The MSRB recently published its first Compliance Advisory for Brokers, Dealers and Municipal Securities Dealers (the Advisory), which identifies some of the key compliance risks for dealers that, if not properly addressed, could adversely affect public confidence in the municipal securities market. The Advisory outlines the core components of established MSRB fair practice regulations designed to protect investors and ensure fairness and ethical conduct in each transaction.
On Feb. 26, FINRA’s Board of Governors approved a proposal, subject to the approval of the Securities and Exchange Commission, that would require member firms to disclose on retail customer confirmations the "mark-up" or "mark-down" for most transactions in corporate and agency debt securities. The proposal would require that, if a firm sells or buys a corporate or agency fixed-income security from a retail customer and on the same day buys or sells the same security as principal from another party, the firm would be required to disclose on the customer confirmation the firm's mark-up or mark-down from the prevailing market price for the security.
On Feb. 26, the OCC published its revised Policies and Procedures Manual (PPM) for assessing civil money penalties (CMPs). The revised PPM replaces the PPM of the same title issued in June 1993 and sets forth the OCC’s policies and procedures for the assessment of CMPs against institution-affiliated parties (IAPs), national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers. The guidance and procedures included in the revised PPM apply to all national banks, federal savings associations, and federal branches and agencies as well as their IAPs. The guidance also applies to bank service companies and service providers. The revised PPM includes new CMP matrices for assessing CMPs against national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers, on the one hand, and IAPs on the other hand.
The European Commission released its long-awaited draft adequacy decision for the EU-U.S. Privacy Shield, a major step towards the formal approval of the program that is to replace the invalidated Safe Harbors program. The release follows commitments by U.S. authorities to monitor and enforce the principles of the Privacy Shield. Adoption of a final decision could happen as early as Summer 2016. Once formally adopted, the program is likely to serve as an important data transfer mechanism option for the more than 4,000 U.S. companies that had been Safe Harbors participants, as well as for other American companies looking for a mechanism that will allow them to receive transfers of data from Europe. Please see the client alert prepared by Goodwin’s Privacy & Cybersecurity practice for more information.
Enforcement & Litigation
On Feb. 23, the CFPB announced that it had taken two separate actions against Citibank for illegal debt sales and debt collection practices. In the first action, the CFPB ordered Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with “inflated” interest rates and for failing to forward consumer payments promptly to debt buyers, which constituted unfair, deceptive, or abusive acts or practices in violation of the Dodd-Frank Act. In the second action, which alleged that Citibank, two of its affiliates and two debt collection law firms used by Citibank falsified court documents filed in debt collection cases in New Jersey state courts, the CFPB ordered Citibank and the two law firms to comply with a court order that Citibank refund $11 million to consumers and forgo collecting about $34 million from nearly 7,000 consumers.
On Feb. 25, the OCC and the FinCEN announced civil money penalties against Gibraltar Private Bank and Trust (Gibraltar) for willful anti-money laundering (AML) violations. Gibraltar was first warned of compliance deficiencies in 2010, which continued until the OCC placed Gibraltar under a consent order in 2014. Gibraltar will pay the OCC $2.5 million and the Department of the Treasury $1.5 million. The FinCEN announcement noted “substantial AML program deficiencies” caused Gibraltar to fail to timely file 120 suspicious activity reports (SAR) involving $558 million between 2009 and 2013. Gibraltar also unreasonably delayed SAR reporting related to accounts involved in a $1.2 billion Ponzi scheme. The announcement also cited deficiencies in Gibraltar’s transaction monitoring system, failure to properly train staff, and failure to develop and implement an adequate customer identification program.
On Feb. 23, a federal district court in California dismissed the remaining claims of Northstar Financial Advisors against a Schwab mutual fund, the fund board, and fund's investment adviser. The case was on remand to the district court after the U.S. Court of Appeals for the Ninth Circuit ruled last year that Northstar (1) could bring state law claims for breach of fiduciary duty against the board directly, rather than derivatively, (2) could sue the fund itself for breach of an implied contract formed by the prospectus and proxy statements, and (3) could sue the adviser as a third-party beneficiary of the investment advisory agreement. On remand, the district court has now dismissed all Northstar's claims as barred by the Securities Litigation Uniform Standards Act of 1998, which generally bars class actions brought under state law that allege misrepresentations or omissions in connection with the purchase or sale of "covered securities" (which includes mutual fund shares). That dismissal by the district court does not affect the precedential value, however, of the Ninth Circuit's Northstar decision (see Apr. 29 Roundup). Meanwhile, Northstar intends to appeal the district court's dismissal of its claims.
The February 2016 edition of the Goodwin Procter Business Litigation Reporter is available. In addition to timely summaries of key cases and other developments in dedicated Business Litigation sessions and related courts nationwide, the current issue features a deep dive into recent changes to the Commercial Division rules in New York state and what they mean, good and bad, for litigants.
Goodwin Procter News
Marco Adelfio, a partner in Goodwin’s Investment Management practice, recently wrote an article in Fund Board Views discussing how mutual fund boards can effectively manage their relationships with their Chief Compliance Officers (CCOs) and oversee their CCOs’ implementation of comprehensive compliance programs.
On April 5, Regina Pisa, the firm’s Chairman Emeritus, will be honored at the Whittier Street Health Center’s annual fundraiser. As the Whittier Street Health Center’s largest fundraising event, the annual roast traditionally honors Boston's most prominent people and industry leaders. Building on this history, Ms. Pisa will be recognized for being a pioneer who has distinguished herself as a philanthropist and change agent in Boston's business community. Ms. Pisa is the second woman to receive this honor in 21 years. Boston’s Whittier Street Health Center is a Joint Commission accredited, private, non-profit, independently licensed community health center dedicated to providing high quality, reliable and accessible primary healthcare and support services for diverse populations to promote wellness and eliminate health and social disparities.