Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) obtained an $11 million settlement from debt-relief payment-processors RAM Payment and Account Management Systems (AMS), as well as AMS’s co-founders, Gregory Winters and Stephen Chaya, for collecting debt-relief fees from consumers, allegedly lying to consumers about when the fees would be paid, and sending illegal advance fees to debt-relief companies before they were legally allowed to do so. They also allegedly failed to return funds to consumers who cancelled student-loan debt relief agreements, as required by law. $8.7 million will go to consumer redress and $3 million to civil penalties.

The CFPB published a report examining mortgage servicers’ responses to the COVID-19 pandemic. The CFPB concluded that data, collected across 16 large servicers from May through December 2021, reveal homeowners continue to face significant risks and challenges in working with their mortgage servicers. At the end of 2021, approximately 330,000 homeowners had delinquent loans that were no longer in forbearance, and they had no loss mitigation solution in place. Per the report, challenges include service center wait times, lack of data on borrowers’ preferred language, and servicers’ information systems lacking the ability to track certain metrics.

The CFPB announced guidance for creditors relying on credit models using complex algorithms. In particular, per a Consumer Financial Protection Circular, the CFPB reminded the public, and agencies responsible for enforcing federal consumer financial protection law, of creditors’ adverse action notice requirements under the Equal Credit Opportunity Act (ECOA). According to the circular, creditors using such models must still explain to applicants the specific reasons for denying an application for credit or taking other adverse actions under the ECOA.

Federal Trade Commission

Alvaro Bedoya was sworn in as Federal Trade Commission (FTC) Commissioner. Bedoya fills the final vacancy on the commission. He was the founding director of the Center on Privacy & Technology at Georgetown University Law Center. He previously served as Chief Counsel to the Senate Judiciary Subcommittee on Privacy, Technology and the Law.

Twitter agreed to pay a $150 million penalty to settle FTC claims that it deceptively used customers’ account security data for targeted advertising. Starting in 2013, Twitter asked users to give their phone numbers and email addresses to protect their accounts. However, according to the FTC’s complaint, the firm then allowed advertisers to use this data to target specific users. The action allegedly violates a 2011 FTC order that explicitly prohibited the company from misrepresenting its privacy and security practices. Under the proposed order, Twitter is banned from profiting from the data it collected.

The FTC launched an inquiry into the ongoing shortage for infant formula. The inquiry seeks information about the nature and prevalence of any deceptive, fraudulent, or otherwise unfair business practices aimed at taking advantage of families during the shortage. It also aims to shed light on the factors that have led to concentration in the infant formula market and supply chains. FTC Chair Lina M. Khan released a statement in conjunction with the public inquiry committing to a series of actions to confront the crisis.

The FTC took action against operators of an alleged pyramid scheme: Financial Education Services, its owners, and related companies, for allegedly scamming consumers out of more than $213 million. In response to a complaint filed by the FTC, a Michigan federal court entered a temporary restraining order shutting down the defendants’ credit repair activities. The FTC’s complaint alleges that the company preys on consumers with low credit scores by luring them in with the false promise of an easy fix and then recruiting them to join a pyramid scheme selling the same allegedly worthless credit repair services to others.

The FTC obtained a $3.8 million civil penalty judgment from R360 LLC and its owner, Steven Doumar, for violating the Opioid Addiction Recovery Fraud Prevention Act of 2018. According to the FTC’s complaint,  R360 LLC promoted its client treatment centers using television ads for its “R360 Network,” a supposed nationwide network of addiction treatment and recovery specialists. However, consumers who called seeking help were routed automatically to a treatment center that was a member of the network, without individualized assessments. In addition, Doumar was responsible for assessing the quality of the centers but lacked any educational or professional experience that qualified him to evaluate clinics in the network and conducted only cursory reviews.

The FTC shut down an alleged credit repair scheme, “The Credit Game,” for allegedly reporting false information to credit reporting agencies, filing false identity theft reports on the FTC’s identitytheft.gov website, and engaging in other deceptive acts. The FTC obtained a temporary restraining order and asset freeze from a federal court in Florida.

