Jan. 19 (Bloomberg Law) — Rori Cassirer, managing partner for Troutman Sanders’ New York office, talks with Bloomberg Law’s Lee Pacchia about President Obama’s recess appointment of Richard Cordray as director of the Consumer Finance Protection Bureau, how the agency will operate in an election year and whether the appointment will face legal challenges from business groups or politicians opposed to the nomination.

Recently introduced bipartisan House legislation proposes to codify an end-user exemption from the Dodd-Frank Act’s margin requirements. If enacted, the Business Risk Mitigation and Price Stabilization Act of 2011 (H.R. 2682) would clarify that non-cleared over-the-counter (OTC) end-user swap transactions are exempt from initial and variation margin requirements imposed by swap dealers and major swap participants.  [Read more →]

The Commodity Futures Trading Commission recently issued a final order clarifying which OTC derivatives rules under Dodd-Frank will take effect on their scheduled implementation date of July 16, 2011. The CFTC’s order also proposed temporary exemptions from many Dodd-Frank swaps requirements and delayed the implementation of various self-executing swaps rules. [Read more →]

The Federal Deposit Insurance Corporation announced during its January 18, 2011 board meeting that the federal banking agencies were “very close” to jointly proposing rules to implement the incentive compensation reporting system and prohibitions required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Section 956 of the Dodd-Frank Act requires the federal banking agencies to adopt incentive compensation rules that will: (1) implement a reporting system through which financial institutions report the structures of their incentive-based compensation arrangements to the appropriate federal regulator; and (2) prohibit incentive compensation structures or payments that encourage inappropriate risks (i) by providing excessive compensation to an executive officer, director, employee or principal shareholder of a financial institution, or (ii) that could lead to material financial loss by a financial institution. [Read more →]

In 2009, SEC enforcement actions reached an all-time high, doubling the number of formal investigations that took place in 2008.  This rising tide of enforcement will undoubtedly grow larger given the newly-enacted Dodd-Frank Act’s whistleblower provisions, which provide significant monetary incentives to individuals willing to reveal certain types of financial misconduct.  With this onslaught in mind, companies and individuals working in SEC regulated industries must clearly understand what behavior can place them in the government’s crosshairs. [Read more →]

Corporate governance experts and other U.S. business interests are expressing deep concerns about the possible impact of the new bounty program authorized by Congress this year under which the Securities and Exchange Commission will pay awards to whistleblowers who provide the agency with information about securities law violations. The negative implications for the internal employee concerns programs that companies have put in place over the past two decades are potentially enormous. [Read more →]

The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) recently agreed to resolve investigations of Foreign Corrupt Practices Act (FCPA) violations against the following companies: [Read more →]

The Dodd-Frank Act Orderly Liquidation Authority (“OLA”) provides an alternate insolvency regime for systemically important non-bank financial companies determined to pose a significant risk to the nation’s financial stability. OLA provides that the Federal Deposit Insurance Corporation (the “FDIC”) may be appointed as receiver of a “financial company” as defined in the Act if the Secretary of the Treasury, in consultation with the President, makes certain determinations following the recommendation of the Board of Governors of the Federal Reserve System and the FDIC (in the case of a “financial company”), the Securities and Exchange Commission (in the case of a broker or dealer) or the Director of the Federal Insurance Office (in the case of an insurance company). The Act also authorizes the FDIC to draft implementing regulations in consultation with the Financial Stability Oversight Council. [Read more →]

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) includes significant new whistleblower provisions that encourage and further protect employees that report violations of securities and consumer finance law.

Section 922 of the Dodd-Frank Act establishes a new whistleblower program (the Program) for individuals that provide information to the Securities and Exchange Commission (the SEC) about securities law violations.  If a whistleblower provides original information(1) to the SEC and this information leads to a successful SEC enforcement proceeding, the Program may award to the individual providing the information between 10 percent and 30 percent of any sanction imposed over $1 million.  The Program also protects whistleblowers against retaliation by an employer because of providing information to the SEC under the Program, participating in any investigation or enforcement activity initiated by the SEC based upon the information provided, or making public disclosures that are otherwise provided by federal securities laws. 

Although the SEC must issue final regulations by April 17, 2011 to fully implement certain aspects of the Program, the whistleblower protections against retaliation, the accompanying private right of action and eligibility for whistleblower awards began immediately upon enactment of the Dodd-Frank Act.  As compared to the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the Program provides greater remedies and longer filing periods than Sarbanes-Oxley, without requiring (as Sarbanes-Oxley does) that the whistleblower exhaust available administrative remedies with the Department of Labor before filing an action in federal district court to enforce the Program’s anti-retaliation protections.

Section 922 of the Dodd-Frank Act also amends the whistleblower provisions of Sarbanes-Oxley to extend the time in which whistleblowers must file claims with the Department of Labor to 180 days, and to begin this time at the later of the date on which the violation occurs or the date on which the whistleblower became aware of the securities law violation.  Also as a result of the Dodd-Frank Act, whistleblowers claiming protection under Sarbanes-Oxley are now entitled to a jury trial and companies cannot avoid litigation of Sarbanes-Oxley retaliation claims through arbitration agreements or settlement and release agreements to be signed by the whistleblower that waive anti-retaliation rights provided by Sarbanes-Oxley.

Employees of companies that provide consumer financial products or services will receive additional whistleblower protections, commencing when the Consumer Financial Protection Bureau (CFPB) receives its authority over federal consumer financial laws on July 21, 2011.  Section 1057 of the Dodd-Frank Act protects these employees from retaliation because of providing information to the CFPB or other government agency about violations of the Dodd-Frank Act’s consumer protection provisions or other law or regulation enforced by the CFPB, testifying in a proceeding or filing an action under any federal consumer financial law, or refusing to participate in an activity the employee reasonably believes violates any law subject to the CFPB’s jurisdiction.  Similar to the revised Sarbanes-Oxley provisions, companies generally cannot avoid litigation of Section 1057 retaliation claims by using pre-dispute arbitration agreements or settlement and release agreements signed by the whistleblower that waive anti-retaliation rights provided by Section 1057.

In light of these significant increases in whistleblower protections and reporting incentives, publicly-traded companies and companies that provide consumer financial products and services should: (1) ensure that proper reporting mechanisms and anti-retaliation policies are implemented, (2) consider strategies to encourage internal reporting of concerns regarding compliance with securities and consumer financial protection laws, (3) review and revise management and board of directors training programs to include information on recognizing corporate whistleblower complaints, and (4) implement policies for processing and responding to any such complaints received by company management or the board.

The foregoing is only a summary of certain of the many significant issues affecting financial institutions.  If you have any questions about the foregoing or about other financial institution issues, please direct them to your regular contact at Troutman Sanders LLP or to any of the persons listed in the sidebar to this release.

As set out in our advisory of July 1, 2009, the vital decision of the United States Supreme Court in Cuomo v. Clearing House Association, LLC, et al. produced an avenue for states to enforce national bank compliance with certain state civil and criminal laws, including fair lending practices and state consumer protection laws.  The Supreme Court’s decision allowed Attorneys General to proceed with enforcement actions through court proceedings, but remained vague as to the permissibility of actions through investigations or administrative proceedings.  Regardless, the ramifications of Cuomo are unraveling as all eyes turn to analyze the actions of mortgage loan servicers.  [Read more →]