1 BEFORE THE NEW YORK STATE SENATE
STANDING COMMITTEE ON CODES
2 AND
STANDING COMMITTEE ON CONSUMER PROTECTION
3 ----------------------------------------------------
4 JOINT PUBLIC HEARING:
5 CURRENT PATTERNS IN WHITE-COLLAR CRIME AND FRAUD,
AND POSSIBLE UPDATES TO LAWS PROTECTING
6 NEW YORKERS AND MARKETS
7
----------------------------------------------------
8
9 Date: March 4, 2026
Time: 9:30 a.m.
10
11 PRESIDING:
12 Senator Zellnor Y. Myrie, Chairman
NYS Senate Standing Committee on Codes
13
Senator Rachel May, Chairman
14 NYS Senate Standing Committee on
Consumer Protection
15
16 PRESENT:
17 Senator Jabari Brisport
18 Senator Dean Murray
19
20
21
22
23
24
25
2
1 SPEAKERS: PAGE QUESTIONS
2 PANEL A: 17 28
3 Gabriel O'Malley
Executive Deputy Superintendent,
4 Consumer Protection and Financial
Enforcement Division
5 NYS Department of Financial Services
6 Laura Campion
Deputy General Counsel & Associate
7 Commissioner
NYS Department of Labor
8
PANEL B: 51 63
9
Stephanie J. Swenton
10 Chief of Criminal Enforcement and
Financial Crimes Bureau
11 Shamiso Maswoswe
Chief of Investor Protection Bureau
12 NYS Office of the Attorney General
13 PANEL C: 83 98
14 Alvin Bragg
District Attorney
15 Manhattan, New York
16 Lee C. Kindlon
District Attorney
17 Albany County
18 Alona Katz
Unit Chief, Virtual Currency Unit
19 Brooklyn, New York, District
Attorney's Office
20
PANEL D: 110 120
21
Richard Bouras
22 Manager, Investigations and
Intelligence Solutions
23 Chainalysis Government Solutions
24 Ari Redbord
Global Head of Policy
25 TRM Labs
3
1 SPEAKERS (continued): PAGE QUESTIONS
2 PANEL E: 140 145
3 Kristen McManus
Director of Government Affairs
4 and Advocacy
AARP
5 152 159
PANEL F:
6
Mark Anderson
7 Partner
SBA GL, LLP
8
Charles Johnson
9 NAACP New York State Political Action
and Civic Engagement Chair
10 NAACP New York State Conference
11 Dr. Mark Bond
Pastor
12 Citadel Cathedral, South Brooklyn, NY
13 PANEL G: 174 179
14 Scott Buchanan
Executive Director
15 Student Loan Servicing Alliance
16 Winston Berkman-Breen 185 195
Legal Director
17 Protect Borrowers
18 Andy Morrison
Associate Director
19 New Economy Project
20 Emma Kreyche 207 217
Director of Advocacy, Outreach,
21 and Education
Worker Justice Center of New York
22
Christopher Marlborough
23 Board Member, Co-Chair Legislative
Advocacy Committee
24 National Employment Lawyers Associate,
NY Affiliate
25
4
1 SENATOR MYRIE: Good morning, everyone.
2 All right. So, firstly, let me thank
3 everyone for taking the time to be with us this very
4 winter morning in Albany.
5 I want to especially thank my colleague and
6 chair of the Consumer Protection Committee,
7 Senator Rachel May.
8 As well as my colleagues, we are joined
9 currently by Senator Dean Murray and the witnesses
10 who have taken the time to be with us this morning
11 at this hearing, a joint hearing between the Codes
12 and Consumer Protection Committee, regarding
13 white-collar crime and patterns that we are seeing
14 in fraud.
15 Now, we know that New Yorkers are in a
16 cost-of-living crisis.
17 The legislature has rightfully focused a lot
18 of energy on making life more affordable, and will
19 continue to do so.
20 But there is a dimension of this
21 affordability crisis that we do not talk about
22 enough, and that is:
23 The cost of being defrauded, the cost of
24 being overcharged, and having no recourse;
25 The cost of seemingly insurmountable student
5
1 loan payments with no way out;
2 The cost of losing your life savings to a
3 crypto scheme;
4 The cost of losing your home in an opaque
5 foreclosure proceeding;
6 The cost of having your wages stolen by an
7 employer;
8 To put it plainly, the cost of being scammed.
9 Now, here in New York, we like to think we
10 know a scam when we see one. But I want to take a
11 moment to focus on the student loan industry.
12 More than 2 million New Yorkers carry student
13 loan debt worth over $96 billion. In New York City
14 alone, roughly, one in nine borrowers are
15 delinquent, and in The Bronx that number is closer
16 to one in seven.
17 So last December, as chair of the Codes
18 Committee, I sent detailed inquiry letters to
19 companies across the student loan servicing
20 industry, and I asked straightforward questions
21 about their practices serving New York borrowers.
22 I offered confidentiality protections. Said
23 I would accept documents in phases. I tried to be
24 as accommodating as a legislative body can be.
25 So let me talk to you about what we got back.
6
1 I have four letters today, representing
2 four companies that touch virtually every student
3 loan in the state of New York. And not one of them,
4 not one, was willing to answer basic questions about
5 how they treat the people whose loans they service.
6 I'm going to start with Navient.
7 At its peak, Navient, formerly Sally Mae, was
8 the largest student loan servicer in the
9 United States: 12 million borrowers and over
10 $300 billion in federal and student private loans.
11 The Consumer Financial Protection Bureau
12 found that Navient steered 1.5 million borrowers
13 into costly forbearances instead of the affordable
14 repayment plans that they were entitled to. That
15 added up to $4 billion in unnecessary interest to
16 their loan balances.
17 Navient was permanently banned from federal
18 student loan servicing and ordered to pay
19 $120 million.
20 Additionally, 39 state attorneys general, led
21 by our New York attorney general, reached a separate
22 $1.85 billion settlement. And, currently, Navient
23 has 41,000 formal complaints in the CPFB [sic]
24 database.
