Weekly RoundUp August 14, 2019

Financial Services Weekly News: SEC to Modernize Regulation S-K

Editor's Note

In This Issue. The Securities and Exchange Commission (SEC) proposed amendments to Regulation S-K that would “modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K”; the United States Court of Appeals for the Second Circuit held that private plaintiffs may bring actions under Section 47(b) of the Investment Company Act of 1940 (ICA) for rescission of contracts that violate the ICA; and the Consumer Financial Protection Bureau (CFPB) and the Attorney General for the Commonwealth of Massachusetts each settled important enforcement actions in the student lending industry. These developments are discussed in more detail below.

Editor's Note

Regulatory Developments

SEC Proposes to Update Business, Legal Proceedings and Risk Factor Disclosure

On August 8, the SEC proposed amendments to Regulation S-K that would “modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K.” The proposing release states that the proposed amendments “are intended to update [SEC] rules to account for developments since their adoption or last amendment [more than 30 years ago], to improve these disclosures for investors, and to simplify compliance efforts for registrants. Specifically, the proposed amendments are intended to improve the readability of disclosure documents, as well as discourage repetition and disclosure of information that is not material.” The SEC press release is also available on the SEC website. Comments on the proposed amendments are due 60 days after publication in the Federal Register. For additional information, please look for a client alert in the coming days.

Enforcement & Litigation

Goodwin Alert: Not Dead Yet: Second Circuit Revives Private Rights of Action Under Section 47(b) of the Investment Company Act of 1940

Since 2002, federal courts have refused to find that implied private rights of action exist under the Investment Company Act of 1940 (ICA). Last week, however, the United States Court of Appeals for the Second Circuit held that private plaintiffs may bring actions under Section 47(b) of the ICA for rescission of contracts that violate the ICA. As the Second Circuit recognized, its decision conflicts with several other federal court decisions that have refused to find an implied private right of action under Section 47(b), including a 2012 decision by the Third Circuit. The U.S. Supreme Court will not have an immediate opportunity to resolve this circuit split, however, meaning that for the next few years mutual fund investors may attempt to bring private actions to rescind contracts that allegedly violate the ICA in federal district courts within the Second Circuit. Read the client alert issued by Goodwin’s Investment Management practice.

CFPB Announces Settlements with Higher-Learning Institution and Lender Over Private Student Loans

On August 12, the CFPB announced a proposed settlement with a for-profit higher-education institution. The CFPB filed a complaint against the institution in the U.S. District Court for the Southern District of Indiana on February 26, 2014, alleging that the institution had violated the Consumer Protection Act by engaging in unfair, deceptive, and abusive acts and practices in connection with a private loan program. The proposed settlement requires the institution to pay $60 million in equitable monetary relief and prohibits the entity from offering or providing private educational loans to consumers. Read the Enforcement Watch blog post.

Finance Company to Pay $440,000, Banned from Selling Student Loan Services in Massachusetts

On August 7, the Attorney General for the Commonwealth of Massachusetts announced that it filed a complaint and consent judgment in Suffolk County Superior Court. The consent judgment bans a purportedly unlicensed finance company from collecting on any active student loan debt relief accounts in Massachusetts, and requires the company to pay $340,000 to repair the credit of approximately 600 borrowers affected within the state, as well as $100,000 in restitution to the Commonwealth. Read the Enforcement Watch blog post.

This week’s Roundup contributors: Viona Miller and Emily Notini.