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Financial Institution Regulation

Trump Signals Beginning of Efforts to Curtail Dodd-Frank

On February 3, President Donald J. Trump signed an executive order that signaled the beginning of the Trump Administration’s efforts to dismantle parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). subjecttoinquiryimage.jpg

The executive order, entitled Core Principles for Regulating the United States Financial System (“Order”), lays out seven core principles (“Core Principles”) to guide the Trump Administration’s regulation of the financial industry.  Specifically, the Order makes it the executive branch’s policy to:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(f) make regulations efficient, effective, and appropriately tailored; and

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

The Order also requires the Secretary of the Treasury to consult with the heads of the Financial Stability Oversight Council within 120 days of the executive order (and periodically thereafter) regarding whether current laws and regulations “promote the Core Principles.”  The Secretary of the Treasury then must report to the President on the extent to which current laws and regulations promote the Core Principles as well as “what actions have been taken, and are currently being taken, to promote and support the Core Principles.”

Although the Order never explicitly addresses Dodd-Frank, as we have previously reported, President Trump has long been a vocal critic of the Act.  Originally signed into law in 2010 during the Obama Administration, Dodd-Frank imposed sweeping regulatory reforms on the financial industry and created the Consumer Financial Protection Bureau (CFPB).  During his campaign, President Trump repeatedly voiced his disapproval of  the Dodd-Frank, going as far as calling the Act “a disaster” that “mak[es] it harder for small businesses to get the credit they need.”

On Friday, shortly before signing the Order, President Trump and Press Secretary Sean Spicer reiterated the Trump Administration’s commitment to dismantling Dodd-Frank.  In remarks at the Strategy and Policy Forum, Trump—citing continued concerns that over regulation is negatively affecting American businesses—told the forum that “we expect to be cutting a lot out of [the Act].”

Spicer went further during his comments on the new executive order.  According to Spicer, the new Core Principles “sets the table for a regulatory system that mitigates risk, encourages growth, and more importantly, protects consumers.”  Then contrasting the new policy with Dodd-Frank, Spicer called Dodd-Frank, “a disastrous policy that’s hindering our markets, reducing the availability of credit, and crippling our economy’s ability to grow and create jobs.”  Spicer claimed that Dodd-Frank “imposed hundreds of new regulations on financial institutions” without adequately protecting consumers.

Given President Trump and Press Secretary Spicer’s passionate remarks, it appears that the Trump Administration does not believe that Dodd-Frank is “efficient, effective, and appropriately tailored” or that it empowers “Americans to make independent financial decisions and informed choices” as required by the new Core Principles.  Thus, expect the Secretary of the Treasury’s report on the Core Principles this June to address Dodd-Frank and its perceived shortcomings.

House Financial Service Committee Chairman Jeb Hensarling (R-Tx) was also quick to point out on Friday that the Order “mirrors provisions that are found in the Financial CHOICE Act.”  As we previously reported, the Financial CHOICE Act, which was first introduced by Congressional Republicans in 2015, is a likely blueprint for any legislative attempt by the GOP to repeal parts of Dodd-Frank this year.  The Order is another sign that President Trump is ready and willing to work with Republicans to remove parts of Dodd-Frank.

Compliance, Election and Political Law

Congress Votes to Disapprove SEC’s Resource Extraction Disclosure Rule

piplineIn previous posts, we discussed the potential impact of the SEC’s Resource Extraction Payment Disclosure (Rule 13q-1), including possible FCPA implications and the development of an appropriate compliance plan. After the election, much attention has been given by Congress to the so-called “midnight” agency rules that were adopted in the final months of the Obama Administration, including Rule 13q-1.  And, Congress wasted no time disapproving Rule 13q-1.

Rule 13q-1 requires issuers involved in the commercial development of oil, natural gas and minerals to disclose payments they made to the U.S. federal government and to non-U.S. governments in connection with their resource extraction activities. It took effect on September 26, 2016.

On February 1, 2017, however, the U.S. House of Representatives passed, under the Congressional Review Act (CRA), a resolution that would disapprove Rule 13q-1 and its disclosure requirements. On February 3, 2017, the U.S. Senate approved the disapproval resolution passed by the House.  It appears that the President is likely to sign the resolution in the coming days.