25 That bureau's own enforcement director said
7
1 Navient's practices resulted in millions of
2 borrowers needlessly defaulting on their loans.
3 So with that record, I wrote to them and
4 asked for information related to their customer
5 communication, their personnel training, compliance,
6 and any remediation or coercive practices that they
7 were trying to correct.
8 And here's what they said, and I'm reading
9 directly from the letter:
10 "Navient has largely exited the student loan
11 servicing business. Navient outsourced the bulk of
12 its remaining services' functions to an organization
13 named MOHELA. But we would be happy to answer any
14 further questions at the committee's convenience."
15 But they did not answer any of our questions,
16 and they declined to attend today's hearing.
17 A company permanently banned from its own
18 industry, with $2 billion in combined penalties, and
19 their answer to the New York State Senate is: We've
20 left. Ask someone else.
21 So we did.
22 I wrote to Earnest, Navient's private lending
23 arm that originates and services private student
24 loans. It was acquired by Navient and operates as a
25 subsidiary of the same corporate family; the same
8
1 parent company, the same leadership structure.
2 And here is what Earnest said:
3 "Earnest is an affiliate of Navient, and
4 Earnest outsourced a substantial portion of its
5 servicing functions to MOHELA."
6 They also said, "We would be happy to answer
7 any further questions at the committee's
8 convenience."
9 But they did not answer our questions, and
10 they declined to attend today's hearing.
11 And then there's Aidvantage, a subsidiary of
12 Maximus, one of the largest government contractors
13 in the country.
14 And when Navient was banned from federal
15 servicing, it was Maximus, doing business as
16 Aidvantage, that picked up the portfolio. Together,
17 they directly managed student debt held by nearly
18 13 million borrowers and hold over $800 million in
19 department of education contracts. Aidvantage also
20 runs the servicing platform for every federal
21 student loan borrower in default.
22 It is, by many measures, the largest student
23 loan company in the world, and its record?
24 The department of education withheld
25 $2 million from Aidvantage for failing to send
9
1 timely billing statements to 758,000 borrowers.
2 Investigations have documented evidence of sloppy
3 servicing, unfair debt collection practices,
4 unlawful wage garnishment, and improper seizure of
5 tax refunds from borrowers in default.
6 A federal judge held the Secretary of
7 Education in contempt of court because Maximus
8 failed to stop garnishing the wages whose loans the
9 government had already agreed to cancel.
10 I sent Aidvantage the same inquiry I sent to
11 others, I invited them to testify at today's
12 hearing, and here was the response we received just
13 last week:
14 "Maximus Education, LLC, doing business as
15 Aidvantage, is a contractor on behalf of the federal
16 student aid for the servicing of department of
17 education-owned loans. Inquiries related to
18 servicing federal student loans should be directed
19 to the department of education.
20 "Accordingly, we will not provide testimony
21 regarding student loans."
22 The largest student loan company in the
23 world -- 13 million borrowers, 800 million
24 government dollars in contracts -- and their answer
25 to the New York State Senate is: "We will not
10
1 provide testimony." Talk to someone else about the
2 very thing the federal government pays them to do.
3 And we heard about MOHELA, the
4 higher-education loan authority of the state of
5 Missouri, that currently has the portfolios from
6 Navient and Earnest.
7 We wrote them the same letter, and their
8 response to us was to speak to the trade
9 association. No documents, no point of contact, no
10 production plan.
11 8 million borrowers they have, $1.1 billion
12 in taxpayer money, and their answer is: Talk to
13 someone else.
14 Navient says: We have left. Ask MOHELA.
15 Earnest says: We're with Navient. Ask
16 MOHELA.
17 Aidvantage says: Talk to the federal
18 government.
19 MOHELA says: Talk to our trade association.
20 No one is accountable, and the borrower is
21 the one that is trapped inside.
22 But here's why we're here today: This is not
23 unique to the student loan industry.
24 This is how powerful entities get away with
25 getting over on regular people:
11
1 Creating webs of affiliates and
2 subcontractors and transfers. Moving the portfolio
3 before anyone can pin it down. You point to the
4 last company. The last company points to the next
5 company. The next company points to the regulator.
6 And the result is: No one sits before the
7 legislative body and answers for what happens to the
8 people that they are supposed to serve.
9 If a single New Yorker had been fined
10 billions of dollars, permanently banned from their
11 profession, sued by multiple federal agencies, and
12 found to have harmed millions of people, and then
13 refused to answer questions, we'd say they're
14 playing by a different set of rules and operating
15 outside of the law.
16 But when it's a large corporation or
17 financial institution or sophisticated digital
18 operation, we look the other way.
19 So I will close, so we can get to the hearing
20 testimony, with a date: 1986.
21 There are a lot of great things about that
22 year, including that it was the year I was born.
23 But it's also the last time that New York
24 significantly updated its white-collar crime
25 statutes.
12
1 That is the legal framework we are working
2 with today.
3 Think about what the world looked like in
4 1986: No Internet. No email. No smartphones. No
5 online banking. No algorithmic credit scoring. No
6 digital mortgage applications. No student loans
7 securitization market. No service portfolios. No
8 cryptocurrency. No blockchain. No Zelle. No
9 Venmo. No digital payment networks.
10 That is the world our fraud statutes were
11 built to serve 40 years ago.
12 Since then, our federal securities laws have
13 been updated, our banking laws have been updated,
14 our consumer protection laws have been updated, our
15 cybercrime statutes have been updated; but not our
16 core criminal fraud provisions, not the penal law.
17 Those are still stuck in 1986, and that is a choice.
18 Bad actors know this. They've operated for
19 decades, knowing that our fraud statutes cannot
20 reach them. That what they were doing may look bad,
21 may sound bad, may feel bad; but the law, as
22 written, has left them untouchable, while
23 New Yorkers, literally, and figuratively, have money
24 taken out of their pockets every day.
