Top Story Compliance Related

The White House has issued a Fact Sheet on a new administration effort to address "hassles that waste Americans’ time and money."

Among the initiatives listed in the Fact Sheet, there are two that could affect banks. The CFPB will initial a rulemaking to require businesses under its jurisdiction to provide consumers direct, one-button access to a live human being instead of being forced to listen to a series of long messages and menu options. The Bureau will also issue rules or guidance to crack down on ineffective and time-wasting chatbots used by some banks and other financial institutions in lieu of customer service. The CFPB will identify when the use of automated chatbots or AI voice recordings is unlawful, including in situations in which customers are led to believe they are speaking with a human being.

The Federal Trade Commission yesterday announced a final rule that will combat fake reviews and testimonials by prohibiting their sale or purchase and allow the agency to seek civil penalties against knowing violators.

The rule prohibits:

• Fake or false consumer reviews, consumer testimonials, and celebrity testimonials
• Buying positive or negative reviews
• Insider reviews and consumer testimonials
• Company-controlled review websites
• Review suppression
• Misuse of fake social media indicators

The rule will become effective 60 days after it is published in the Federal Register.

Publication and effective date update: Published at 89 FR 68034 in the 8/22/2024 Federal Register, with an effective date of 10/21/2024

The SEC yesterday announced it has obtained a preliminary injunction, asset freeze, and other emergency relief against Atlanta-based Drive Planning LLC and its founder and CEO, Russell Todd Burkhalter, to halt a $300 million real estate Ponzi scheme impacting more than 2,000 investors. Additionally, a receiver was appointed over Drive Planning. The SEC alleges the defendants misappropriated millions of dollars of investor funds to fund Burkhalter’s lavish lifestyle and to make Ponzi-like payments.

The SEC’s complaint alleges that, from 2020 through at least June 2024, Drive Planning and Burkhalter raised more than $300 million for purported real estate investments, telling investors their money would be used to fund land development projects. The defendants promised 10% interest every 3 months and encouraged investors to tap their savings, retirement accounts, and even open lines of credit to invest. In reality, the defendants did not have a business capable of generating the promised returns, and they instead used investor funds to make Ponzi-like payments, according to the complaint. The complaint further alleges that Burkhalter stole investor funds to fund his luxurious lifestyle, including to buy a $3.1 million yacht and spending $4.6 million on chartering private jets and luxury car services and $2 million on a luxury condo.

The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against the defendants, and an officer-and-director bar against Burkhalter. The complaint also names Jacqueline Burkhalter, Burkhalter’s spouse, and several related entities as relief defendants and seeks disgorgement of ill-gotten gains from them.

The FDIC has issued FIL-55-2024 to notify FDIC-supervised institutions of an amendment of the U.S. Department of Labor’s (DOL) Prohibited Transaction Class Exemption rule (PTE 84-14) for Qualified Professional Asset Manager (QPAM) exemptions. The QPAM Exemption (hereafter, PTE 84-14) provides broad relief for employee benefit plan and individual retirement account transactions that would otherwise be prohibited by Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and Title II of ERISA, as codified in the Internal Revenue Code of 1986, as amended, as long as the transactions involve a QPAM. Under the prior rule, QPAMs did not need to notify the DOL that they were relying on the Exemption. However, under the newly amended rule, a one-time notice is now required in order to continue to rely on the Exemption, provided certain conditions are met.

The revised DOL QPAM Exemption PTE 84-14 was published [89 FR 23090] in the Federal Register on April 3, 2024, and became effective June 17, 2024. Among other things, PTE 84-14 will require institutions relying on the exemption to:

• Notify DOL of their intent to rely upon the Exemption. Each QPAM that relies upon the Exemption must report its legal name (and any name the QPAM may be operating under) by email to the DOL at QPAM@dol.gov within an initial 90-day period from the date the Exemption became effective, with an additional 90-day period to cure inadvertent failures to report;
• Meet the adjusted QPAM asset management and equity thresholds, which will phase in through incremental changes in 2024, 2027, and 2030;
• Become familiar with Section I(g)(3)’s expanded list of types of misconduct and entities that may cause ineligibility for the QPAM exemption;
• Comply with the new recordkeeping requirements in PTE 84-14 section VI(u), which would require maintaining records for six years demonstrating compliance with this exemption; and
• Request any individual exemptions in case a bank becomes ineligible or anticipates becoming ineligible under the new PTE 84-14 section I(k).

Generally, banks have until September 24, 2024, to notify DOL of their intent to rely upon the Exemption; see the exemption amendment to PTE 84-14 for additional information.

• Fact Sheet

Yesterday, the CFPB announced it had released an advisory opinion and research report on a form of home seller financing that is often referred to as contract for deed.

