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PH Money Matters: This Week in Washington

This Week in Washington for May 7, 2018

THE BIG PICTURE

Cambridge Analytica, the marketing research company at the center of the recent Facebook data privacy controversy, announced on Wednesday that it would be immediately shutting down operations, along with parent company SCL Elections. In a conference call after the announcement, CEO Julian Wheatland blamed the barrage of negative media coverage, saying it had “driven away virtually all of the Company’s customers and suppliers [and that] as a result, it has been determined that it is no longer viable to continue operating the business.”

On Wednesday it was announced that Ty Cobb, President Trump’s top White House lawyer working on the Russia probe, will be retiring at the end of May. He will be replaced by Emmet Flood, who gained notoriety for working on former President Bill Clinton’s team during his impeachment proceedings. Mr. Cobb’s exit comes at a time of increasing tension between the President and Special Counsel Robert Mueller’s investigation, particularly over whether the President will consent to a sit-down interview.

Rudy Giuliani made news during an interview with Fox News’s Sean Hannity on Wednesday night where he contradicted prior statements by the President and Press Secretary, revealing that the President had reimbursed his lawyer Michael Cohen for the US$130K payment to adult film actress Stormy Daniels, saying “it’s not campaign money. No campaign finance violation. They funneled through a law firm and the president repaid it.” Some legal experts noted his comments may have opened the President up to more liability. Mr. Giuliani later released a statement intended to clarify and backtrack some of his comments. For his part the President said of Giuliani, “[he] just started a day ago” and is “learning the subject matter,” and continued to insist “it’s a witch hunt.”

Other highlights of last week include:

  • House Chaplain Rev. Patrick Conroy rescinded his resignation on Thursday, in an inflammatory letter that accused House Speaker Paul Ryan’s chief of staff of having an anti-Catholic bias. Speaker Paul Ryan acquiesced to avoid a “protracted fight over such an important post.” Rev. Conroy has served in this role since May of 2011, and his current two-year term expires at the end of 2018.
  • Dr. Jen Peña, Vice President Mike Pence’s physician, resigned on Friday. Dr. Peña was reportedly among those who contributed to reports detailing misconduct on the part of Navy Rear Adm. Ronny Jackson, the President’s former physician and now-withdrawn nominee to lead the Department of Veterans Affairs.

LAST WEEK ON THE HILL

All was quiet on the hill, as both chambers held a state work period April 30 – May 4.

THIS WEEK ON THE HILL

Tuesday, May 8

House Committee on Science, Space, & Technology, Subcommittees on Oversight and Research and Technology, Hearing Entitled “Leveraging Blockchain Technology to Improve Supply Chain Management and Combat Counterfeit Goods”: 10:00AM in 2318 Rayburn House Office Building.

  • Dr. Douglas Maughan, cyber security division director, Science and Technology Directorate, Department of Homeland Security
  • Mr. Robert “Bob” Chiaviello, IPR counsel, Nuby Law
  • Mr. Michael White, head of global trade digitization, Maersk
  • Mr. Chris Rubio, vice president global customs brokerage staff, UPS
  • THE REGULATORS

    SEC Commissioner Robert Jackson Considers ICOs Securities Offerings: During an interview on CNBC on Monday, SEC Commissioner Robert Jackson echoed Chairman Jay Clayton by saying he has not, to date, seen an ICO that’s not a security. He also described his personal concern over some “troubling developments” in the cyrptocurrency space saying, “Investors are having a hard time telling the difference between investments and fraud.” He continued by saying, “down the road, I think we will be thinking about ways to make those investments work consistent with our securities laws.”

    On Wednesday, Commissioner Hester Peirce struck a different note, during her remarks at the Medici conference stating that she wasn’t “willing to make a blanket statement that everything other than Bitcoin is a security.”

    SEC Chairman Clayton Responds on IPO Arbitrations: In a response to Rep. Carolyn Maloney’s (D-NY) inquiry, Chairman Clayton indicated he remained undecided on the issue of whether companies should be allowed to impose arbitration agreements on investors in IPOs, stressing that it was “not a priority for me.” Despite this stance, he continued “it does not mean that it is not worthwhile to analyze, and I have encouraged those with strong views to support their position with robust, legal and data-driven analysis.”

