ORX News digests of the month: Q2 2020

Each month, we share a free operational risk loss event story from ORX News. The story is handpicked by the team as one of the most interesting stories reported by the service in the previous month. Read on for all the featured summaries from Q2 2020.

June's story of the month

Telegram to pay USD 18.5 million over unregistered offering of securities

Messaging app Telegram was fined $18.5m by the US Securities and Exchange Commission for an illegal offering of securities between January 2018 and March 2018.

Under the purchase agreement, Telegram’s subsidiary, TON Issuer, was to issue a new cryptocurrency called “Grams”. The SEC did not consider “Grams” a cryptocurrency as there were not any products or services that could be purchased with Grams. Instead, the SEC found that Grams were a security, as investors expected that they would profit from purchasing Grams, if Telegram delivered on the promised functionalities. Telegram had hoped to use the proceeds from selling Grams to fund the development of its new blockchain technology and had planned a secondary offering of Grams in October 2019. 

As the SEC considered Grams a security, it was able to secure an injunction against the secondary offering of Grams, as Telegram had failed to file a registration statement with the regulator. In addition, purchasers of Grams would not receive any documentation about Telegram’s operations, financial condition, or other relevant factors. 

In consenting to the final judgement, Telegram agreed to pay a civil penalty of $18.5m. Furthermore, the judgment ordered Telegram to repay $1.22bn of “ill-gotten” gains to its investors. 

You can read the press release here: https://www.sec.gov/news/press-release/2020-146

If your firm subscribes to ORX News, then you can read the full story and more like it on the ORX News website.

Data extract for this story

Every ORX News story is categorised to help you get the most from the data. The categories include the business line, event type and scenario category. All of this information makes it easier for you to use and analyse the loss events.

Business line: Trading & Sales
Event type: Clients, Products & Business Practices
Loss amount: USD 18,500,000.00
Country: United States
Scenario category: Retail Mis-selling

May's story of the month

JPMorgan to pay USD 2.5 million to settle class action over cryptocurrency credit card fees

In May 2020, JPMorgan Chase agreed to pay $2.5m to settle a class action suit over credit card fees it charged customers who bought cryptocurrency using their Chase credit card.

JPMorgan Chase was one of several banks to announce in February 2018 that they would no longer allow their credit cards to be used to purchase cryptocurrency following a sharp plunge in the price of several leading cryptocurrencies and concerns over fraud. 

The lawsuit was filed in April 2018 by a plaintiff who claimed that over a period of ten days beginning in January 2018, the bank switched from processing his credit card cryptocurrency payments as purchases to processing them as cash advances. By February 2018, the plaintiff had been charged more than $160 in cash-advance feeds and interest charges but had not been given notice of the change. In the suit, it was alleged that Chase had breached regulations by not giving customers 45 days written notice before effecting any change to account terms. 

Chase argued that the changes it made had violated federal consumer protection laws. Chase contended that cryptocurrency purchases fall under the header of “cash-like transactions” that credit agreements would count as cash advances. 

Following negotiations, Chase agreed to pay $2.5m which they estimated to constitute more than 95 per cent of the damages sustained by the class members. Chase has denied any wrongdoing.

If your firm subscribes to ORX News, then you can read the full story and more like it on the ORX News website.

Data extract for this story

Every ORX News story is categorised to help you get the most from the data. The categories include the business line, event type and scenario category. All of this information makes it easier for you to use and analyse the loss events.

Business line: Retail Banking
Event type: Clients, Products & Business Practices
Loss amount: USD 2,500,000.00
Country: United States
Scenario category: Improper Business Practice

April's story of the month

Skandia Liv fined for miscalculating its capital need

In April, the Swedish financial regulator Finansinspektionen (FI) fined insurance company Skandia Liv $3.5m for miscalculating its capital need, which lead to the incorrect assessment of customer protection and the company’s solvency.

FI’s investigation focused on the period between the last quarter of 2016 and the third quarter of 2019 and found that Skandia Liv had used an inaccurate assumption of lapse risk. This meant that it had not calculated correctly and realistically its commitments and capital set aside, which impeded the fair assessment of protection for customers and the company’s solvency. Furthermore, the documentation for the calculation of commitments demonstrated deficiencies that further impeded the assessment.

FI considered Skandia Liv’s failure over an extended period to be serious but considered the measures the company had taken to rectify the deficiencies. Therefore, Skanda Liv received a warning in addition to the administrative fine of $3.5m.

If your firm subscribes to ORX News, then you can read the full story and more like it on the ORX News website.

Data extract for this story

Every ORX News story is categorised to help you get the most from the data. The categories include the business line, event type and scenario category. All of this information makes it easier for you to use and analyse the loss events.

Business line: Life & Pensions
Event type: Clients, Products & Business Practices
Loss amount: USD 3,471,300.00
Country: Sweden
Scenario category: Improper Business Practice