25 Every dollar extracted through deceptive
13
1 servicing, every dollar inflated in a wrongful
2 foreclosure judgment, every dollar stolen from a
3 worker's paycheck, and every dollar misappropriated
4 in a digital scheme is money taken from families
5 already stretched to the breaking point.
6 New Yorkers are getting scammed every single
7 day. It's time we do something about it.
8 And with that, I will pass it to the chair of
9 the Consumer Protection Committee to offer some
10 opening remarks, and then we will commence with the
11 hearing.
12 Thank you.
13 SENATOR MAY: Well, thank you, Chair Myrie,
14 and thanks to everybody who is here.
15 I guess I should thank Senator Myrie for
16 making me feel really old --
17 [Laughter.]
18 -- because, 1986, I was already well into
19 adulthood.
20 But I do want to thank you for being a
21 partner in this hearing.
22 As chair of the Consumer Protection
23 Committee, we -- we have a lot of bills in our
24 committee about fraud and scams, and we are dealing
25 with this all the time.
14
1 I was the chair of the Committee on Aging for
2 four years. And that's -- I know we will be hearing
3 about elder fraud here, which is -- which is
4 pervasive and growing. And I find myself targeted
5 by those fraudsters all the time as well. And
6 it's -- people are terrified.
7 The thing about when you -- as Senator Myrie
8 was saying, you know, people expect prices to go up,
9 they expect things to be expensive. But they don't
10 expect to be scammed, they don't expect to be
11 defrauded, and they don't expect just money to
12 disappear for no apparent reason. And it's
13 terrifying, and people feel destabilized and they
14 feel helpless.
15 And those kinds of events, even if it's a
16 smaller amount of money than the money that they
17 might be struggling with because their utility bill
18 went up, if it is something where they feel like
19 they've been abused or mistreated or scammed, then
20 they get that much -- it's that much harder, it
21 feels like a much bigger hit.
22 I also want to say, Senator Myrie talked
23 about the student loan industry, and that's
24 something we're working on in my committee, is
25 trying to protect private student loan borrowers who
15
1 have private student loans.
2 But you mentioned that there had were
3 41,000 formal complaints at the Consumer Financial
4 Protection Board against Navient.
5 One of the things that we're dealing with
6 right now in New York State is that the federal
7 government and the Trump Administration have made an
8 all-out attack on the Consumer Financial Protection
9 Board. And the estimate is that that has cost
10 consumers $19 billion just in the last year alone
11 because of the -- essentially, the demise of that
12 board as a -- as an active participant in helping
13 consumers deal with these big corporations that are
14 not responsive.
15 If they're not going to be responsive to a --
16 you know, a state senator who chairs a powerful
17 committee, then they're not -- definitely not going
18 to be responsive to the individuals who have filed
19 those complaints.
20 And so it isn't an accident that we are
21 having to do this in 2026, when the federal
22 government has completely abdicated its role in
23 protecting consumers.
24 And so we need to do it here at this -- in
25 this state.
16
1 And I'm really grateful to all of you who are
2 here, to help us figure out the best ways to do
3 that.
4 And I won't take any more time, except just
5 to say, I'm looking forward to hearing from all of
6 you. And we will definitely take what you have to
7 say to us, and make sure that we're using it either
8 to advance existing legislation or to improve the
9 legislation that we've got on the books right now,
10 so that we can help the consumers of this state feel
11 like they are being protected even when the federal
12 government is not in their corner.
13 Thank you.
14 SENATOR MYRIE: Thank you, Chair May.
15 And we will commence with the hearing.
16 We are first starting with a number of
17 government panels.
18 In the first panel, if you can introduce
19 yourselves before you speak, you will each be
20 allotted five minutes, and then we will have some
21 questioning that I think will be around that time.
22 We're a little flexible today.
23 And so, I don't know amongst the lottery who
24 wanted to go first.
25 Okay. And so we'll start with
17
1 Mr. O'Malley.
2 And thank you again for being here today, and
3 thank you for your testimony.
4 GABRIEL O'MALLEY: Good morning, Chair Myrie,
5 Chair May, and Senator Murray, and all other members
6 of the New York Senate.
7 The department of financial services
8 appreciates the opportunity to submit testimony
9 today.
10 My name is Gabriel O'Malley.
11 Since last March I have been the executive
12 deputy of DFS's Consumer Protection and Financial
13 Enforcement Division. It's known as "CPFED"
14 colloquially, and so I may refer to us as that in
15 the testimony today.
16 The department regulates the activities
17 of approximately 3,000 banking, insurance, virtual
18 currency, and other financial institutions, with
19 assets totaling more than $9 trillion. This
20 includes over 1200 depository and non-depository
21 financial service providers, and nearly
22 1800 insurance companies.
23 Last year, DFS provided over $350 million to
24 the State and New Yorkers through restitution to
25 consumers and health-care providers, penalties paid
18
1 to the state general fund and DFS assessment revenue
2 reappropriated to other state entities.
3 The department's operating expenses,
4 importantly, are assessed upon regulated entities
5 and are not a cost to New York taxpayers.
6 Under Governor Hochul's leadership, DFS has
7 secured, roughly, 760 -- excuse me -- $765 million
8 for consumers, addressed more than 200,000 consumer
9 complaints, and issued 134 enforcement actions, and,
10 finally, collected more than $517 million in
11 enforcement penalties.
12 DFS's Consumer Protection and Financial
13 Enforcement Division, which I oversee, is comprised
14 of six units.
15 The attorneys and staff of CPFED's Civil
16 Investigation Unit, known as "CIU," investigate
17 civil financial fraud and violations of Consumer
18 Protection and Fair Lending laws, and violations of
19 the New York financial services law, banking law,
20 and insurance law, and regulations promulgated
21 thereunder.
22 Our CIU attorneys and staff conduct
23 investigations, they form legal conclusions, and,
24 ultimately, they resolve those investigations
25 generally in one of two ways: Either through an
19
1 agreed-upon consent order with an entity or
2 individual, or through the filing of a statement of
3 charges.