    SEC Seeks Testimony from Jay-Z: As part of an investigation into Iconix Brand Group Inc.’s possible securities law violations, the Securities and Exchange Commission has asked the Southern District of New York to enforce a subpoena to Shawn Carter, also known as Jay-Z, to testify.

    SEC Releases Proposal for Easing Limits on Debt Products: On Wednesday, the SEC released for comment a proposal that would amend its auditor independence rules to refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period.

    Treasury Sanctions ISIS-Philippines Facilitator for Terror Support: The U.S. Department of the Treasury’s Office of Foreign Assets Control took action on Monday targeting Myrna Mabanza, a Philippines-based facilitator who provided support to ISIS-Philippines. Mabanza was named as a Specially Designated Global Terrorist pursuant to Executive Order (E.O.) 13224 for assisting in, sponsoring, or providing financial, material, or technological support for, or financial or other services to or in support of, ISIS-Phillipines. As a result of Monday’s designation, all property and interests in property of Mabanza subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with her. In a statement, Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence said, “The United States continues to map and disrupt ISIS financing networks in Southeast Asia and is resolved to cut their access to the international financial system.”

    Quarles Discusses Liquidity Rule and the Fed’s Balance Sheet: Speaking at Stanford University’s Hoover Institution, Vice Chairman for Supervision Randal Quarles said that, “Overall, policymakers will be monitoring to make sure that the level of reserves the Fed supplies to the banking sector ... provides the desired stance of monetary policy to achieve the FOMC's dual mandate of maximum employment and stable prices.”

    FTC Announces “Decrypting Cryptocurrency Scams” Event: On Monday, the FTC announced its “Decrypting Cryptocurrency Scams” workshop to be held on June 25 at DePaul University. The workshop is part of the FTC’s ongoing work to protect consumers taking advantage of new and emerging financial technology. As consumer interest in cryptocurrencies like bitcoin has grown, scammers have reportedly become more active in this area. Reported scams include deceptive investment and business opportunities, bait-and-switch schemes and deceptively marketed mining machines. The FTC has continued its efforts to educate consumers about cryptocurrencies and hold fraudsters accountable.

    CFTC Commissioner Quintenz Discusses Enforcement Coordination and SROs: Speaking at FIA’s 40th Annual Law and Compliance Conference on Wednesday, Commissioner Brian Quintenz discussed the CFTC’s enforcement coordination with the SEC, particularly highlighting the cryptocurrency space where “the CFTC has formed an internal cryptocurrency enforcement task force to develop the necessary expertise to prosecute fraud in this evolving asset class. The task force shares information and works cooperatively with counterparts at the SEC with similar virtual currency expertise.” He noted that both agencies have committed to close coordination so that “differences in product nomenclature do not enable bad actors to slip through jurisdictional cracks.”

    Speaking at the same event, he discussed his view that while he’d like to see self-regulatory organizations, they could not ultimately replace federal oversight saying, “An SRO is better than nothing at this point because there is no federal oversight, and an SRO generally could help inform future federal oversight, so why not try to start to encourage people to form an SRO?”

    CFTC’s Behnam Comments on FinTech Policy: Speaking at an industry event on Thursday, CFTC Commissioner Rostin Behnam said that, “FSOC must play a more direct, inclusive role in the broader Fintech economy to effectively capture its breadth and global market impact.” He discussed his view that that FSOC is uniquely positioned to assume that role given its ability to convene all the major stakeholders.

    CFPB Interested in FinTech: Acting Director Mick Mulvaney expressed his interest in the FinTech space saying, “We are spending a good amount of time trying to figure out a way…to allow these new industries to develop without the type of regulation that stifles and while still protecting consumers at the same time.”

    COMINGS AND GOINGS AT THE AGENCIES

    Joseph Simons Sworn in as FTC Chairman: On Tuesday, Joseph Simons was sworn in to lead the Federal Trade Commission. He had been confirmed by the U.S. Senate on April 26, 2018. Mr. Simons was most recently a partner and co-chair of the Antitrust Group at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP. Simons has held two previous positions at the Commission. He served as Director of the FTC’s Bureau of Competition between 2001 and 2003, during which he was responsible for overseeing the re-invigoration of the FTC’s non-merger enforcement program. In an earlier stint at the Commission in the 1980s, Simons served as the FTC’s Associate Director for Mergers and the Assistant Director for Evaluation. Simons earned the FTC’s Award for Meritorious Service. In one of his first moves, he named Tara Koslov as the agency’s interim chief of staff. Ms. Koslov has been with the FTC since 1997 and most recently served as the acting director of the Office of Policy Planning.

