Home Lender report Limits on SEC Enforcement and State AGs Power to Avoid Arbitration

Limits on SEC Enforcement and State AGs Power to Avoid Arbitration


This week, we highlight certificate petitions that ask the Supreme Court to review, among other things, the limits of the independent authority of the Security and Exchange Commission to enforce a law it has failed. not been explicitly empowered by Congress to enforce, and the power of a state attorney. general to sue a lender for violations of state law that would otherwise be covered by an arbitration agreement if brought by individual borrowers.

Last year, the Supreme Court limited an SEC practice of seeking restitution indemnities without deducting legitimate expenses. In Alpine Securities Corp. vs. Securities and Exchange Commission, judges are once again urged to restrict the power of the SEC, in what the petitioners claim is a “takeover” to exercise authority Congress has not granted the agency.

When Congress enacted the Bank Secrecy Act, it handed over the administration and enforcement of the law to the Treasury Department. By law, the Treasury Department helps law enforcement investigate money laundering and other illicit activities by requiring financial institutions and brokers to file suspicious activity reports. The Treasury Department has tasked its Financial Crime Network to administer and enforce the BSA by taking enforcement action to report suspicious activity.

Although Congress only authorized the Treasury Department to enforce the BSA, the SEC also began to enforce the regulations of the law, albeit without the express consent of the Treasury Department or Congress. Instead, the SEC relies on a books and records provision of the Securities Exchange Act of 1934 (15 USC § 78q (a) (1)) to assert its independent authority. In addition, the SEC applies different legal standards than the BSA and less favorable to defendants.

The SEC has independently filed a civil action against Alpine, a registered securities broker, for failing to file certain suspicious activity reports. Alpine argued that the SEC did not have the power to enforce BSA violations, but the United States Court of Appeals for the 2nd Circuit ruled that the SEC could enforce the law under its powers. compatible. Alpine argues Congress deliberately granted enforcement powers only to the Treasury Department, as a politically responsible executive agency, and calls for judicial review to limit the power of the SEC to enforce BSA violations .

Next, NC Financial Solutions of Utah, LLC v. Virginia concerns the power of a state attorney general to initiate lawsuits on behalf of private parties who would otherwise be subject to an arbitration agreement. The case involves a lender, the NCFS, which between 2012 and 2018 provided loans to more than 47,000 people in Virginia with interest rates ranging from 34% to 155%. The loan agreements contained general arbitration provisions requiring individual arbitration. In addition, the arbitration provisions encompassed all claims arising directly or indirectly from loan agreements and included claims brought by another person on behalf of the borrower.

The state attorney general of Virginia still sued the lender, alleging illegal lending practices in violation of the Virginia Consumer Protection Act and seeking restitution for individual consumers who agreed to the arbitration provisions. The lender argued that federal arbitration law and contractual principles of state law prohibit the attorney general from suing on behalf of individual borrowers. But the Virginia Supreme Court rejected this argument and ruled that the attorney general could not be bound by the arbitration agreements because he was not a signatory to the loan agreements. Lender argues that neither the attorney general nor borrowers should be allowed to “circumvent” arbitration agreements and requests that the court review the limits of the FAA and determine whether a state attorney general can sue in individualized damages which otherwise could only be obtained by each borrower through individual arbitration actions.

These and other petitions of the week are below:

Janis v. United States
Problems: (1) Standard condition 12 of the US Sentencing Guidelines, codified in USSG § 5D1.3 (c) (12), unconstitutionally delegates powers to the probation officer; and (2) whether standard condition 12 is unconstitutionally vague.

Alpine Securities Corp. vs. Securities and Exchange Commission
Publish: Does the affirmation by the Security and Exchange Commission of an independent authority to interpret and apply the law on banking secrecy contravene the decision of Congress to entrust the application of the comprehensive anti-money laundering regime? money from the bank secrecy law to the Treasury Department, a politically responsible executive agency.

California State Lands Commission v. Davis
Problems: (1) The consent of States to seize bankruptcy courts, the existence of which Central Virginia Community College c. Katz, arrives at an action brought against a state, after the date of entry into force of a debtor’s liquidation plan, seeking damages from the public treasury on a debt that does not arise from the federal bankruptcy law, of insolvency law or a claim that has historically been brought “as a central aspect of the administration of the bankruptcy estate”; and (2) whether the Supreme Court should reconsider Central Virginia Community College c. Katz.

NC Financial Solutions of Utah, LLC v. Virginia
Publish: If a State Attorney General who is not a signatory to an arbitration agreement can bring claims covered by the agreement and request individualized redress of those claims on behalf of the persons who are signatories to the agreement and would therefore be required to arbitrate if they filed these claims themselves.

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