4 Under Governor Hochul's leadership, CIU has
5 taken robust action to address wrongdoing in
6 New York.
7 For example, DFS brought its first actions
8 against cryptocurrency companies, including
9 Robinhood Crypto, Coinbase, Block, and Gemini,
10 securing penalties and agreements to remediate, to
11 ensure compliance with state laws and regulations.
12 The department was also the first regulator
13 to take action concerning Binance, ordering Paxos to
14 cease minting Paxos-issued BUSD.
15 Notably, pursuant to a settlement with DFS in
16 2024, Gemini Trust Company returned more than
17 $2 billion worth of digital assets to consumers
18 after failing to protect them from alleged fraud by
19 an unregulated third party.
20 Gemini also paid $37 million in a penalty to
21 resolve that action, and to resolve their law
22 violations which threatened the safety and soundness
23 of the company.
24 In the past year alone, CIU's work has
25 resulted in, roughly, $90 million in penalties, with
20
1 changes mandated to various aspects of businesses,
2 including safety and soundness, anti-money
3 laundering, consumer protection, virtual currency,
4 and cybersecurity compliance.
5 CPFED's Consumer Examinations Unit is
6 responsible for conducting fair lending, compliance,
7 and New York Community Reinvestment Act
8 examinations; overseeing the Banking Development
9 District Program; and registering and supervising
10 consumer credit reporting agencies; among other
11 work.
12 "CEU," as it's known internally, also houses
13 the department's Student Protection Unit, which is a
14 watchdog for New Yorkers.
15 The SPU licenses and examines student loan
16 servicers; importantly, mediates consumer
17 complaints; and provides clear information to
18 students and their families so they can make
19 informed financial choices around their education.
20 The Consumer Assistance Unit is the largest
21 of CPFED's units. It investigates and mediates
22 complaints against regulated entities, as well as
23 complaints related to other entities. It also
24 screens external appeal applications, manages the
25 independent dispute resolution process, and conducts
21
1 outreach and education to consumers.
2 To give you a sense of the magnitude of
3 CAU's work, in 2025 alone, CAU received almost
4 40,000 insurance-related complaints. Its work
5 processing and mediating those complaints resulted
6 in the recovery of more than $121 million for
7 New Yorkers and providers. And, also, they
8 processed more than 5300 non-mortgage-related
9 complaints, which resulted in, roughly, $6 million
10 back to consumers.
11 A couple more points, and I'll be brief.
12 The Insurance Fraud Bureau, known as "IFP,"
13 is something that I know Acting Superintendent Asrow
14 talked about last week. Its focus is on the
15 detection and investigation of insurance fraud, and
16 referring those matters for prosecution.
17 We received more than 51,000 reports of
18 suspected insurance fraud last year, mostly from our
19 regulated entities. This resulted in almost
20 250 investigations, 169 arrests, and numerous
21 referrals to law enforcement agencies for
22 prosecution.
23 We have rebuilt and modernized IFP in the
24 last year. We brought on new leadership in the top
25 two positions. We have also increased staff by
22
1 28 percent. We're doubling down on technological
2 advances as well, to make us more efficient and
3 effective. And we're also really focused on
4 partnering with state police and other law
5 enforcement agencies.
6 Finally, we have an investigation and
7 intelligence unit within CPFED. They focus on
8 potential violations of New York banks and banking
9 law, but also the New York Penal Code and potential
10 crimes relating to mortgage fraud. They work
11 closely with law enforcement agencies.
12 And, finally, we have the small but mighty
13 Holocaust Claims Processing Office, which I know you
14 all are aware of. HCPO provides institutional
15 assistance to individuals seeking to recover lost
16 items due to Nazi persecution.
17 And I just have to note that, to date, HCPO
18 has secured more than $184 million in offers for
19 banks, insurance, and other losses; and has also
20 facilitated the return of 356 cultural objects, to
21 no cost to the recipients and to no cost to the
22 State of New York.
23 As reflected in the work that I have
24 outlined, the department is dedicated to ensuring
25 that New York insurance banking, virtual currency,
23
1 and other non-bank financial services markets are
2 fair and transparent from our competitors and,
3 importantly, for consumers.
4 I look forward to answering your questions
5 today.
6 SENATOR MYRIE: Thank you.
7 LAURA CAMPION: Good morning.
8 I would like to begin by acknowledging
9 Chairs Myrie and May. Thank you for inviting me to
10 testify today.
11 SENATOR MYRIE: Apologies. Technical
12 difficulties.
13 LAURA CAMPION: Five minutes went faster than
14 I expected.
15 SENATOR MYRIE: Yeah, you have -- that is --
16 you got more time than that.
17 Just give us one second.
18 LAURA CAMPION: Absolutely.
19 SENATOR MYRIE: Yeah, let's give her the
20 full. Thank you very much.
21 Thank you for your patience.
22 LAURA CAMPION: Not a problem.
23 Once more, from the top: Good morning.
24 I would like to begin by acknowledging
25 Chairs Myrie and May. Thank you for inviting me to
24
1 testify today.
2 Distinguished members of the committee, thank
3 you for giving me this opportunity to discuss our
4 efforts against wage theft at the department of
5 labor.
6 I am Laura Campion, deputy general counsel
7 and associate commissioner of the department of
8 labor.
9 Wage theft negatively impacts the pockets of
10 New York's workers and the bottom lines of
11 businesses, creating a ripple effect that
12 reverberates throughout our entire economy.
13 Criminals who steal from the pockets of your
14 constituents must be pursued to the fullest extent
15 of the law.
16 At the department of labor, our
17 investigators, alongside our many partners in law
18 enforcement, labor, advocacy, and more, remain
19 focused on doing just that; utilizing every tool at
20 our disposal.
21 And we will not rest until stolen funds are
22 back where they belong; in the hands of hard-working
23 New Yorkers who rightfully earned them.
24 To that end, I am pleased to inform the
25 committee that 2025 was a landmark year in our fight
25
1 against wage theft.
