In recent years, there has been a significant increase in government enforcement actions across several industries and areas of regulation.
In 2020, the federal government recouped $1.8 billion (bn) from health care fraud alone, in many cases through enforcement actions. So far, this year, the SEC has announced more than $80 million (mn) recovered through enforcement actions.
In October 2021, the Department of Justice (DOJ) announced its enforcement priorities, including the elevation of anti-corruption measures and white-collar enforcement.
In early November 2021, the Consumer Financial Protection Bureau (CFPB) announced agencies would resume their full supervision and enforcement of mortgage servicers, ending the more flexible approach the agencies announced at the onset of the COVID-19 pandemic.
Common Types of Government Enforcement Actions Requiring a Third-Party Administrator
Government enforcement actions brought against corporations commonly include modifications of corporate conduct and payments to victims in the form of restitution or a victim compensation fund. When there are funds available for distribution, a third-party administrator is engaged. Below are some examples of government enforcement actions that require the engagement of an administrator:
- Consent Order – a court-approved voluntary civil agreement between a government agency and a party that may include stipulated injunctive relief, enhanced reporting requirements and a monetary payment.
- Assurance of Discontinuance – an attorney general accepts an assurance of discontinuance of an act or practice considered to be a violation of the law and may include a stipulation for the payment of restitution and reasonable expenses incurred by the attorney general.
- Deferred Prosecution Agreements – an outstanding investigation or prosecution is suspended for a time in exchange for a corporation satisfying certain undertakings to have the criminal charges dropped, such as enhanced corporate compliance and reporting, payment of a criminal monetary penalty and payment of a victim compensation amount.
How Do Government Enforcement Action Administrations Differ from Class Actions?
In the administration of class action settlements, both the plaintiff and defendant negotiate the terms of the settlement agreement, including the settlement administration process. In a government enforcement action, a defendant has limited ability to dictate the terms of the administration process. The government typically decides the full administrative scope, from notice through distribution, and retains final authority to approve all documents, including those that control the administration process.
There is also no court supervision of the administration process in government enforcement actions; the supervision of the administrator is handled by the government agency enforcing the action.
The government typically seeks very high participation rates in its administrations, often as close to 100% as possible. Robust customer or victim outreach is necessary to achieve such high participation rates.
In addition to initial traditional direct mail efforts, multiple reminder mailings are commonly sent to reach the expected high participation rates. When available, email is used to deliver notice, and reminder emails are also used to further stimulate participation.
Outbound calling is rarely used in the administration of class action settlements. In contrast, government enforcement actions frequently use outbound calling campaigns to reach customers/victims who do not return their forms and to remind them to cash their checks.
The type of reporting required in government enforcement actions is also different than what is required during class action settlement administrations. Government agencies have required detailed weekly reporting on contact with each individual customer/victim, rather than the aggregate statistical reporting common in class action administrations.
Government agencies have more discretion when it comes to payment distribution. In the Matter of Viridian Energy, LLC, an Assurance of Discontinuance, direct customer distributions were made in four phases corresponding to Viridian's four payments spread over two years. Payments were structured to ensure as many dollars as possible were distributed to customers as efficiently as possible.
We selected a first phase group of Viridian customers at random whose total payments equaled the amount of Viridian's first payment and did the same for each of Viridian's following three payments. This was cost efficient administratively and maximized the dollars distributed to customers. Aggressive outreach efforts were undertaken to ensure Viridian customers received and cashed their checks.
Administration of Government Enforcement Actions
It is important to work with an experienced administrator that understands the complexities involved with regulatory matters and government enforcement actions. These matters require thoughtful planning and business rule development, dedicated teams trained on custom processes and strict quality control to verify claims and distribute funds to all verified claimants and/or consumers. Compliance with state and federal regulations, agency regulations and court procedural rules is paramount to a successful administration.
Download our Assurance of Discontinuance case study.