Securities and Exchange Commission

The Securities and Exchange Commission obtained a temporary restraining order and asset freeze involving an allegedly fraudulent cryptocurrency mining and trading scheme. The complaint against MCC International Corp. (MCC), which does business as Mining Capital Coin Corp., its founders and related entities, alleges the defendants obtained at least $8.1 million from the sale of the mining packages and $3.2 million in initiation fees from 65,535 investors worldwide who were promised lavish investment returns that never materialized.

The U.S. Circuit Court for Fifth Circuit held that the SEC’s administrative proceedings were unconstitutional. Two judges on the panel in Jarkesy v. SEC, held that the proceedings violated the defendant’s right to jury trial, separation of powers, and Article II by depriving the President sufficient control over the administrative law judge’s (ALJ) “substantial executive functions.” The dissenting judge disagreed with each holding and concluded that the hearings were constitutional. The SEC ALJ found the defendant investment adviser guilty of fraud, imposed a civil penalty, and ordered disgorgement, which combined totaled nearly $1 million.

U.S. Department of Justice

The U.S. Department of Justice (USDOJ) announced criminal charges against private institutional investment fund manager Allianz Global Investors U.S. LLC (AGI) and three portfolio managers in connection with a multibillion dollar fraud scheme. Under a plea agreement, AGI will pay more than $3 billion in restitution, a criminal fine of $2.3 billion and forfeit approximately $463 billion. Two of the managers have pled guilty and are cooperating, a third was taken into custody. The defendants allegedly altered documents that were sent to investors to hide the true riskiness of the funds’ investments, including that they were buying cheaper hedges providing much less protection to investors, leading to billions of dollars in investor losses.

USDOJ announced a complaint and proposed consent decree with Abbott Laboratories (Abbott) that would allow Abbott to resume manufacturing powdered infant formula at its Sturgis, Michigan, facility. Abbott initiated a voluntary recall of formula produced at the plant and shut the facility in February 2022 to implement corrective actions to address significant operational deficiencies identified by the U.S. Food and Drug Administration (FDA). During a January 31 for-cause inspection of the plant, the FDA found Cronobacter sakazaki bacteria and significant operational deficiencies. The consent decree requires the company to take specific measures designed to increase safety from the bacteria.

USDOJ announced the sentencing of a Texas man who bought 38,000 compromised PayPal account credentials from an illegal online marketplace, and then used those credentials to steal money from the rightful PayPal account owners.  Marcos Ponce, 37, of Austin was sentenced to five years in prison and ordered to pay $1.4 million in restitution.

A federal jury convicted two New York men for operating a mass mailing fraud scheme targeting elderly and vulnerable victims, USDOJ announced.  Long Island residents Sean Novis, and Gary Denkberg were charged with operating schemes that tricked thousands of victims, many of whom were elderly, into providing the defendants with money by falsely promising prizes. Sentencing will be scheduled for later this year.

U.S. Food and Drug Administration

The U.S. Food and Drug Administration (FDA) took a series of actions to address the ongoing baby formula shortage, including importing formula from suppliers in Europe under “increased flexibilities” regarding importation of certain products. The FDA has posted a webpage that will be updated with information about additional products headed to the U.S.

The FDA warned consumers about the accidental ingestion by children of food products containing THC. The warning noted that some THC-containing products are designed to mimic the appearance of well-known branded foods including candy and cereal products that appeal to children.

In Other Federal News

The Commodity Futures Trading Commission (CFTC) shut down an alleged fraudulent investment club that obtained $59 million from investors. The U.S. District Court for the Southern District of New York entered an ex parte restraining order against Eddy Alexandre and his company, EminiFX, Inc. based on the CFTC’s charges of fraudulent solicitation and misappropriation in connection with soliciting clients to trade foreign currency exchange (forex), commodity futures contracts, and cryptocurrencies.

Other articles in this edition include:

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