2 Last year alone, our investigations recovered
3 more than $35 million in wages and collected
4 $2.2 million in penalties.
5 And since 2017, the department has recovered
6 and disbursed more than 243 million in stolen wages.
7 We attribute part of our success last year to
8 the enhancements to our enforcement capabilities by
9 the governor, in partnership with the legislature.
10 By giving us the authority to issue warrants
11 and seize financial assets following unpaid wage
12 theft orders, we are better armed to go after bad
13 actors.
14 This ensures that workers are prioritized,
15 and emphasizes the message that wage theft will not
16 be tolerated here in New York State.
17 Again, we do not do this important work
18 alone. There is power in partnership, and
19 collaboration has made it difficult for criminals to
20 hide.
21 Thanks to Governor Hochul's Wage Theft Task
22 Force, the department continues to work closely with
23 law enforcement partners, sharing strategies and
24 information to coordinate our efforts.
25 The ongoing multiagency effort includes the
26
1 New York State Attorney General, district attorneys,
2 the New York State Insurance Fund, and the
3 New York City Department of Investigations.
4 Together, along with our partners, we
5 leverage criminal and civil laws to achieve justice
6 for workers.
7 In the spirit of partnership and
8 transparency, we have given all New Yorkers,
9 including the legislature, unprecedented access to
10 our work in this space through the Wage Theft
11 Investigations Dashboard.
12 This interactive online tool provides
13 comprehensive information on wage violation cases,
14 wages returned to workers, and penalties levied
15 against violators.
16 What this tool demonstrates, is the most
17 common types of wage theft include failing to pay
18 the minimum wage, failing to pay overtime, and
19 failing to adhere to the Spread of Hours law for
20 service workers.
21 This is why education is such an important
22 part of our work. We know laws can be confusing for
23 some employers. And in some cases of wage theft,
24 we've learned that employers want to comply. They
25 didn't know that they were breaking the law.
27
1 The department regularly communicates about
2 wage theft, rights of workers, and the
3 responsibilities of employers via social media,
4 newsletters, through our business representatives,
5 and more. We work with employers, to educate them
6 about equal pay and pay transparency laws, and
7 proactively provide tools and information about fair
8 and lawful treatment of employees.
9 Education is key to attacking wage theft at
10 the root, preventing future violations before they
11 even occur.
12 Again, I want to emphasize that partnership
13 is key in fighting wage theft, and that includes
14 every working New Yorker.
15 Please encourage our constituents to look at
16 their paychecks. And if anything looks concerning,
17 please report it to us immediately and we will look
18 into it.
19 In closing, I thank our partners, especially
20 in the legislature, for your continued commitment to
21 fighting wage theft, and for due diligence in making
22 sure that all working New Yorkers receive every cent
23 that they are owed.
24 Thank you.
25 SENATOR MYRIE: Senator May.
28
1 SENATOR MAY: Yeah, thank you.
2 Thank you both for your testimony.
3 I guess, on that -- on the wage theft issue,
4 I'm wondering right now, I assume that these are
5 mostly hourly workers, and that we're talking about
6 people at the lower end of the pay spectrum who
7 don't have a lot of power in the whole process.
8 And I'm just wondering if you're seeing
9 changes, because so many people are afraid to come
10 forward, in -- given the kind of federal immigration
11 enforcement that we're seeing? If you're seeing
12 changes in the kinds of complaints that you're
13 getting?
14 LAURA CAMPION: I don't know, off the top of
15 my head, if we're seeing any specific changes or
16 trends.
17 But what I can say is, the department of
18 labor, anytime anyone comes forward to us, whether
19 it's, you know, with their name or anonymously, to
20 identify that there is wage theft potential, we look
21 into it.
22 You know, we go into a business. We have the
23 ability to look at their books and records, and open
24 it up, because, oftentimes, it's not a single
25 individual who is being taken advantage of.
29
1 There's, you know, multiple employees.
2 And we take it very seriously, in terms of
3 making sure that employees receive the wages that
4 they are paid regardless of sort of anything else.
5 SENATOR MAY: Okay, thanks.
6 And then, Mr. O'Malley, I guess I have a
7 general question about whether your job has gotten
8 harder without having a real federal partner in
9 this, or if you were always completely independent
10 of the CFPB and other consumer protections at the
11 federal level?
12 GABRIEL O'MALLEY: Well, I worked at the CFPB
13 for 12 years, and was there up until this time last
14 year, and, you know, loved my time there.
15 What I can say, on a personal note, is that
16 it's been really inspiring to land at DFS, and be a
17 part of an agency that is really focused on doing
18 right by both the economy, but also consumers.
19 And the purview of CPFED covers consumer
20 protection, and we've continued to be really active
21 there.
22 And that's been -- it's been wonderful, and
23 I feel lucky to have landed here.
24 As to what's happening in Washington on the
25 federal front, that's something -- not something
30
1 that I can control or DFS can control.
2 And so what we're doing, in large part, is
3 what we've always done, which is focused on
4 New York State laws and regulations and facts, some
5 of which might result in, you know, federal
6 violations over which we would have authority as
7 well, and taking appropriate action, whether it be
8 through supervisory matters requiring attention or,
9 in many cases, at least in my group, through
10 enforcement action.
11 SENATOR MAY: Okay, thanks.
12 So I don't want to complain, but looking at
13 the numbers that you gave, 200,000 complaints,
14 134 enforcement actions, that's less than a tenth of
15 1 percent.
16 Is that because they're just unenforceable?
17 Or, like, why would hundreds of thousands of
18 complaints not result in enforcement actions?
19 GABRIEL O'MALLEY: Yeah, that's a great
20 question.
21 I would say, speaking at a general level, not
22 every complaint touches upon a law violation. There
23 can be misunderstanding that doesn't rise to the
24 level of a law violation.