If this resolution of disapproval is signed by the President, then, under the CRA, Rule 13q-1 is effectively nullified. Moreover, Rule 13q-1 cannot be reissued in the same form barring authorization from Congress.  5 U.S.C. § 801(b)(2).  Further, any new variation that is “substantially the same” as Rule 13q-1 is also prohibited. Id.

However, where, as here, Congress has rejected a rule that the SEC is required to issue, then the SEC will be given an automatic one year extension to attempt to fashion a different rule to satisfy that requirement. Id. at § 801.

While it is unclear what the SEC’s new rule will look like, it is important to note that other countries, such as the UK and Canada, as well as the EU, have enacted rules similar to Rule 13q-1, and covered companies are already required and have begun to make disclosures regarding covered payments.

We will continue to monitor these developments and update you accordingly.

 

Compliance, Securities and Commodities

SEC Annual Exam Guidance: Cybersecurity, Robo-Advising, and Retirement

The SThinkstockPhotos-90833697_jpgEC recently announced its Office of Compliance Inspections and Examinations’ (OCIE) 2017 priorities.  Though these listed priorities are not exhaustive and remain flexible in light of market conditions, industry developments, and ongoing risk assessment, it is helpful for companies to keep these items in mind when evaluating securities compliance programs in 2017.

The 2017 examination priorities include the following:

  • Retail Investors – Taking issue with industry marketing methods, the OCIE continues its 2016 initiatives to protect retail investors by assessing the risks to investors seeking information, advice, products, and services. OCIE looks to direct its examinations to review firms involved with “robo-advising” (delivering investment advice through electronic mechanisms) and wrap fee programs (when a single bundled fee for advisory and brokerage services is charged to an investor).
  • Senior Investment and Retirement Investments – OCIE will continue to scrutinize public pension advisers while expanding its focus on those services targeting senior investors and individuals investing for retirement. OCIE carefully reviews registrants’ interactions with senior investors, including the identification of financial exploitation.  OCIE is also widening its ReTIRE initiative to include reviews of 1) investment advisers and broker-dealers that provide insurance products to investors with retirement accounts, and 2) investment advisors that offer and manage target-date funds.
  • Market-Wide Risks – OCIE will focus on registrants’ compliance with the SEC’s Regulation SCI and anti-money laundering rules, fulfilling the SEC’s mission for maintaining fair, orderly, and efficient markets. New in 2017, OCIE will evaluate money market funds’ compliance with the SEC’s amended rules (recently effective in October 2016).
  • FINRA – OCIE will conduct inspections of FINRA’s operations and regulatory programs, focusing resources on assessing the examinations of individual broker-dealers.
  • Cybersecurity – OCIE will continue to examine firm cybersecurity compliance procedures and controls. This includes implementation testing of those procedures and controls at broker-dealers and investment advisers.

Outgoing SEC Chair Mary Jo White noted, “Whether it is protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry, OCIE continues its efficient and effective risk-based approach to ensure compliance with our nation’s securities laws.”  OCIE Director Marc Wyatt added, “OCIE’s priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancements.”

While newly tapped SEC Chair Jay Clayton has not had a chance to weigh in on the 2017 examination priorities, firms providing investor services should review and update their compliance programs to best position themselves in the new year.

Compliance, Enforcement and Prosecution Policy and Trends

SEC: $7 Million Award to be Split by Three Whistleblowers

On SEC Enforcement DefenseMonday, January 23, 2017, the Securities and Exchange Commission (SEC) awarded more than $7 million to be split among three whistleblowers.  The three individuals helped the SEC in its investigation and prosecution of an investment scheme.

The identity of whistleblowers is protected by law however, the SEC did disclose that the primary whistleblower will receive more than $4 million, while the other two will split more than $3 million.

Jane Norberg, Chief of the SEC’s Office of the Whistleblower, stated, “Whistleblowers played an important role in the success of this case as they helped our agency detect and prosecute a scheme preying on vulnerable investors.”  Norberg credited the whistleblowers with helping open the investigation and also providing additional information as the investigation was underway.    Norberg served as Acting Chief when Sean McKessey left the position in July 2016, and was promoted to Chief in September 2016.

