Opinion ID: 4529168
Heading Depth: 2
Heading Rank: 1

Heading: The pay-to-play scheme and Consent Order

Text: Gary Klopp managed a mortgage brokerage branch of the Peoples Bank & Trust in Owings Mills, Maryland. A decade ago, Klopp started taking kickbacks from a titleservice company. 1 According to regulators, for every loan that Klopp or his agents steered to a particular title company, he received roughly $400 in return. Between 2011 and 2013, the title company funneled more than half-a-million dollars to Klopp through two 1 Title service companies, in exchange for a fee, verify the legitimacy of a seller’s title to a parcel of real estate, and they sometimes insure that title. This service gives purchasers—and mortgage lenders—confidence in a property transaction. 3 Maryland shell corporations that Klopp created and controlled. Neither of Klopp’s shell companies provided any genuine services for these payments, and Klopp concealed this kickback arrangement from his customers. Klopp’s dealings were part of a grander “pay-to-play” scheme uncovered by federal and state regulators. In April 2015, the regulators began a civil action against Klopp and twelve codefendants in the District of Maryland for violating federal and state consumer finance laws. Some of Klopp’s codefendants quickly settled with the regulators. Those early settlements limited the codefendants’ “participation in the Mortgage Industry in any professional capacity” and imposed civil money penalties. E.g., Dist. Ct. Dkt. No. 14 at 5. Klopp’s settlement was different. In November 2015, Klopp and the regulators negotiated and proposed a Stipulated Final Judgment and Order to the district court (“Consent Order”). The Consent Order levied a civil money penalty of $75,000. And it imposed various other non-monetary requirements and restrictions, two of which drive this appeal. In the first set of requirements, Klopp agreed to restrictions on his activities in the mortgage industry. The Consent Order “limited [Klopp] from participation in the Mortgage Industry for two years . . . as follows:” a. [Klopp is] prohibited from contacting, soliciting, or otherwise dealing with consumer borrowers or loan applicants in any capacity with regard to any mortgage business; and b. [Klopp is] prohibited from contacting, soliciting, or otherwise dealing with any third party businesses engaged in offering any settlement service. J.A. 49. A safe-harbor provision followed these prohibitions: 4 c. These limitations shall not prohibit Defendant Klopp from acting solely as a personnel or human-resources manager for a mortgage business operated by an FDIC-insured banking institution . . . . Id. In the second set of requirements, Klopp assented to various reporting measures. Klopp agreed to upload the Order to the Nationwide Mortgage Licensing System and Registry (“Registry”) within 60 days. He also promised to report any change in his residence, in his roles in “any business activity,” and in “any entity in which [he has] any ownership interest” to the regulators for two years. J.A. 51–52. And Klopp had to notify the regulators “of any development that may affect compliance obligations arising under” the Consent Order. J.A. 51. The district court accepted the Parties’ proposed resolution of Klopp’s case and issued the negotiated Consent Order. Over the next two years, Klopp defied the Consent Order with aplomb. Without notifying regulators, he rented a house in California and opened a new branch of the Peoples Bank & Trust in Orange County. He continued to deal with third-party businesses engaged in settlement services. And he never uploaded the Consent Order to the Registry.