25 And that's why it's so key that we have CAU.
31
1 In the bureau, before -- you know, when it was more
2 active, had a consumer response group, because
3 mediating those complaints actually gets companies
4 to respond. And, oftentimes, you can work out the
5 difference and get money back to consumers.
6 What we do do is monitor the complaint
7 trends.
8 We also have various other ways of assessing
9 the market, including through our supervisory
10 activity, to understand trends, and try to take
11 action in those places where we're seeing
12 significant trends that are either harming consumers
13 or are, for example, in the cybersecurity world. If
14 there's a particular type of trend that's leading to
15 a breach, that's something that we would want to
16 dedicate our resources to because we do have finite
17 resources.
18 So I would say the large number of complaints
19 indicates that there are problems.
20 I do think, CAU, our assistance group, is
21 doing a wonderful job, getting almost $130 million
22 back to folks.
23 For the larger, more systemic issues, we use
24 the enforcement tool.
25 SENATOR MAY: And do you track what most of
32
1 the complaints are about? Do you have a database
2 that says, you know, most people are complaining
3 about this kind of issue? Or --
4 GABRIEL O'MALLEY: Yeah, well, broadly
5 speaking, most people are complaining about
6 insurance. And within those complaints there are
7 certain, you know, aspects of concern -- insurance
8 that folks are complaining about.
9 And our CAU unit passes that information on
10 to our insurance division which oversees insurers
11 and producers. And that's used to inform areas of
12 exploration and examinations.
13 SENATOR MAY: And so I had one other
14 question that was also about the -- again, you had
15 40,000 complaints just in CAU.
16 I'm just wondering, like, it would be really
17 helpful for us if you were keeping kind of more
18 granular data about what specific problems people
19 are complaining about, so that we -- you know, if
20 there are ways that we can intervene, you know, we
21 would know what are the most important problems out
22 there.
23 GABRIEL O'MALLEY: Sure.
24 SENATOR MAY: We hear from constituents, but
25 you hear a much more comprehensive list of what the
33
1 issues are.
2 So I'm just-- do you keep data?
3 GABRIEL O'MALLEY: We do.
4 And I can certainly take that back, and we
5 can get back to you with some more specific trend
6 lines.
7 As I said, the top line is, the vast majority
8 of complaints are, insurance-related.
9 And as you all are aware, we oversee the
10 external appeals process, which includes those
11 dramatic decisions, where there's a decision by an
12 insurance company to deny coverage in an emergency
13 moment.
14 And a consumer is able then to come to us and
15 have a decision made in a very short order, 24 to
16 72 hours, whether the insurance company has to
17 actually pay.
18 And that is an essential function that we do,
19 and also takes up, of course, a lot of time --
20 SENATOR MAY: Yeah.
21 GABRIEL O'MALLEY: -- and is very important,
22 because it's time-sensitive in --
23 SENATOR MAY: Are we talking medical
24 insurance?
25 GABRIEL O'MALLEY: Yes.
34
1 SENATOR MAY: Car insurance?
2 GABRIEL O'MALLEY: Yes.
3 SENATOR MAY: Homeowners insurance?
4 GABRIEL O'MALLEY: Medical, yes.
5 SENATOR MAY: Just medical insurance.
6 Okay. That's really helpful.
7 Thank you very much.
8 SENATOR MYRIE: Thank you, Senator May.
9 Senator Murray.
10 SENATOR MURRAY: Thank you, Chairman.
11 And thank you both for being here.
12 I would like to start with Mr. O'Malley.
13 Just, I want to put it on the radar, we were
14 talking off line about this; that I'm glad a lot of
15 the focus is on insurance.
16 But we have a problem on Long Island right
17 now in regards to mortgages and escrow funds being
18 stolen, to the point of -- let me see -- as far as
19 the number of claims.
20 So we have the New York State Lawyers Fund
21 for Client Protection, and that's supposed to
22 reimburse anyone that has problems.
23 80 percent -- 86 percent of those claims paid
24 in 2024 involved real estate escrow funds being
25 stolen.
35
1 We're at a point now where they're capping
2 the claims. It's, I think, $400,000, capping how
3 much you can get.
4 Says only 66 percent of the valid claims are
5 fully reimbursed right now, because we're running
6 out of money because it's happening so much.
7 So I'm hoping we can put a focus on that.
8 And we'd be more than happy -- I know I've talked to
9 my colleagues. We'd be more than happy to work
10 together on finding some solutions. But I want to
11 put that on the radar.
12 Is that a focus of yours now, or...?
13 GABRIEL O'MALLEY: Well, first, I appreciate
14 you raising this. And I would like to hear more
15 outside of this hearing about specific instances and
16 particular attorneys or law firms. And that's
17 something I certainly would take back and consider
18 further.
19 More generally, I mean, that kind of
20 fraudulent interaction between either company or
21 agent and consumer is something that we're focused
22 on generally, of course, and especially where
23 there's a trend -- a burgeoning trend, and it's
24 causing specific harm to consumers.
25 So it's something I would certainly like to
36
1 hear more about.
2 SENATOR MURRAY: Okay, great, great, and
3 we'll do that.
4 Ms. Campion, two quick issues.
5 One: I noticed, when you were going through
6 the list of some of the things, you had mentioned
7 minimum wage, and things list -- regarding wage
8 theft. But I didn't hear prevailing wage
9 violations.
10 We have a lot of the labor unions on
11 Long Island who are saying, Look, you've got these
12 guys that are coming in. They're bidding on
13 projects. They're supposed to be paying prevailing
14 wage, and their bid says they are.
15 But in reality, when you talk to some of the
16 workers, they're playing games, and they're not
17 getting it.
18 But there doesn't seem to be a lot of
19 investigation into this.
20 Is that a focus of yours, and what can we do
21 to step it up?
22 LAURA CAMPION: Our Bureau of Public Work and
23 Prevailing Wage, you know, works extremely hard to
24 investigate these types of complaints and issues
25 that are raised. And it's certainly something our
37
1 agency is focusing on, and that we are doing a lot
2 to increase in space -- or, increase our efforts in
3 that space.