Since the inception of the whistleblower program in 2011, over $935 million in financial remedies have resulted from successful SEC enforcement actions that arose from whistleblower tips.  Approximately $149 million has been awarded to 41 whistleblowers.  Awards have varied in amounts, including awards for $500 thousand, $3 million, $7 million, $17 million, and $30 million, which is the largest award to date.

Norberg taking over for McKessey has not changed the focus of the SEC’s Whistleblower program.  We will have to wait and see the direction the SEC goes in after the Trump administration replaces Mary Jo White as SEC Chair.  Regardless of who succeeds Chairman White, it continues to be important to have internal compliance programs that are communicated and followed throughout the organization.  And as always, a company should take prompt action to address any misconduct within its ranks.

Financial Institution Regulation

CFPB Again Challenges Meaningful Attorney Involvement

The ConGovernment-Regulatory-and-Criminal-Investigations.jpgsumer Financial Protection Bureau (CFPB) has entered into its latest consent order targeting consumer debt collection law firms.  Once again, the CFPB challenges the lack of “meaningful attorney involvement” it deems required in collection actions.

This latest consent order was entered into by two Oklahoma medical debt collection law firms and their president (“Respondents”).  Respondents are required to pay $577,135 to consumers, modify business practices, and pay a $78,800 penalty to the CFPB’s Civil Penalty Fund for conduct the CFPB alleges violated the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).

The CFPB claims that Respondents violated the FDCPA by the following:

  • Communications Misrepresenting Attorney Involvement. The firms allegedly sent demand letters on law firm letterhead which included an attorney’s name and, in some cases, threatened suit.  The CFPB claimed that this was misleading because no attorneys had reviewed account documentation or made a professional determination regarding the legitimacy of the debt before the letters were sent.  Similarly, collectors allegedly misled consumers during collection calls by stating that they were calling from a law firm.  The CFPB claimed that this wrongfully implied that attorneys had participated in the decision to make the calls, even though no attorney had reviewed the account.
  • Falsifying Affidavit Notarizations. The firms solicited signed and notarized affidavits from clients for use in the debt collection lawsuits.  However, when a client returned an executed affidavit that had not been notarized, the firm allegedly instructed its employees to notarize the affidavits and use them in litigation, without taking proper notarial steps to verify the signature.

Similarly, the Respondents allegedly violated the FCRA by:

  • Furnishing Information to a Credit Reporting Agency Without Requisite Policies. The firms allegedly furnished consumer information to a credit reporting company despite lacking written policies or procedures addressing the transmission of that consumer information.

Since late 2015, the CFPB has entered into several consent orders targeting consumer collection law firms and, specifically, the vague and evolving “meaningful attorney involvement” standard.  In December 2015, the CFPB entered into a consent order with a Georgia-based law firm based upon allegations that its attorneys were not meaningfully involved in lawsuits.  The CFPB alleged that attorneys did not review account level documentation before filing suit.  Rather, the firm used an automated and non-attorney staff driven lawsuit process that mass generated suits to where one attorney signed more than 130,000 lawsuit complaints in a two-year period.  Based on similar allegations, the CFPB entered into a consent order with a New Jersey-based consumer debt collection law firm in April 2016.  The CFPB again challenged the firm’s overreliance on automated software and non-attorney staff in the lawsuit process and found that attorneys often spent less than several minutes reviewing each file before initiating suit.

In addition to the monetary penalties, the latest consent order prohibits Respondents from engaging in specified future conduct unless an attorney has been “meaningfully involved” in reviewing the consumer’s account and has made a professional assessment regarding the debt.  This includes restrictions on what law firms may state or imply to consumers in written communications and collection calls, including prohibiting the use of an attorney’s name or the phrase “Attorney at Law” in demand letter signature blocks.

While meaningful attorney involvement remains a nebulous concept, creditors and consumer collection law firms should expect increased scrutiny regarding attorney involvement in collection matters and should continue to ensure that attorney involvement is comprehensive and well documented.

