Editors
Michael Pastore
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center,
Boston, MA 02111
+1.617.239.8427
[email protected]
Steve Ganis
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center,
Boston, MA 02111
+1.617.348.1672
[email protected]
§ 1.1 Introduction
The volumes of final judicial and enforcement actions decreased somewhat in 2020 due to disruptions associated with the global coronavirus pandemic. As in previous years, a significant amount of financial institutions’ enforcement litigation that established important precedents was settled, due in part to the difficulties associated with disputing cases brought by one’s regulator. Still, there were some very important cases, including enforcement actions imposing record monetary penalties. Key themes of 2020’s financial institutions’ litigation include cases arising in alleged failures by all types of financial institutions to address suspicious activities by institutional and retail customers. We summarize instances in which a banking official, broker-dealers, a futures commission merchant, and a cryptocurrency money transmitter all allegedly failed to detect and report suspicious activity and agreed to significant fines. Another case holds an institutional broker-dealer responsible for providing direct market access to other broker-dealers that operated alternative trading systems and allegedly conducted a wide range of market manipulation schemes. We also discuss the continuation in 2020 of sales practice-related cases centering on special investor protection issues for more complex retail investment products like variable annuities and unit investment trusts. We hope you find this summary of key cases on financial institutions’ legal and regulatory requirements helpful and welcome any feedback.
§ 1.2 Banking Institutions
In the Matter of Michael LaFontaine, 2020-01, U.S. Department of the Treasury Financial Crimes Enforcement Network (Feb. 26, 2020)
Michael LaFontaine, the former Chief Operational Risk Officer at U.S. Bank National Association (“U.S. Bank”), accepted a fine from the Financial Crime Enforcement Network (“FinCEN”) in the amount of $450,000 in connection with his role in anti-money laundering (“AML”) violations committed by U.S. Bank. FinCEN found that, while Mr. LaFontaine was in charge of U.S. Bank’s AML compliance function, the bank improperly capped the number of alerts generated by its automated transaction monitoring system and failed to adequately staff the Bank Secrecy Act (“BSA”) compliance function. This matter is of interest because FinCEN placed weight on the fact that a separate institution, Wachovia Bank, had previously been fined by FinCEN for similar conduct, and Mr. LaFontaine “should have known based on his position the relevance of the Wachovia action to U.S. Bank’s practices or conducted further diligence to make an appropriate determination.” In essence, individuals responsible for AML compliance must be aware of regulatory actions generally in the industry. Further, the targeting of the individual executive starkly reminds the industry that AML suspicious activity monitoring parameters must be set based on actual AML risks, not arbitrary volume limits, and that suspicious transaction volumes, not desired resource expenditure levels, must dictate the amount of suspicious activity monitoring and investigation a financial institution conducts. Mr. LaFontaine admitted to all facts in consenting to the $450,000 penalty.
In the Matter of TD Bank, N.A. (“TD Bank”), CFPB Administrative Proceeding No. 2020-BCFP-0007 (August 20, 2020)
TD Bank consented to an order by the CFPB relating to the marketing and sale of its optional overdraft service, without admitting or denying the findings. According to the CFPB, TD Bank’s general practice was not to present new customers with a written overdraft notice until the end of the account-opening process, and without having provided written disclosures. The overdraft service forms were pre-filled by TD Bank, and CFPB viewed these practices as amounting to an “opt-out” procedure as opposed to the “opt-in” procedure for overdraft services as mandated by Regulation E, and were deceptive acts or practices. According to the CFPB, TD Bank’s practices also violated the Electronic Fund Transfer Act (“EFTA”) and Regulation E by charging …
