An Insider’s View of
Dealing with State
Attorneys General:
Insights for Financial
Services Firms
Wednesday, January 18th
Agenda

Welcome / introduction of subject matter experts (SMEs)

State AG and congressional activity “round-up”

Webinar Topics

2
–
Dealing with State AGs – the AGs, in context
–
Interacting with State AGs – four practical concepts
–
A key “best practice” – responding to CIDs (and admin. subpoenas, etc.)
Concluding remarks
State AG Activities Roundup


3
Mortgage Foreclosure Multistate Group
–
Media reports DOJ reaching out beyond the five largest servicers
–
Indications additional servicers contacted re: settlement outlines
State AG activities
–
Washington, DC, meeting of several AGs (CA, DE, MA, NY, et al.)
–
Examination of alternatives to Multistate Group settlement talks
Congressional (and other) Activities
Round-up

Recess appointment of Director Cordray on January 4th
–
Support from some in Congress – e.g., Sen. Reid is “confident” the
appointment will be upheld against any court challenge
–
Opposing views – e.g., Rep. Patrick McHenry stated that the
“unprecedented appointment of Mr. Cordray runs counter to the
constitutional requirements for a recess appointment….”

–
4
Press reports say that a hearing with the Director before Rep. McHenry’s House
Oversight Subcommittee is set for Jan 24th
CFPB has been active since the recess appointment

Startup of non-bank supervision program announced on January 5th

Director Cordray will attend a CFPB “field hearing” on payday lending in
Birmingham, AL on January 19th
Dealing With State AGs:
The AGs, in Context

Current “context” for State AGs is dynamic
–
Nearly all states are budget cutting (e.g., California AG’s plan to cut
over 100 enforcement agents due to fiscal situation)
–
The Dodd-Frank Act and the CFPB have impacted all state AGs
–
5

New cooperative relationships with Federal regulators have begun

AGs will be testing the parameters of Federal statutory “preemption”
Outreach to State AGs (and their staffs) may be uniquely timely
Interacting With State AGs: Four Practical
Concepts for Financial Services Firms

“The Lay of the Land”
–
6
The State AGs don’t occupy exactly the same space, state-by-state

Some have independent prosecutorial powers, others don’t

Independence from the governor and legislature varies, too

You need to learn the “lay of the land”
Interacting With State AGs: Four Practical
Concepts for Financial Services Firms

“Trademarking”
–
7
It is up to you to establish your “brand” with AGs and their staffs

Someone needs to be the “face” of your firm, proactively

Learn who to call before you really need to know who to call
Interacting With State AGs: Four Practical
Concepts for Financial Services Firms

8
Become a “watchdog”
–
Once initial contacts are made, keep them “alive”
–
Watch for changes in the AG’s staff and in the AG’s priorities
Interacting With State AGs: Four Practical
Concepts for Financial Services Firms

Sustain your effort
–
Assume the worst – if there’s a media “storm” on an issue, assume
the AG (and staff) will see the worst item, not the best
–
Reach out to contacts, even if you “feel” immune from what’s on the
public’s (and probably the AG’s) radar screen
–
9
Communicate why the AG’s concern is with “someone else” and not
“you”
A Key “Best Practice” – Responding to CIDs (and
Administrative Subpoenas, etc.)

A Civil Investigative Demand (“CID”) is a demand –
not a request – for information
–
–
–
–
–
10
Some states refer to them as “administrative subpoenas”
May be issued by an AG or state agency (depending on authorizing
statute) to any person or entity that may have information related to
an investigation
Information sought may include documents, testimony, and
responses to interrogatories
Unlike a subpoena, CIDs are issued without judicial oversight
They may be challenged in the courts
A Key “Best Practice” –
Responding to CIDs

Authority to issue a CID
–
Statutory authority granted to AGs and other government agencies
–
CIDs may be broad in scope
–
California: head of each department has authority to issue CIDs to
investigate any violation or potential violation of law, administrative
rules, or order issued by the department

–
11
Defined investigative powers under specific statutory provisions
New York: AG and others have power to issue CIDs for information
regarding, among others, potential securities and antitrust violations
and consumer fraud
A Key “Best Practice” –
Responding to CIDs

Demand or request for information?
–
There is no per se requirement to respond to a CID

–
12
However, the AG or other issuing agency can obtain a court order to
compel a response
Failure to respond is then punishable by contempt

Some AGs may also compel a response without recourse to the courts

New York Martin Act provides the AG authority to issue a subpoena to
compel compliance with a CID in matters involving violations of the
securities laws
A Key “Best Practice” –
Responding to CIDs

A recipient of a CID may also seek to limit the scope of
the CID, extend the time to respond, or challenge its
issuance
–
–
Negotiate with the AG or issuing agency or move to strike or quash
Relevant factors:

Relevance and importance of the information to the investigation
Is the recipient a target of, or witness in, the investigation
Is the CID within the scope of the authorizing statute
Reasonableness of requested extension of time

Courts will generally enforce CIDs



13
A Key “Best Practice” –
Responding to CIDs

Challenging a CID
–
–
Motion to set aside, strike, or quash
 CIDs must meet statutory and judicial requirements
New York: will only be quashed if “utterly irrelevant to any proper
inquiry.”


14
New York v. John Thain: Motion to compel CID for testimony of the
former Merrill CEO regarding receipt of bonuses denied despite
assertion that the information was confidential
University of Virginia v. Cuccinelli: CIDs set aside - Virginia’s Fraud
Against Taxpayers Act requires AG to have “reason to believe” that the
University had relevant information to the investigation, and AG failed
to sufficiently allege “nature of conduct” believed to violate the act
A Key “Best Practice” –
Responding to CIDs


15
Understand what the CID tells you
–
Insight into concerns and investigative focus
–
Use ongoing discussions about compliance to understand AG’s
concerns and to educate AG on issues
Understanding what is and is not available from client
–
Document Hold memorandum
–
Hard copy documents
–
Email
–
Electronic documents
A Key “Best Practice” –
Responding to CIDs

Document your cooperation efforts
–
–
–
–

Interrogatory type requests
–
16
Document collection efforts
Document efforts to narrow requests based on burden and
availability of materials
Document provision of information, documents, and data
Understand ability to resist in court and arguments needed to
succeed
Time and effort to respond thoroughly is critical – it is an opportunity
to be an advocate
A Key “Best Practice” –
Responding to CIDs


17
Understand what you are providing to AG
–
Review documents
–
Analyze data
–
Beware of email
Respond to CID but tell your story
–
Telling your story is not a substitute for, but a supplement to, CID
response
–
Various ways to be effective, but likely will need written submission
–
Engage on the merits
Conclusion

18
Webinar wrap-up; some final thoughts from today’s
SMEs