Financial Institution Regulation

The Forgotten Face of Student Lending

MentiCashon student loans and the face that comes immediately to mind is probably someone in their early twenties. A recent report from the CFPB sheds light on an overlooked segment of the student loan population – consumers 60 years old and older. The number of older student loan borrowers has skyrocketed in recent years. The ranks of older student loan borrowers has quadrupled in the last decade and their amount of debt has grown exponentially. The CFPB’s report considers the effect student loans have on older borrowers and examines complaints filed by older borrowers.

So who are these borrowers? Baby boomers seeking a degree for a second or even third career? No. The majority of older student loan borrowers (around 73%) are financing their children’s or grandchildren’s educations. There were an estimated 2.8 million such older borrowers in 2015, up from an estimated 700,000 just ten years earlier. During the same period, the average debt load of student loans borrowers has more than doubled, going from $12,100 to $23,500. One trait these older student loan borrowers share with younger borrowers is an alarming default rate. Close to 40% of older student loan borrowers are in default.

The profile of older student loan borrowers differs widely their younger counterparts. Older borrowers are reaching the end of their peak earning years, while younger borrowers fresh out of college have their entire career in front of them. Health concerns that might hamper an older borrower’s ability to earn an income or to make payments are also less likely to plague younger borrowers. Finally, older borrowers are likely to have more debt, such as mortgages, credit cards, and auto loans.

Student loans can negatively affect older borrowers in ways they don’t affect younger borrowers. The federal government can offset older borrowers’ social security benefits to offset missed student loan payments. Older borrowers are also more financially vulnerable than younger borrowers, as seen in the higher likelihood to forego necessary healthcare needs.

Despite the differences in older and younger borrowers and the unique difficulties facing older borrowers, the number of CFPB complaints filed by older borrowers on student loans is small. Older borrowers have filed less than 2,000 complaints relating to student loans. The proliferation of older borrowers with student loans may, however, portend more complaints in the future.

Older borrower’s complaints have focused on several issues. Older borrowers complain about “roadblocks” to their participation in income-driven repayment plans. One common complaint is that servicers are slow to adjust income-driven plans when older borrowers switch from a salary to a fixed-income. Some of these borrowers are placed in graduated repayment plans better suited for their younger counterparts whose careers are in the ascendency.

Another complaint by older borrowers, specifically those who co-signed on a loan, is that their loan is allocated to other student loans owed by the primary borrower. This can have the double whammy effect of causing the older borrower to incur late fees and interest and resulting in a negative mark on the borrower’s credit history.

Older borrowers have also complained about certain debt collection practices. Some of the debt collection practices encountered, such as the use of aggressive and hostile tactics, are not unique to older borrowers. But older borrowers have also complained that some debt collectors of private student loans have threatened to collect on their federal benefits, including social security, even though social security benefits cannot be collected on based on private student loans.

The CFPB’s report does not offer any recommendations for addressing the issues faced by older student loan borrowers, but urges policymakers to consider the report in shaping reform in the higher education finance market. If the number of older borrowers continues on its upward trajectory, this will be an issue to watch for those in the student loan servicing industry and ultimately servicing older borrowers’ debt might require a different protocol tailored to the unique challenges they face.

Compliance, Financial Institution Regulation

CFPB’s 2017 Fair Lending Priorities

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The CFPB recently issued its Fair Lending Priorities for 2017.  According to its December blog post, the CFPB plans to increase its focus on the following three areas, which it describes as “presenting a substantial risk of credit discrimination for consumers.”

Redlining: The CFPB “will continue to evaluate whether lenders have intentionally avoided lending in minority neighborhoods.”  The CFPB will likely seek to build off its recent redlining enforcement actions and this redlining focus is consistent with the CFPB’s Fall 2016 Supervisory Highlights, which identified “redlining as a priority area in the Bureau’s supervisory work.”

Mortgage and Student Loan Servicing: The CFPB “will determine whether some borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a new solution with the servicer because of their race or ethnicity.”

Small Business Lending: “Congress expressed concern that women-owned and minority-owned businesses may experience discrimination when they apply for credit, and has required the CFPB to take steps to ensure their fair access to credit.”  This is likely a reference to Dodd-Frank Section 1071, which required financial institutions to collect and maintain certain data on credit applications made by women- or minority-owned businesses and small businesses.  In 2016, the CFPB began building a small business lending team that has focused on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.

