Ninth Circuit Holds that 510(b) Subordination Applies to Individual Debtors
Ninth Circuit follows the Second Circuit and rejects the Ninth Circuit B.A.P.
Judge Name - Do not use it.
Diarmuid F. O’Scannlain
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Analysis: Companies Made Deals That Could Run Afoul of U.S. Whistleblower Rules
Wells Fargo, Advanced Micro Devices and Fifth Third Bank have in recent years agreed to settlement deals that seek to muzzle former employees in ways that some lawyers said could violate U.S. whistleblower protection laws, according to a Reuters analysis today. Five lawyers, including three who represent whistleblowers, said that the settlements appear aimed at blocking workers from airing their concerns and contain similarities to those used by other companies that ran afoul of government rules. The deals by Wells Fargo, AMD, and Fifth Third Bank were among a dozen such corporate settlements reached between 2012 and 2015 that were reviewed by Reuters. The companies each struck deals with departing workers that limit the employees' ability to receive money arising from any government investigations into their former employers. Some language in the settlements could run afoul of rules adopted by the U.S. Securities and Exchange Commission (SEC) in 2011 that generally bar corporate attempts to muzzle whistleblowers, the lawyers. Since 2015, the SEC has brought four cases targeting specific types of so-called whistleblower gag orders, such as confidentiality agreements that bar employees from discussing internal wrongdoing.
SEC Brings Enforcement Actions Against 71 Muni Bond Issuers
The Securities and Exchange Commission yesterday announced enforcement actions against more than 70 municipal bond issuers for bond disclosure violations, part of an initiative that offers favorable settlement terms to issuers, underwriters and obligated persons who self-report breaches of federal securities laws, MorningConsult.com reported yesterday. The 71 issuers and obligated persons sold muni bonds from 2011 to 2014 with offering documents that contained false statements or omissions about continuing disclosure compliance, the SEC said. The issuers included the Carilion Clinic in Virginia, as well as Montgomery College in Maryland, according to today’s announcement. The parties settled the enforcement actions and did not admit to or deny the SEC’s findings. They also agreed to comply with current continuing disclosure requirements, establish procedures for continuing disclosure compliance, disclose the settlement in future offering documents and cooperate with subsequent SEC investigations, the agency said.
SEC Pursues Companies For Restricting Whistleblowers
The Securities and Exchange Commission continued its boosting of whistleblowers on Tuesday, penalizing another company for restricting the rights of outgoing employees, the Wall Street Journal reported today. Insurance provider Health Net Inc., the SEC said, violated securities law by taking away the ability to file applications for whistleblower awards from departing employees who wanted to receive severance payments. Without admitting or denying the SEC’s findings, Health Net agreed to pay a $340,000 penalty, the SEC said. Representatives for the company didn’t immediately respond to requests for comment. The SEC’s action against Health Net is the second case in six days, and the third in about a year, concerning the restriction of potential whistleblowers.
SEC Hits Company that Used Severance Agreements to Bar Whistleblower Awards
When the U.S. Securities and Exchange Commission’s new whistleblower protections took effect in 2011, lawyers in the white-collar defense bar wondered about a potential workaround: Using separation agreements to require a departing employee to waive the right to any award, the National Law Journal reported today. The thinking went that such contract language, while not expressly standing between a tipster and the SEC, would take away the carrot for contacting a federal agency. But it was unclear how securities regulators would receive that contract language. The SEC on Wednesday reached a $265,000 settlement with an Atlanta-based building products distributor charged with unlawfully requiring outgoing employees to waive their right to any whistleblower bounty. According to the SEC, BlueLinx Holdings Inc. added the contract language to its severance agreements in mid-2013, nearly two years after the agency adopted a rule prohibiting companies from preventing someone from tipping off securities regulators. BlueLinx’s agreements also threatened to cut off severance payments and other post-employment benefits, according to the SEC’s order.
Federal Appeals Court Backs Up SEC on Administrative Tribunals
A federal appeals court yesterday ruled in favor of the Securities and Exchange Commission in a case that challenged the agency’s ability to ban individuals from the securities industry through administrative court procedures, MorningConsult.com reported. A panel of three judges on the U.S. District Court of Appeals for the District of Columbia Circuit denied Raymond Lucia’s appeal to reverse an SEC administrative tribunal decision that banned him from the sector for life for misleading investors. Lucia argued that the court should overturn his ban because the administrative law judge who heard his case “was unconstitutionally appointed” and banned him for behavior that wasn’t unlawful when committed.
