Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB or Bureau) filed suit against TransUnion, two of its subsidiaries, and longtime executive John Danaher for allegedly violating a 2017 law enforcement order. The order was issued to stop the company from engaging in deceptive marketing regarding its credit scores and other credit-related products. The suit alleges that TransUnion continued its unlawful behavior, disregarded the order’s requirements, and continued employing deceitful digital dark patterns.

The CFPB announced that it is invoking a largely unused legal provision to examine nonbank financial companies that pose risks to consumers. The CFPB is also seeking public comments on a procedural rule to make this process more transparent.

Federal Trade Commission

The Federal Trade Commission (FTC) obtained a $1.2 million stipulated judgment with the Saint James School of Medicine, a for-profit medical school in the Caribbean and its Illinois-based operators. The settlement resolves allegations the defendants deceptively marketed the school’s medical license exam test pass rate and number of graduates obtaining residencies to lure prospective students, among other violations. The recovered amounts will go toward student refunds and debt cancellation.

The FTC sued Lithionics Battery LLC for violating the Made in USA Labeling Rule. The complaint also named the company’s owner, Steve Tartaglia, and alleged the company misrepresented that its lithium ion cells are made in the United States when in fact they are made overseas. Photographs of products bearing an American flag image surrounded by the words “Made in U.S.A.” and “Proudly Designed and Built in U.S.A.” appeared on the company website, on its social media accounts, and in mail order catalogs, according to the complaint.

The FTC sued Kohl’s, Inc. and Walmart, Inc. for allegedly falsely marketing dozens of rayon textile products as bamboo. Both companies also are charged with making deceptive environmental claims, allegedly touting that the “bamboo” textiles were made using ecofriendly processes, while converting bamboo into rayon requires the use of toxic chemicals and results in hazardous pollutants. The enforcement action was filed under the FTC’s penalty offense authority to enforce the Textile Fiber Products Identification Act and related rules which prohibit deceptively advertised textile content.

The FTC issued a Notice of Proposed Rulemaking (NPRM) concerning the Telemarketing Sales Rule. Citing a need to protect small businesses who are targeted by deceptive telemarketers, the NPRM is seeking specific comments regarding application of the rule to business-to-business calls and other topics including tech-support scams and whether the rule should impose “click-to-cancel” requirements allowing easy cancellation of subscription plans.

The FTC obtained a settlement with voice-over-internet protocol service provider VoIP Terminator, Inc., a related company, and the firms’ owner for allegedly assisting and facilitating the transmission of millions of illegal prerecorded telemarketing robocalls they knew or should have known were unlawful. The complaint alleges many of the calls originated overseas, and related to the COVID-19 pandemic, with the defendants allegedly failing to act as a gatekeeper to stop them from entering the country. The settlement imposes measures to prohibit future violations and a suspended penalty of $3 million.

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) obtained a temporary restraining order and an asset freeze involving an alleged $450 million Ponzi scheme. The complaint against several Las Vegas-area individuals and companies alleges the scheme involved purported investments in tort litigation to obtain income from personal injury settlements. The scheme allegedly violated antifraud provisions of federal securities laws and prohibitions against sales of unregistered securities.

The SEC announced charges involving international fraudulent penny stock schemes that generated more than $194 million in illicit proceeds. The charges were filed against 16 defendants located in the Bahamas, the British Virgin Islands, Bulgaria, Canada, the Cayman Islands, Monaco, Spain, Turkey, and the United Kingdom, who obtained large positions in multiple stocks, then sold them at a profit after funding promotional campaigns to promote the stocks to unsuspecting investors, causing the stocks’ price to rise.

U.S. Department of Justice

The U.S. Justice Department (USDOJ) announced the indictment of Sung Kook (Bill) Hwang, the founder and head of a private investment firm known as Archegos, and Patrick Halligan, Archegos’s Chief Financial Officer, on charges of racketeering conspiracy, securities fraud, and wire fraud offenses. The indictment alleges interrelated schemes to unlawfully manipulate the prices of publicly traded securities in the Archegos portfolio and to defraud many leading global investment banks and brokerages. Two Archegos employees, Scott Becker and William Tomita, have pleaded guilty in connection with their participation in the conspiracy and are cooperating with the government.

USDOJ announced the seizure of Hydra Market (Hydra), the world’s largest and longest-running darknet market. In 2021, Hydra accounted for an estimated 80% of all darknet market-related cryptocurrency transactions, and since 2015, the marketplace has received approximately $5.2 billion in cryptocurrency. The seizure of the Hydra servers and cryptocurrency wallets containing $25 million worth of bitcoin was made in Germany by the German Federal Criminal Police in coordination with U.S. law enforcement. Hydra was an online criminal marketplace that enabled users in mainly Russian-speaking countries to buy and sell illicit goods and services, including illegal drugs, stolen financial information, fraudulent identification documents, and money laundering and mixing services, anonymously and outside the reach of law enforcement.

In Other Federal News

The Cybersecurity & Infrastructure Security Agency (CISA), Department of Energy (DOE), National Security Agency (NSA), and Federal Bureau of Investigation (FBI) released a joint Cybersecurity Advisory (CSA) warning about vulnerabilities of critical infrastructure to malicious cyber activity. The CSA states that certain advanced persistent threat (APT) actors have exhibited the capability to gain full system access to multiple industrial control system (ICS)/supervisory control and data acquisition (SCADA) devices. DOE, CISA, NSA, and the FBI urge critical infrastructure organizations, especially energy sector organizations, to implement the detection and mitigation recommendations provided in the CSA to detect potential malicious APT activity and harden their ICS/SCADA devices.

Federal Communications Commission (FCC) Chairwoman Jessica Rosenworcel proposed new rules to combat international scam robocall campaigns from entering American networks through gateway providers. The new rules would require gateway providers to participate in robocall mitigation, including blocking efforts, take responsibility for illegal robocall campaigns on their networks, cooperate with FCC enforcement efforts, and respond to efforts to trace illegal robocalls to their source. Under the proposed Report and Order, non-compliance by a gateway provider would result in that provider being removed from the Robocall Mitigation Database and subject to mandatory blocking by other network participants, essentially ending its ability to operate.

The U.S. Food and Drug Administration (FDA) announced proposed product standards to prohibit menthol as a characterizing flavor in cigarettes and prohibit all characterizing flavors (other than tobacco) in cigars. The actions were taken to reduce disease and death from combusted tobacco product use by reducing youth experimentation and addiction.

The FDA issued draft action levels for lead in apple juice and other juices and juice blends. This action is intended to reduce the potential for negative health effects from dietary exposure to lead, and supports the agency’s Closer to Zero action plan that sets forth the FDA’s science-based approach to reducing exposure to toxic elements in foods.

Other articles in this edition include:

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