4 I think over the last two years, we've had
5 the certified payroll system start. We've had the
6 contractor registry system go online. And those are
7 efforts that we've been making alongside, you know,
8 the legislature and the governor, to make sure that
9 people are aware, have information, that there's
10 transparency, and that we're getting the information
11 we need to complete investigations.
12 SENATOR MURRAY: Do have you enough people to
13 do the job in this area?
14 LAURA CAMPION: That's not something that
15 I would know off the top of my head or be able to
16 speak to specifically. But it's something we can
17 look into and get back to you.
18 SENATOR MURRAY: I would appreciate that.
19 And then, finally, the -- Part 191 of labor
20 law, frequency of pay, manual labor, and there is so
21 much confusion.
22 And, in fact, we've got some small businesses
23 now, unfortunately, going out of business because
24 they've been sued, not knowing they even violated.
25 Most people don't know, most business owners
38
1 don't know, that, under Part 191, if a position is
2 considered manual labor, they must be paid weekly;
3 not bi-weekly, but weekly.
4 There have been cases where even the
5 department of labor has had inspectors going into a
6 business, looking at their books. They didn't even
7 notice it. It was on something else they were
8 looking at. Didn't call anybody's attention to it,
9 and later the company got sued.
10 The Governor took steps to limit and protect
11 the businesses a bit, and I applaud that; however,
12 we haven't fixed the problem.
13 Can we please, please, get a clear definition
14 of "manual labor"?
15 Now, in our bail reform laws, we go down and
16 there's a checklist of crimes.
17 We can do the same when it comes to positions
18 that would qualify for manual labor. That would
19 remove all the confusion and protect both the
20 businesses and the workers.
21 So I'm begging, can we please have the
22 Commissioner, because that's who needs to do this,
23 the Commissioner needs to clearly identify what
24 manual labor -- what qualifies as "manual labor"?
25 So if could you take that back to the
39
1 Commissioner, please. We need that help. Small
2 business is really getting hurt.
3 LAURA CAMPION: Understood.
4 SENATOR MURRAY: Thank you.
5 SENATOR MYRIE: Senator May for a second
6 round.
7 SENATOR MAY: Oh, sorry.
8 For Mr. O'Malley.
9 So in my role in consumer protection,
10 I mostly deal with the attorney general's office.
11 And they have complaints page on their website where
12 people can file issues.
13 Do you have the same -- do you have a
14 parallel thing? And do you work together with the
15 attorney general's office if a complaint -- where is
16 the overlap? I guess that's the question, because
17 it feels like you're doing similar things.
18 GABRIEL O'MALLEY: Excuse me.
19 Sure.
20 We have our own complaints database. And if
21 you type in "DFS" and "complaint" into Google, it
22 will pop up immediately. It's easy to find on our
23 website, and you can click a button and submit a
24 complaint.
25 Separately, there is another network that
40
1 attorneys generals and banking regulators can use
2 for other complaints.
3 And then, finally, there's the CFPB complaint
4 network, which is the national database, that
5 focuses on financial products and services.
6 So there are various databases. We have
7 access to all of them, and we use all of them in
8 setting priorities.
9 SENATOR MAY: And what should a consumer do
10 who's got a problem?
11 Should they come to you first?
12 Should they go to the attorney general's
13 office first?
14 GABRIEL O'MALLEY: That's a great question.
15 So if an entity is a regulated entity, the
16 consumer should certainly come to us, and for a
17 couple of reasons.
18 One: As I said, our CAU office is very
19 effective in mediating complaints and getting money
20 back to consumers.
21 Two: Allowing us, as the regulator, to get
22 complaints allows to us draw out trends and
23 intelligently focus our resources, going forward.
24 One never wants to make work for a consumer.
25 But filing complaints with the attorney general's
41
1 office also has the same broad benefits for the AG,
2 and ultimate knock-on effects for our ability to
3 catalog trends, going forward.
4 So I don't want to ask too much of any one
5 person, but would welcome complaints to us on any
6 regulated entity.
7 SENATOR MAY: And then I know the department
8 of state also has an office that is charged with
9 consumer protection.
10 Do you all work together; is there a
11 coordination that goes on?
12 And is there joint messaging that happens?
13 Because that's one of their things, is to put
14 messages out.
15 GABRIEL O'MALLEY: Yeah, there's a quarterly
16 consumer protection roundtable that I attend in
17 New York City, that's not only run and chaired by
18 the department of worker and consumer protection,
19 the AG is present there. Other government agencies
20 are present there. Advocates are present there.
21 And we hear from them about trends that are
22 happening, and talk through those trends, and hear
23 the latest updates on case decisions.
24 SENATOR MAY: Okay. So I'm glad all of you
25 are doing this work. But I feel very strongly that
42
1 there probably should be a one-stop shop for
2 consumers, where, you know, they can put their --
3 like, you know, one website or one number that they
4 go to, and it will get directed to the right agency;
5 if it's more appropriate in the AG's office or more
6 appropriate in yours. That would make a lot more
7 sense than having parallel processes that they have
8 to navigate.
9 So I hope we can talk about that in the
10 future.
11 GABRIEL O'MALLEY: Sure.
12 SENATOR MAY: Thank you.
13 SENATOR MYRIE: Thank you, Senator May.
14 I have questions for both of you.
15 I'll start with Ms. Campion, and
16 Senator Murray began to touch on this. But I'm
17 hoping you can expound a little bit.
18 As I understand it, there are, roughly,
19 235 wage enforcement staff at DOL, responsible for
20 covering all of the workers and employers in the
21 state.
22 And I'm hoping you can talk to us about what
23 that caseload looks like, how that operates in
24 practice.
25 This is not a budget hearing. But we are in
43
1 the midst of the budget, where the legislature makes
2 decisions around where resources are allocated.
3 So hoping to gain some more insight into how
4 many resources DOL has now currently to enforce wage
5 theft -- or, the prevention of wage theft, rather;
6 and whether there might be room for more resources
7 to help you accomplish that.