Under contract-for-deed deals, the seller agrees to turn over a home’s deed only after the buyer completes a series of payments. During the contract term, the borrower often carries the responsibilities of homeownership, including repairs, property taxes, and improvements. The deals often have little oversight, and investment groups and other sellers can set a series of traps that leave buyers in unlivable homes, on the hook for tax liens and expensive repairs, and at risk of losing their down payments and homes. The advisory opinion affirms that federal home lending rules and laws cover contracts for deed and provide key consumer protections. In yesterday’s report, the CFPB traces the history of contract-for-deed lending. The CFPB has found that these products often target Black, Hispanic, immigrant, and religious communities.

The CFPB's opinion holds that these contracts are in fact covered by the federal Truth in Lending Act. This law imposes certain requirements on larger sellers – often investment groups – such that they must assess borrowers' ability to repay loans, provide informative and accurate disclosures, and limit or avoid balloon payments.

PUBLICATION UPDATE: Published at 89 FR 68086 on 8/23/2024.

The CFPB also issued a Consumer Advisory on Contracts for Deed.

OTC Link LLC, a New York-based broker-dealer, has agreed to pay $1.19 million to settle SEC charges that it failed to file numerous reports of suspicious financial transactions (SARs) for a period of more than three years, according to an SEC news release.

The SEC’s order finds that, from March 2020 through May 2023, OTC Link failed to adopt or implement reasonably designed anti-money laundering (AML) policies and procedures to surveil transactions conducted through its three alternative trading systems (ATSs) for possible red flags of suspicious activity. As a result, OTC Link did not file a single SAR over this time period. The three ATSs are used by broker-dealers on a daily basis to execute or facilitate tens of thousands of transactions in over-the-counter (OTC) securities, many of which are considered microcap or penny stock securities.

Without admitting or denying the SEC’s findings, OTC Link agreed to a censure and a cease-and-desist order in addition to the $1.19 million penalty. The SEC’s order also directs OTC Link to continue its engagement of a compliance consultant to review and recommend changes to the firm’s AML policies and procedures.

The Securities and Exchange Commission has reported it has charged Cynthia and Eddy Petion, along with their company, NovaTech Ltd., for operating a fraudulent scheme that raised more than $650 million in crypto assets from more than 200,000 investors worldwide, including many in the Haitian-American community. The SEC also charged Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley for their roles in promoting NovaTech to investors.

According to the SEC’s complaint, the Petions operated NovaTech as a multi-level marketing (MLM) and crypto asset investment program from 2019 through 2023. They lured investors by claiming NovaTech would invest their funds on crypto asset and foreign exchange markets. Cynthia Petion assured investors that their investments would be safe and promised that “[i]n this program, you are in profit from day one, because again you have access to that capital.” In reality, NovaTech used the majority of investor funds to make payments to existing investors and to pay commissions to promoters, using only a fraction of investor funds for trading. The complaint further alleges that the Petions siphoned millions of dollars of investor assets for themselves. When NovaTech ultimately collapsed, most investors were not able to withdraw their investments, resulting in substantial losses, according to the complaint.

The complaint also alleges that NovaTech’s top promoters, Zizi, Dunbar, Corbett, Sampson, Garofano, and Hadley, each recruited a wide network of investors and promoters. NovaTech paid them substantial commissions for the investors they and their networks recruited. When Zizi, Dunbar, Corbett, and Sampson became aware of certain red flags about NovaTech, including regulatory actions taken against it by U.S. and Canadian regulators, they continued recruiting investors and downplayed the red flags.

FinCEN has published in today's Federal Register three notices and requests for comment on proposals to renew, without change, certain recordkeeping requirements. Comments on each of the notices will be accepted through October 15, 2024.

• Additional Records to be Made and Retained by Dealers in Foreign Exchange and Additional Records to be Made and Retained by Brokers or Dealers in Securities (89 FR 65980)
• Anti-Money Laundering Program Requirements for Casinos (89 FR 65977)
• Records to be Made and Retained by Financial Institutions, Banks, and Providers and Sellers of Prepaid Access (89 FR 65971)

On Friday, the Treasury Department reported that OFAC has acted against 19 individuals, 14 entities, and one aircraft under Belarus-related Executive Order 14038. This action targets persons involved in supporting Russia’s war in Ukraine through military resource production and transshipment of goods to Russia, sanctions evasion on behalf of Belarusian defense entities, and revenue generation for Belarusian oligarchs in Alyaksandr Lukashenka’s inner circle. OFAC concurrently designated five of these targets—three individuals and two entities—under Russia-related Executive Order 14024.

For identification information on the designated individuals, entities, and aircraft, see BankersOnline’s August 9, 2024, OFAC Update.

The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has announced the launch of a public service announcement (PSA) campaign as part of its ongoing efforts to educate the small business community about new beneficial ownership reporting requirements. To directly reach business owners, educate stakeholders about these reporting requirements, and encourage compliance, television and radio PSAs are now running nationwide in tandem with digital and print ads.