State AG Updates: New York, Connecticut, Pennsylvania and a 49-State Action

At a Glance

In this edition of Faegre Drinker’s State Attorneys General Update, we discuss:

• A multistate AG action against Avid Telecom for illegal robocalls
• The New York AG’s:
  • Proposed regulations on the cryptocurrency industry
  • Settlement with the cryptocurrency company Coin Cafe
  • Imposition of a $615,000 penalty for falsification of public comments related to net neutrality rules
  • Lawsuit against a firearms manufacturer for false and deceptive statements
• The Connecticut AG’s efforts to get a court order mandating that Stone Academy comply with an ongoing investigation
• The Pennsylvania AG’s filing of criminal charges for natural gas pipeline violations

Forty-Nine Attorneys General File Lawsuit Against Voice Service Provider for Illegal Robocalls

Forty-nine state attorneys general filed a lawsuit against Avid Telecom, its owner Michael Lansky and its vice president Stacey Reeves for alleged violations of the Telephone Consumer Protection Act, the Telemarketing Sales Rule, and other federal and state telemarketing and consumer laws. The lawsuit alleges that Avid Telecom initiated, facilitated and transmitted more than 7.5 billion illegal robocalls to millions of people on the National Do Not Call Registry and allegedly sent or transmitted calls about Social Security Administration scams, Medicare scams, auto warranty scams, Amazon scams, DirectTV scams, credit card interest rate reduction scams and employment scams.

The lawsuit arose out of the nationwide Anti-Robocall Multistate Litigation Task Force of 51 bipartisan AGs, which investigates and takes legal action against those they allege are responsible for routing significant volumes of illegal robocall traffic into and across the United States.

A copy of the complaint can be found here.

New York Attorney General Proposes Regulations on the Cryptocurrency Industry

The New York AG proposed legislation to tighten regulations on the cryptocurrency industry in May 2023. The proposed legislation aims to stop conflicts of interest, require public reporting of financial statements to increase transparency, and bolster investor protections. The proposed legislation seeks to:

• Prevent common ownership of crypto issuers, marketplaces, brokers and investment advisers and prevent any participant from engaging in more than one of those activities
• Prevent crypto brokers and marketplaces from trading for their own accounts
• Prohibit marketplaces and investment advisers from keeping custody of customer funds
• Prohibit brokers from borrowing or lending customer assets
• Prohibit referrals from marketplaces to investment services for compensation
• Require companies to undergo mandatory independent auditing and publish audited financial statements
• Require companies to provide investors with material information about issuers, including risks and conflict-of-interest disclosures
• Require marketplaces to establish and publish listing standards
• Require cryptocurrency promoters to register and report their interest in any issuer whose crypto assets they promote
• Enact and codify “know-your-customer” provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto brokers and marketplaces to only conduct business with firms that comply with KYC provisions
• Ban the use of the term “stablecoin” to describe or market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations
• Require platforms to reimburse customers who are the victims of unauthorized asset transfer and transfers resulting from fraud

The AG’s full press announcement can be found here.

New York AG Secures $4.3 Million From Cryptocurrency Company

The New York AG secured a $4.3 million settlement from Coin Cafe, a crypto trading platform, for allegedly defrauding investors. An investigation concluded that the company was charging investors exorbitant and undisclosed fees to use its wallet storage service, despite marketing its wallet storage as “free” on its website. The investigation also concluded that, in some cases, the fees to store Bitcoin were so high that they wiped out investors’ accounts entirely. As a result of the settlement, Coin Cafe will pay restitution to all investors who were misled, including more than $508,000 to more than 340 New York investors who were charged fees without their knowledge. The agreement also requires Coin Cafe to limit the amount of fees charged for its wallet service to 0.002% per Bitcoin per month and ensure that all fees are adequately disclosed to investors.

The AG’s full press announcement can be found here.

New York AG Announces Imposition of $615,000 Penalty for Falsification of Public Comments

The New York AG secured $615,000 in penalties and disgorgement from three companies that are alleged to have supplied millions of fake public comments in an effort to influence the Federal Communication Commission’s (FCC) decision-making process on net neutrality rules in 2017.

Net neutrality requires broadband providers to treat data equally without either blocking and slowing, or providing preferential treatment to any content. An investigation by the New York AG’s office concluded that, during the FCC’s 2017 net neutrality rulemaking, some of the nation’s largest broadband providers hired commercial lead generators to use promotions such as gift cards and sweepstakes to encourage consumers to join a campaign to submit comments. The New York AG alleges that the lead generators instead fabricated over 8.5 million comments impersonating real people.

This is the second set of agreements secured by the New York AG with companies that the AG alleges engaged in falsifying public comments. A copy of the AG’s press release is here.

New York AG Sues Manufacturer Over Gun Magazine Lock

The New York AG brought a complaint against Mean LLC, d/b/a as Mean Arms, a Georgia manufacturer of custom firearms products, alleging persistent illegal conduct under New York Executive Law in the conduct of its business, specifically deceptive business practices, false advertising, and aiding and abetting possession of assault weapons.

Mean Arms markets a product called the MA Lock, which it claims brings automatic rifles into compliance with the states that have legislated fixed-magazine limits. New York State, for example, bans the possession of high-capacity magazines that hold more than 10 rounds. The AG alleges that the MA Lock can easily be removed from a weapon and high-capacity magazines inserted. An AR-15 purchased in New York State with an MA Lock installed was implicated in the May 14, 2022, Buffalo shooting.

The AG seeks to enjoin Mean Arms from conducting business in New York, seeks to require the company to issue public corrective statements of alleged false advertising, and seeks an order requiring Mean Arms to pay restitution and damages as well as disgorge all revenues obtained as a result of the alleged illegal conduct. A copy of the AG’s press release and link to the complaint are here.

Connecticut AG Seeks Court Order Mandating Compliance With Ongoing Stone Academy Investigation

As part of an ongoing investigation of nursing school Stone Academy for alleged violations of the Connecticut Unfair Trade Practices Act, the Connecticut AG sought a court order compelling full compliance with the AG’s prior civil investigative demand from February 23. This follows on the heels of a similar action asking the court to order Stone Academy’s owner and one of its trustees to comply with the investigative demands.

The AG’s investigation relates to Stone Academy’s closure, which the AG alleges unfairly deprived students who had paid tuition of an education they had paid for. Although Stone Academy has partially complied, the AG has elected to vigorously pursue full compliance with all aspects of the civil investigative demand.

The AG’s press release is here.

Pennsylvania AG Files Criminal Charges for Natural Gas Pipeline Violations

The Pennsylvania AG charged two men working on a natural gas pipeline project in Lawrence County with criminal conspiracy for allegedly falsifying records, providing false statements to the Pennsylvania Department of Environmental Protection and risking a catastrophe.

One of the defendants allegedly presented false credentials in order to obtain work as a natural gas pipeline weld inspector. According to the AG, he signed off on multiple bad welds, which had the potential to leak and cause injury to the public. The second defendant allegedly hired a welder to repair welds without an inspector present and without reporting the repairs, both of which the AG alleges endanger the public because welded repairs increase the potential for pipeline leaks.

The AG’s press release is here.