“Because [it] is responsible for overseeing so many products and so many lenders,” the CFPB noted that it “re-prioritize[s] [its] work from time to time, to make sure that [it is] focused on the areas of greatest risk to consumers.”  This list identifies the “key areas where the CFPB’s fair lending team will focus in 2017.”

Clients should remain cognizant of these issues and be sure that there is appropriate attention paid to them in 2017.  However, given the ongoing PHH litigation, continued speculation that President-elect Trump may seek to terminate Director Cordray for cause, and Republicans’ general focus on reigning in the CFPB and rolling back Dodd Frank in the new Congress, it must be noted that these priorities could shift in the coming months.  If they do, we will be sure to highlight that in future Subject to Inquiry blog posts.

Financial Institution Regulation

GOP Takes Aim at Dodd-Frank

iStock_000004688619MediumOn Friday, January 20, 2017, Donald J. Trump will become the President of the United States, and for the first time in nearly a decade, a single party will control the Presidency, the House, and the Senate. After years of deadlock, Republicans are prepared to use this consolidation of power to move their legislative agenda quickly through Congress. But one current law may find itself in the GOP’s cross-hairs: the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

President Obama signed the over 2,000 page Dodd-Frank Act into law over six years ago on July 21, 2010. The sweeping legislation created the Consumer Financial Protection Bureau (CFPB) and imposed comprehensive regulatory reform on the financial industry. Although hailed by Democrats as a success, Republicans have repeatedly argued that Dodd-Frank overregulates the financial services industry and often causes more harm than good.  During his campaign, President-Elect Trump called Dodd-Frank “a disaster” that “make[s] it harder for small businesses.” In an op-ed in USA Today, Congressman Jeb Hensarling (R) of Texas likened Dodd-Frank to “Obamacare for America’s economy and their household finances…[It has] left [Americans] with fewer choices, higher costs and less freedom.”

However, the GOP will likely stop short of attempting to repeal Dodd-Frank in full. As we previously reported, Congressional Republicans introduced a bill, the Financial CHOICE Act, in early 2015 that was designed to “repeal[] the provisions of Dodd-Frank Act that make America less prosperous, less stable, and less free.” Specifically, the Financial CHOICE Act would eliminate aspects of Dodd-Frank that Republicans believe are unnecessary like the Volcker Rule, a complex regulation that limits the type of speculative investments banks may engage in. The Financial CHOICE Act would also reign in the CFPB’s power by replacing the current single director with a bipartisan commission and requiring funding from congressional appropriations. Although unlikely to pass in its current form, the Financial CHOICE Act may provide a blueprint to any attempt to repeal parts of Dodd-Frank this year.

However, the GOP can expect strong opposition to any attempt to amend Dodd-Frank. In a recent blog post, Senator Elizabeth Warren (D) of Massachusetts warned that Democrats would “fight [Trump and the Republican Party] every step of the way.” But whether Congressional Democrats will be able to muster enough support to block the GOP’s efforts remains to be seen.

Anti-Money Laundering, Compliance

FinCEN Opens 2017 with SAR Sharing Guidance for Casinos

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Financial institutions’ ability to share suspicious activity reports (“SARs”) within the corporate organizational structure serves as an important tool for Bank Secrecy Act compliance and risk avoidance.  FinCEN began 2017 by reminding casinos of their ability to share information under this rule.

Subject to certain limitations, casinos may share with domestic parents and affiliates suspicious activity reports and related information under the Bank Secrecy Act (“BSA”).  FIN-2017-G001 (January 4, 2017).  Under this guidance, such sharing assists casinos in discharging their responsibilities with respect to enterprise-wide risk management and compliance, and facilitates a casino’s ability to identify suspicious transactions.  This guidance also reinforces FinCEN’s 2014 Advisory to financial institutions regarding promoting a culture of compliance, which is achieved in part by ensuring information is shared throughout the organization.  FIN-2014-A007.

Permissible Sharing

Casinos are expressly permitted to disclose SARs to FinCEN, law enforcement agencies, and Federal and state regulators or tribal authorities that examine casinos for compliance with the BSA.  31 CFR § 1021.320(e).  Casinos may also share facts and documents upon which a SAR is based with another financial institution for filing a joint SAR, § 1021.320(e)(1)(ii)(A)(2), and share a SAR or information revealing the existence of a SAR “within a casino’s corporate organizational structure for purposes consistent with Title II of the [BSA] as determined by regulations or in guidance.”  § 320(e)(1)(ii)(B).