    Scott Garrett Hired at SEC: Former Rep. Scott Garrett (R-NJ), who failed in his bid to lead the Export-Import Bank, has been hired as a “general attorney” at the SEC’s Office of the General Counsel.

    Raquel Fox Named Director of SEC’s Office of International Affairs: On Tuesday, the SEC announced that Raquel Fox will succeed Paul Leder as the Director of the Office of International Affairs, which advises the Commission on cross-border enforcement and regulatory matters and coordinates the SEC’s involvement with regulatory authorities outside the United States. Ms. Fox will formally assume the position in July 2018. Having joined the SEC in 2011, Ms. Fox most recently served as a senior advisor to SEC Chairman Jay Clayton focusing on matters involving the Division of Corporation Finance and the Office of International Affairs, and assisted on enforcement matters.

    John Czwartacki Transitions from OMB to CFPB: As of Monday, John Czwartacki has transitioned from the Office of Management and Budget to the Consumer Financial Protection Bureau as its Chief Communications Officer and Spokesperson.

    Dianne Blizzard Leaves SEC: The Securities and Exchange Commission announced on Friday that Diane Blizzard, Associate Director of the agency’s Division of Investment Management, is planning to leave the agency at the end of May after 18 years of service. “Main Street investors are better off today because of Diane’s public service and commitment to enhancing and modernizing the regulatory landscape for the asset management industry,” said SEC Chairman Jay Clayton. “She has a deep appreciation for the vital role that our securities laws and our capital markets play in the lives of investors across the country.”

    THE COURTS

    D.C. Federal Judge Throws Out Suit Against OCC’s Proposed FinTech Charter: On Tuesday, U.S. District Court Judge Dabney Friedrich granted a motion to dismiss, ruling that the suit brought by the Conference of State Bank Supervisors was “prudentially unripe,” continuing by saying “indeed, there may ultimately be no case to decide at all if the OCC does not charter a fintech.” The ruling echoes one issued by a federal judge in Manhattan on Monday against a suit brought by the New York Department of Financial Services, which alleged the OCC had overstepped its mandate.

    No Appeal on DC Circuit Ruling on CFPB: The May 1st deadline to file a petition for certiorari came and went this week without an appeal from PHH Corporation or the CFBP following the January ruling by the D.C. Circuit that preserved the Bureau’s single-director leadership structure, while also rejecting a US$109M penalty that had been imposed on the company.

    OTHER NOTEWORTHY ITEMS

    Group of Senators Urge Investigation Following Mick Mulvaney’s Lobbyist Comments: On Tuesday, a group of five Democratic Senators and Bernie Sanders sent a letter to the U.S. Office of the Special Counsel calling for an investigation into Mick Mulvaney for potential violations of the Hatch Act. The request followed Mr. Mulvaney’s comments during a keynote address at the American Bankers Association’s Government Relations Summit that during his time as a member of Congress, he “had a hierarchy” of people he’d meet with, and that “If you [were] a lobbyist who never gave us money, I didn’t talk to you. If you [were] a lobbyist who gave us money, I might talk to you.” He did however note that he had a preference for local constituents saying, “If you came from back home and sat in my lobby, I talked to you without exception, regardless of the financial contributions.” This did not assuage his critics however, and the Senators noted in their letter that his comments “reinforce the American public’s worst fears about a corrupt Washington establishment that sells access and is rigged for special interests.”

    FEMA Extends Transition Housing Assistance: The Governor of Puerto Rico, Ricardo Rosselló, thanked FEMA for extending transition housing assistance for displaced Puerto Rican families living in Florida following the devastation caused by Hurricanes Irma and Maria. This is the fourth, and reportedly the final, extension to be granted. The move received bipartisan praise from Florida politicians, including Governor Rick Scott and Sen. Marco Rubio.