SURVEY OF THE BANKING REGULATORY AGENCIES’ ENFORCEMENT ACTIONS AGAINST INDIVIDUAL BANKERS BETWEEN 2017 AND 2022
Jose P. Ceppi
The federal banking regulatory agencies, the Board of Governors of the Federal Reserve System (the “Board”), the Federal Deposit Insurance Corporation (the “FDIC”), and the Office of the Comptroller of the Currency (the “OCC” and collectively the “Agencies”) play a critical role in the supervision and enforcement of the laws governing the banking system in the United States. The aim of this survey is to review and compare the enforcement actions of the Agencies against individual bankers, defined in the law as Institution Affiliated Parties (“IAPs”), between 2017 and 2022. This six-year period provides a meaningful span to assess recent trends in the Agencies’ approach to IAP enforcement matters. Moreover, as the FDIC only began including in its orders the basis for the enforcement actions against IAPs sometime in 2017, this period provides the most meaningful database to evaluate these actions.
Between 2017 and 2022, the Agencies issued a total of 536 enforcement decisions and orders against IAPs at the institutions they supervise. Given that a majority of these orders involved alleged misconduct that is criminal in nature, such as cash theft and embezzlement of funds, and thus which is policed by the criminal authorities, the focus of this review is on other types of IAP misconduct leading the Agencies to pursue these actions. Before doing so, it is pertinent to briefly lay out the legal framework that enables the Agencies to pursue such matters.
THE EXPLORATION OF ESTATE TAX DEFERRAL AND ITS APPLICATION TO REAL ESTATE HOLDINGS
When a citizen or resident of the United States dies, Congress imposes a tax on the transfer of that individual’s taxable estate. The executor of the estate pays the estate tax, and the entire tax is due nine months after the date of the decedent’s death. The highest marginal estate tax rate is 40%. However, the tax code provides an exclusion that reduces the portion of an estate that would be subject to the estate tax. In 2023, the exclusion is $12.92 million per decedent. As a result, only estates valued in excess of $12.92 million are subject to the estate tax in 2023. Few taxpayers need to worry about this tax. For taxpayers that are executors of large estates, however, the estate tax will likely be a significant concern. Forty percent of a multi-million-dollar estate may be difficult for some executors to pay within nine months of the decedent’s death.
Fortunately, the tax code provides a potential solution to this problem in 26 U.S.C. § 6166. This provision allows an executor to defer payment of the estate tax attributable to closely held trade or business interests, and instead pay the tax in installments. By taking advantage of this deferral, the estate would not have to liquefy business interests to obtain the cash to pay its estate tax bill. Rather, the estate could pay the tax over time with the profits generated from these interests. Aside from addressing liquidity concerns, this provision may also provide relief from the administrative challenges related to selling off business interests without an identifiable market. Additionally, this provision may allow an estate to pass on a valuable family business to a decedent’s heirs rather than sell it to pay a lump sum tax obligation.
A LOOK AT ARIZONA V. UNITED STATES: IT IS TIME FOR CONGRESS TO ADDRESS FEDERAL BANKRUPTCY PREEMPTION
Many states have expanded and modified their state receivership and ABC laws to look like “mini” bankruptcy codes. This Article analyzes the bankruptcy-like provisions included in Arizona’s Commercial Real Estate Receivership Statute through the lens of the Supreme Court’s Arizona v. United States decision. Since before the first Bankruptcy Act was adopted in 1800, states have legislated in the realm of debtor-creditor relationships. Historically, preemption challenges to state bankruptcy-like laws have failed so long as the law did not provide a debtor with a discharge. State debtor-creditor laws, like Arizona’s Commercial Real Estate Receivership Statute, have evolved in questionable ways since the Supreme Court last considered bankruptcy preemption nearly 80 years ago. Congress should use its legislative powers to clarify when states tread upon federal bankruptcy jurisdiction.
AN UNQUALIFIED MESS: THE PASS-THROUGH DEDUCTION’S POLICY FLAWS, WHY ITS REGULATIONS DID NOT SOLVE THEM, AND HOW IT CAN BE REFORMED
The pass-through deduction in Section 199A of the 2017 Tax Cuts and Jobs Act (“TCJA”) has been highly controversial. Shortly after Section 199A’s adoption, it was widely condemned by tax scholars tax scholars widely condemned it as a vehicle for tax avoidance schemes and many called for its outright repeal. This article supplements the scholarly discussion of 199A by analyzing whether the Treasury Department’s regulations promulgated in the years following the TCJA actually prevented the tax avoidance schemes that scholars predicted. I conclude that the regulations close many, but not all, of the most egregious tax planning loopholes. After examining possible reforms to make the deduction more economically efficient and less prone to abuse, I conclude that repealing the pass-through deduction with a capital limitation deduction is the best way to reform this provision. Doing so would stimulate capital investments, simplify the deduction, and close many of section 199A’s current loopholes that the Treasury Department thus far left open.
HOW FOR-PROFIT STUDENT LOAN SERVICERS HAVE EXPLOITED THE FACADE OF THE AMERICAN DREAM – A CASE FOR HOLDING STUDENT LOAN SERVICERS CRIMINALLY LIABLE FOR FRAUDULENT PRACTICES AS NECESSARY DETERRENCE
As the amount of student debt in America approaches $1.8 trillion, the need to carefully examine the business practices of for-profit student loan servicers has never been more urgent. This Article considers how for-profit student loan servicers have exacerbated the student debt crisis by prioritizing profits and deceiving borrowers. Specifically, this Article explores how for-profit student loan servicers have exploited borrowers of federally held student loans since they gained access to the student loan market and how the federal government has enabled such corporate misconduct.
Accordingly, this Article asserts that servicers routinely defraud borrowers and must be held criminally accountable. The plethora of evidence of fraud within the student loan servicing industry, the government’s failure to regulate this industry, and the ineffectiveness of civil settlements as a deterrent underscores that borrowers need greater protection. Criminally prosecuting for-profit servicers for defrauding borrowers would provide recourse to borrowers, as there is considerable evidence that civil settlements do not meaningfully deter these profitable corporations. Part I of this Article details the implementation of the Federal Direct Loan Program and the cultural context surrounding student loans in America. Part II discusses the widespread fraud within the student loan industry and the resulting harm to borrowers. Part III analyzes the government’s role in this situation and considers the signs of regulatory capture within the Federal Student Aid Office of the Department of Education. Finally, Part IV illustrates potential avenues for criminal prosecution by arguing there is a compelling case against major student loan servicer, Navient, for wire fraud.