With this guidance, FinCEN defines the “corporate organizational structure.”  A “parent” is as an entity that controls the casino filing the SAR; an “affiliate” is a financial institution required under BSA rules to report suspicious transactions that is controlled by, or under common control with, the casino filing the SAR.

Important Limitations on Sharing

Casinos and their agents are not authorized to disclose a SAR or any information that would reveal the existence of a SAR to anyone outside a limited set of exceptions, described above.  Under no circumstances may this information be shared with a subject of a SAR.  In addition, casinos may not share SARs or revealing information with:

  1. Parents or affiliates located outside the U.S.;
  1. Individuals or entities within the organization structure who perform functions unrelated to gaming, g. shops, restaurants, entertainment;
  1. A financial institution without its own independent SAR-filing obligation; or
  1. A money services business co-located with a casino but not an affiliate.

Further, a domestic parent or affiliate receiving SAR-related information from a casino may not forward that information to another affiliate, even if that affiliate is subject to SAR-reporting obligations.

Practical Impact

In formulating its overall compliance program, a casino should be mindful of its ability to share this SAR information to effectively identify risk and ensure operational information is understood by those in a position to mitigate identified risks.  However, given the prohibitions on SAR information sharing—and potential attendant liability—casinos should be mindful to have policies, procedures and internal controls in place to ensure SAR confidentiality is preserved.

Fraud, Deception and False Claims

Supreme Court Rules on False Claims Act’s Seal Requirement

In the m780536983idst of a False Claims Act (FCA) case, the relators have blatantly violated the FCA’s seal provision.  Surely this will lead to dismissal, right?  Wrong.

On Tuesday, December 6, the Supreme Court unanimously ruled that violating the FCA’s seal requirement does not necessarily demand that a case be dismissed.

The case before the Court was State Farm Fire & Casualty Co. v. United States ex. rel. Rigsby et al.  In the years following the devastation of Hurricane Katrina, there were a massive number of insurance claims.  The National Flood Insurance Program was responsible for flood damage, whereas State Farm Fire & Casualty Company (SFFCC) was responsible for wind damage.  As one can imagine, there was some ambiguity in parsing out what damage was due to wind and what to flooding.  In this case, the relators alleged that SFFCC instructed claims adjusters to misclassify wind damage as flood damage, thereby fraudulently shifting the cost of insurance liability to the government.

The FCA’s seal requirement mandates that qui tam complaints be kept under seal until the court orders them unsealed.  This requirement was broken when the relators’ former attorney, Dickie Scruggs, leaked a sealed filing to several press outlets.  SFFCC moved for dismissal.  The District Court decided and the Court of Appeals for the Fifth Circuit affirmed that this violation did not merit automatic dismissal.  The Supreme Court has now affirmed this view.

In reaching its decision, the Supreme Court looked at both the language and purpose of the statutory provision, concluding that while there’s no doubt the language creates “a mandatory rule the relator must follow,” the statute does not require automatic dismissal.  Though the seal provision prescribes no remedy, the Court reasoned that several other provisions of the FCA do expressly require dismissal for certain violations, indicating that if Congress intended to require dismissal for violating the seal requirement, it would have said so.  Further, the Court saw their conclusion in line with the purpose of the statute.  Justice Kennedy remarked that the seal provision was meant to encourage more private enforcement suits and to protect the Government’s interests.  Given that, it wouldn’t be reasonable to see this provision in a way that would prejudice the Government “by depriving it of needed assistance from private parties.”  The Court held that whether a violation of the FCA’s seal requirement merits dismissal of the case is left with the sound discretion of the district court.

This decision clears up a prior ambiguity, ending a Circuit split.  So what does this mean for parties in FCA cases?

First, it means that defendants cannot count on a dismissal if a relator violates the seal provision.  However, it is key to remember that dismissal is still an option for the district court, along with a variety of lesser punishments.  Finally, though this decision does not mean relators can violate the FCA’s seal requirement with impunity, time will tell whether it emboldens relators to be somewhat less cautious.