Split.”


1 — F.3d —, No. 15-9586, 2016 WL 7439007 (10th Cir. Dec. 27, 2016).
2 832 F.3d 277 (D.C. Cir. 2016).

SEC Convenes Fintech Forum

Posted in Fintech, SEC

On Nov. 14, 2016, the Securities and Exchange Commission (SEC) hosted an all-day forum on FinTech ( Forum).  The event highlighted the active role the SEC intends to take in monitoring and regulating technological innovation based upon the potential impact of innovation on investors and capital markets.

In her remarks to Forum attendees, SEC Chair Mary Jo White described steps taken by the SEC with respect to its role in regulating FinTech.  These steps include the establishment earlier this year of a FinTech Working Group, to be staffed by SEC employees across all divisions, and the work of a Distributed Ledger Technology Working Group.

The FinTech Working Group has been tasked with providing specific recommendations, which may encompass “staff guidance, concept releases or proposed rulemaking, or . . .  [a] call for, in part, improved communications about existing regulations and interpretations that are not widely understood among innovators.”  The FinTech Working Group intends to solicit input from investors, innovators, and other stakeholders involved in the development, implementation, and use of innovative technologies.

The SEC’s Distributed Ledger Technology Working Group (originally founded as the Digital Currency Working Group in 2013) has been tasked with evaluating when and how distributed ledger technology will be on-boarded within the securities market, and with tracking how and whether blockchain technology integrates into current market structures or obviates certain existing services and market participants.

The Forum included separate panel discussions featuring speakers from the SEC, private sector, and academia.  The panelists addressed developments, opportunities and challenges relating to technological innovation with respect to three primary areas of innovation: (1) automated investing, (2) distributed ledger technology, and (3) crowdfunding and online marketplace lending. White provided an overview of opportunities and challenges arising from technological innovation in these three areas. Highlights of her remarks are set forth below:


The SEC has begun to devote significant resources and attention to monitoring and addressing issues that arise in connection with technological innovation.  The Forum presented detailed considerations relating to the history, benefits, and challenges of technological innovation as it impacts financial services.  We intend to provide subsequent blog posts that will present highlights from specific panels hosted at the SEC’s FinTech Forum.

OCC Consideration of Special Purpose Fintech Charters Draws Rapid Reaction for State Banking Regulators

Posted in Banks, Fintech

On Dec. 2, 2016, the Office of the Comptroller of the Currency (OCC) published a preliminary proposal to create a national bank charter for financial technology companies (fintech). The OCC’s rationale in support of the proposal was that such a charter could promote the safety and soundness of fintech institutions, bring greater legal and regulatory uniformity and consistency, and strengthen the federal banking system. Despite being a somewhat amorphous proposal and invitation for comment, the proposal drew prompt reaction for state financial regulators, highlighting some of the tensions inherent in any eventual OCC charter for fintech.

To learn more, please read the GT Alert, “OCC Consideration of Special Purpose Fintech Charters Draws Rapid Reaction for State Banking Regulators.”

10 TRENDS: Getting Better All the Time

Posted in Anti-Money Laundering, Financial Crimes Enforcement Network, Gaming

When Jennifer Shasky-Calvery, at the time the director of the Financial Crimes Enforcement Network (FinCEN), addressed attendees at G2E 2013, she brought a stern message to the industry. She called for a complete culture change in the industry with a dedication to rooting out financial crimes… or else.

Since then, Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance shortcomings have caused FinCEN to bring some civil and criminal enforcement actions against licensed casinos. To illustrate, of FinCEN’s five enforcement actions in 2016 to date, three came against casinos. This followed four FinCEN enforcement actions against casinos in 2015. So what will 2017 bring to the casino industry with respect to BSA/AML enforcement?

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