June 12, 2013 Articles

First Federal Charges Brought Following Referral from CFPB

The first indictment has been brought stemming from the controversial bureau created by the Dodd-Frank Act of 2010.

By Jill Baisinger and Erin Yates

On May 7, 2013, the U.S. Attorney for the Southern District of New York and the inspector-in-charge of the New York office of the U.S. Postal Inspection Service jointly announced the first indictment stemming from a referral from the Consumer Financial Protection Bureau (CFPB). The CFPB was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Pub. L. No. 111-203, § 1011, 124 Stat. 1376, 1964 (2010) (to be codified at 12 U.S.C. § 5491). Dodd-Frank was established to protect consumers from “unfair, deceptive, or abusive” financial practices. Pub. L. No. 111-203, § 1031, 124 Stat. 1376, 2005 (to be codified at 12 U.S.C. § 5531).

The indictment brings mail-and-wire-fraud charges against Mission Settlement Agency, which holds itself out as a debt-settlement-services provider; the individual who “operated and controlled” Mission but who allegedly used its proceeds to run a Brooklyn nightclub; and three of Mission’s employees. This indictment marks a milestone in establishing the legitimacy of the CFPB, which has been the subject of controversy almost since the day it was proposed, and sets the tone in what is likely to be an active enforcement environment.

The CFPB was one of the more contentious components of the Dodd-Frank Act, and controversies raged over its proposed head (Elizabeth Warren, now a Massachusetts senator) and even the need for its existence. Ultimately, though, Dodd-Frank consolidated authority for overseeing the market for consumer financial products into the CFPB and vested the agency with responsibility for enhancing and enforcing consumer protections. The CFPB’s mandate is “to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” Dodd-Frank empowered the CFPB to enforce federal consumer financial-protection laws and to refer matters to federal prosecutors when the bureau obtains evidence of possible violations of federal criminal law. “If the Bureau obtains evidence that any person, domestic or foreign, has engaged in conduct that may constitute a violation of Federal criminal law, the Bureau shall transmit such evidence to the Attorney General of the United States, who may institute criminal proceedings under appropriate law.” Dodd-Frank Act, Pub. L. No. 111-203, § 1056, 124 Stat. 1376, 2031 (to be codified at 12 U.S.C. § 5566).

The CFPB began operations on July 21, 2011, and, since its inception, it has actively executed its mandate and has cooperated with other federal agencies, including the Office of the Comptroller of the Currency. The CFPB has focused much of its attention on systemic uses of deceptive practices.

The Mission Indictment
The recent referral and resulting indictment is in keeping with this approach. The U.S. Attorney’s Office for the Southern District of New York charged Mission, Michael Levitis (the individual who allegedly controlled Mission), and three of Mission’s employees with mail-and-wire fraud for systematically exploiting and defrauding financially disadvantaged consumers out of millions of dollars. United States v. Mission Settlement Agency, 13-cr-00327 (S.D.N.Y. May 1, 2013). Two other employees pleaded guilty in separately filed matters. United States v. Lemberskiy, 13-cr-00325 (S.D.N.Y. Apr. 20, 2013); United States v. Shirinov, 13-cr-00319 (S.D.N.Y. Apr. 26, 2013). According to the indictment, between mid-2009 and March 2013, approximately 2,200 customers paid Mission over $13 million for assistance in obtaining relief from credit-card debt. Of that amount, Mission kept almost $9 million in fees and paid only about $4.4 million to the customers’ creditors. The indictment further alleges that Mission did not make any payments to the creditors of 1,200 customers.

Using telemarketing and mail solicitations, Mission and its employees allegedly targeted individuals struggling with credit-card debt, promising to reduce customers’ credit-card balances by up to 45 percent. According to the indictment, Mission and its employees misled customers about the company’s ability to negotiate such reductions, as well as to the true extent of the fees the company would charge for performing such services. Among other tactics, Mission sent potential customers mail solicitations bearing the seal of the United States and that were addressed from the “Reduction Plan Administrator” of the “Office of Disbursement,” part of an apparent attempt to make the letters look as though they came from a government agency.

Federal prosecutors have also brought a forfeiture action against the property into which the proceeds of the alleged fraud were funneled. This property included Levitis’s Rasputin Restaurant and Nightclub in Brooklyn; various business and personal bank accounts; and certain real property and luxury items owned by Levitis, his wife, Marina (former cast member of the reality television show Russian Dolls), and his mother, Eva. See Complaint, In re Rasputin Restaurant/Nightclub, 13-cv-03069 (S.D.N.Y. May 7, 2013). The matter is noteworthy not only for the personalities involved but for how federal prosecutors learned about the potential crimes. After the CFPB referred the matter to the U.S. Attorney’s Office for the Southern District of New York in September 2012, federal prosecutors worked with the U.S. Postal Inspection Service to investigate and build a criminal case against Mission. Wiretaps were used to record calls with Mission employees, including calls made by an undercover law-enforcement agent and by a cooperating witness who posed as a Mission customer for several months.

In a parallel action, the CFPB initiated civil proceedings against Mission, Levitis, Levitis’s law office, a second law firm, and a consulting firm that allegedly participated in misleading consumers about the services offered and fees charged for Mission’s services. See Complaint, CFPB v. Mission Settlement Agency, Civ. No. 13-3064 (S.D.N.Y. May 7, 2013). The CFPB is seeking restitution of all unlawfully collected fees, disgorgement of profits, civil penalties, and attorney fees for alleged violations of the Consumer Financial Protection Act of 2010, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the Telemarketing Sales Rule. 12 U.S.C. §§ 5531(a), 5536(a), 5564(a), 5581; 15 U.S.C §§ 6102(c)(2), 6105(d); 16 C.F.R. § 30 et seq.

Expect Continued Cooperation
The Mission matter illustrates the coordination taking place between the Department of Justice and the CFPB in enforcing consumer financial-protection laws and suggests that this is the first of many actions to come. In a press release issued on May 7, 2013, U.S. Attorney Preet Bharara all but promised to bring more actions based on referrals from the CFPB, calling the case “a harbinger of an especially potent partnership between this Office and the CFPB that will benefit hardworking Americans everywhere.” Notwithstanding the opposition voiced about the need for the CFPB, there appears to be little criticism of the enforcement actions taken by the CFPB to date, including the recent referral of the Mission matter for criminal prosecution.

Keywords: criminal litigation, Consumer Financial Protection Bureau, CFPB, Dodd-Frank, federal consumer financial protection laws

Jill Baisinger is counsel and Erin Yates is an associate at Weil, Gotshal & Manges LLP in Washington, D.C.

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