Consumer Watchdog Proposes New Rules to Curb Abuses by Debt Collectors
Noting that debt collectors trigger more consumer complaints than any financial product or service, the Consumer Financial Protection Bureau (CFPB) unveiled plans yesterday to rein in the most serious abuses, the Pittsburgh Post-Gazette reported today. “We are considering proposals that would drastically overhaul the debt collection market,” CFPB Director Richard Cordray, said. “This is about bringing better accuracy and accountability to a market that desperately needs it.” Roughly 1 in 3 consumers were contacted by a creditor or collector trying to collect a debt in the past year, the CFPB said. The largest segment of complaints involve continued attempts to collect a debt that a consumer said was not their debt in the first place, or had already been repaid or discharged in bankruptcy, Cordray said. The changes would apply to third-party debt collectors, including many debt buyers. New rules for first-party collectors, such as credit card companies and payday lenders, will be addressed “soon” but separately. The National Consumer Law Center praised the proposed curbs, saying that they would “significantly strengthen” consumer protections. Still, the group said the changes did not go far enough. The group also said it was disappointed that the proposal did nothing to raise penalties for abusive practices.
Regulators Propose Huge Overhaul of Debt-Collection Industry
The Consumer Financial Protection Bureau (CFPB) has proposed a massive overhaul of the multibillion dollar debt-collection industry, which would restrict collectors from calling numerous times a day, require them to have more documentation on what's owed and give people more ability to dispute their bills, the Associated Press reported today. It would be the biggest overhaul of the debt-collection industry since Congress passed the Fair Debt Collections Practices Act. Regulators estimate roughly 70 million Americans are contacted by debt collectors each year. Like payday loans and so-called binding arbitration agreements — two parts of the U.S. financial system that the CFPB has proposed regulating more tightly — the new proposals are likely to be resisted strongly by the industry and its allies in Washington. Under the proposed rules, debt collectors would first have to more substantially prove a debt is valid before starting collection. The agency will hold a hearing today in Sacramento, Calif., to discuss the proposed rules. Once formal rules are written, likely later this year, the public will have 90 days to comment before they go into effect.
Why the Federal Reserve Is Rethinking Everything
The Federal Reserve is being forced to reevaluate its most basic assumptions about the economy after trillions of dollars of stimulus and years of ultralow interest rates have failed to generate a more robust recovery, The Washington Post reported today. For years, the central bank’s top officials pointed to “persistent headwinds” emanating from the Great Recession as the culprit for the tepid pace of the economy’s expansion: Government spending cuts were depressing growth. Seven years after the recession officially ended, many of the headwinds have indeed dissipated — yet normal remains elusive. In its place is a gnawing fear that the economy has permanently downshifted into an era of weak growth that policymakers have little power to reverse. Fed officials have all but given up hope of the 3 percent rate of expansion once considered the baseline for a healthy economy. Instead, they are coming to grips with the possibility that lackluster growth is the best this recovery can offer. The Fed’s most recent economic projections show growth leveling off this year at 2 percent and remaining there for the foreseeable future. That, in turn, has pushed down the central bank’s estimates of how high it will raise interest rates and how quickly it will do so. Speaking to reporters last month, Fed Chair Janet Yellen acknowledged that slow growth and low interest rates might be the U.S.’s “new normal.”
Fed Prepares Action Against Goldman Sachs in Leak Case
The Federal Reserve is now preparing an enforcement action of its own against Goldman Sachs and the bank is expected to pay a financial penalty in that case as well, The New York Times reported yesterday. The Fed is also considering an action against a former Goldman executive who worked alongside the more junior banker who received the leaked material. Unlike Goldman, the former executive plans to fight the Fed if it files a case against him, the people briefed on the matter said. The cases would reflect a broader effort at the Fed to address Wall Street misdeeds and ramp up its enforcement efforts against individual bankers. In 2015, the Fed chose to bar six bankers from the industry, twice the number in 2014. The year before that, the Fed did not take any such actions. But for the Fed, the circumstances of the looming Goldman actions are both unlikely and awkward. The leak, after all, originated at the Federal Reserve Bank of New York with one of its own employees. And the junior Goldman banker who received the confidential information was a former New York Fed employee himself, illustrating the perils of the proverbial revolving door between government and Wall Street. The banker came to Goldman with a job reference from a New York Fed official.
