Among recent enforcement actions, the Financial Industry Regulatory Authority barred five brokers from the same firm for fraudulent note sales; a joint state/federal investigation resulted in a $136 million multistate settlement from Chase over its credit card debt collection methods; and the Securities and Exchange Commission stopped one pyramid/Ponzi scheme that was hitting Spanish and Portuguese-speaking communities and another Ponzi scheme focused on Chinese-Americans and EB-5 investors.
Chase Hit for $136 Million on Debt Collection
Eric Schneiderman, the attorney general for New York state, has announced that Chase Bank USA N.A. and Chase Bankcard Services Inc. have agreed to reform credit card debt collection practices through a $136 million joint state/federal settlement with Schneiderman, attorneys general in 46 other states plus the District of Columbia and the Consumer Financial Protection Bureau. The settlement is expected to net $5.95 million in restitution to approximately 5,300 Chase customers impacted across New York, and an additional $11.27 million will be paid to New York state.
According to the joint investigation, Chase subjected consumers to collections activity for accounts that were not theirs, in amounts that were incorrect or uncollectable. It also subjected consumers to inaccurate credit reporting and unlawful judgments that could impair their future ability to get credit, employment, housing and insurance.
In addition, Chase sold certain accounts to debt buyers that were inaccurate, settled, discharged in bankruptcy, not owed by the consumer, or otherwise uncollectable. It also filed lawsuits and obtained judgments against consumers using false and deceptive affidavits and other documents that were robosigned. This forced consumers to pay debts they did not owe or amounts that were not correct, or else incur legal expenses and court fees to defend themselves against invalid or excessive claims. It also made calculation errors when filing debt collection lawsuits that sometimes resulted in judgments against consumers for incorrect amounts.
Chase will pay more than $95 million to the 47 participating states and the District of Columbia, an additional $11 million to the executive committee states that conducted the investigation and settlement negotiations, and $30 million to the CFPB. It also is already on the hook for $50 million in restitution ordered by a 2013 consent order reached with the Office of the Comptroller of the Currency. If it fails to make good on that $50 million by July 1, 2016, Chase must pay the remaining balance to state attorneys general and the CFPB.
FINRA Bars HFP Brokers
FINRA has barred four brokers, all from HFP Capital Markets LLC (a firm that it expelled in 2014), for fraudulent sales of senior secured zero coupon notes issued by Metals, Milling and Mining LLC (MMM) in a private placement offering to 59 customers. A fifth broker is continuing litigation.
A total of six brokers took part in the scheme, which promised investors a return of 100% within a year by supposedly extracting precious metals from materials left over from mining operations (known as “ore concentrate”) through a process called “plasmafication.”
Of course, no such return was achieved, and the brokers made no attempt to investigate the suitability of the “investment” nor pursue red flags about its risks. Instead, they misrepresented the facts about the notes to clients who then bought the notes.
The scheme brought in nearly $3 million in sales of the notes to customers who believed what the brokers told them. In November, a sixth broker who had been included in the original complaint, Joseph Scott Schaffer, consented to be barred for his conduct without admitting or denying wrongdoing.
FINRA has barred four others, Jonah Engler (who also settled, in June, after a hearing), Jonathan Sheklow, Joshua Turney and Hector Perez (aka Bruce Johnson). Brett Ian Friedberg is continuing litigation.