8 LAURA CAMPION: Thank you.
9 I don't have any sort of specific numbers,
10 and I wouldn't be able to confirm any numbers, if
11 the number of staffing you identified is specific to
12 our Labor Standards Unit or includes our public work
13 and prevailing wage investigators as well.
14 But I can certainly bring some of that back
15 and have us follow up.
16 What I will say is that, you know, we do
17 everything that we can, and work extremely hard with
18 the resources that we have. I think our
19 commissioner had her budget testimony last week --
20 I think it was only last week.
21 It's been a long week.
22 And, you know, I think she generally will say
23 that we're never going to say no to resources. But
24 we also recognize that there's a lot of work that
25 has to get done amongst all of the state agencies; a
44
1 lot of important work from my colleagues at DFS,
2 from the other state agencies that have been
3 mentioned today.
4 And we'll continue to work hard and use our
5 resources as effectively as we can.
6 SENATOR MYRIE: And thank you for that.
7 Are there any high-risk industries for wage
8 theft or particular patterns that you have seen
9 emerge, whether it be on the income band or whether
10 it is the type of industry?
11 LAURA CAMPION: Sure.
12 I know, off the top of my head, the service
13 industries are, you know, generally a challenge.
14 And you can go on to our -- the dashboard
15 that I mentioned in my remarks, and narrow to see
16 things by different industries and whatnot.
17 I wouldn't be able to give you a full
18 accounting off the top of my head. But we can
19 certainly follow up with some more specifics.
20 SENATOR MYRIE: Great. Thank you.
21 I think that would be helpful for the
22 committees, certainly as we're trying to craft
23 prevention efforts by statute, to see if there are
24 particular industries that need some tailored focus,
25 and who are more susceptible to taking advantage of
45
1 workers.
2 And to Mr. O'Malley, I'm going to turn the
3 focus a little bit to virtual currency.
4 And the conversation around the market
5 structure and all of the things happening on the
6 federal level is complicated and fraught, like many
7 things, with politics.
8 But here in the state, I think the DFS has
9 been on the forefront from many years ago, and under
10 previous and current leadership, in trying to
11 establish some regulatory framework, to allow for
12 both accountability in the industry, but also to
13 have the market continue to do what the market does.
14 You issued last November -- I think you were
15 already there, but maybe not -- okay, last
16 September, rather, guidance on blockchain analysis
17 for entities.
18 Can you talk to me, one, about how that has
19 gone from a compliance side?
20 And, also, what challenges remain in folks
21 being able to comply with doing this type of
22 analysis and safety, and what -- where there might
23 be room for improvement?
24 GABRIEL O'MALLEY: Sure. Thank you.
25 So on the "how is it going?" analysis front,
46
1 the Research and Innovation Division houses a
2 virtual currency unit that performs examinations of
3 all of our licensees on a periodic basis.
4 I'm not able to comment on specific
5 examination findings.
6 But what I can say is very important to DFS
7 in assessing current licensees and other -- and
8 applicants is redeemability of assets.
9 So if a consumer wants to get his or her
10 assets back, are they able to do so immediately; or,
11 if not so, in a timely manner? And, also, the
12 ability to freeze funds.
13 And that really is important for especially
14 criminal and civil actions, where, once you find out
15 something has happened, the wheels of justice
16 sometimes move slowly for the ultimate result. But
17 it's important to be able to move quickly to freeze
18 funds.
19 And so that's an important aspect of what we
20 look at when we're reviewing various companies.
21 SENATOR MYRIE: And I know you can't comment
22 on specific examinations, and whether or not they
23 may or may not be investigations.
24 Can you say, more broadly, whether you have
25 found, specifically for bit licensees, whether there
47
1 has been compliance on this guidance?
2 GABRIEL O'MALLEY: I'm going to have to come
3 back to you on that, and I'm happy to provide more
4 information. But I want to make sure that what
5 I provide you is correct.
6 So I'll pause on that and come back to you on
7 it.
8 SENATOR MYRIE: Okay, and I appreciate it.
9 I'm certainly not attempting to shame any
10 particular actor. The hope is, you know, whether we
11 need to go further than regulatory, and whether we
12 should consider statutory requirements. And it
13 would be helpful to know, given you guys's proximity
14 to the industry, to see what may be needed.
15 On the student loan front, and you spent a
16 significant amount of your testimony, and certainly
17 given your position in DFS, talking about the work
18 that is done on that front.
19 Can you -- for the everyday New Yorker who
20 does not tune in at 10 a.m. in the morning on
21 Tuesday to a public protection and consumer
22 protection hearing, if I'm a student loan borrower,
23 and right now I am, you know, paying, and I'm --
24 I feel overburdened or I feel like something is
25 awry, what do I do?
48
1 And how would DFS be helpful in that instance
2 where I feel like, my servicer, I can't reach them
3 or I feel like I'm being overcharged, and this is
4 someone that is under regulation by DFS?
5 GABRIEL O'MALLEY: Sure.
6 Well, first of all, just to harken back to
7 something you said at the outset, about folks being
8 held captive in relationships and being potentially
9 exploited.
10 I think the servicing relationship is an
11 example of how that can happen, because consumers
12 don't choose their servicers, in most instances,
13 relating to mortgages or their student loans.
14 And so you don't have the equality of
15 relationship, where you're able to make an informed
16 choice, after the transaction happens, to move to
17 another provider the way you would, for example,
18 with a cell phone.
19 And so servicing is really an area where
20 folks are held captive by whoever it is that's
21 servicing the loans.
22 Our SPU unit does public outreach.
23 I believe in the budget negotiations there
24 are some discussions about getting us more
25 resources; and also more resources for EDCAP which
49
1 does a fantastic job in communicating with
2 consumers.
3 Candidly, now, there have been so many
4 changes on the federal front, that it is confusing
5 for folks about what their rights are for federal
6 student loans and what the best decision is for them
7 to make.
8 One thing that we have seen is that, as a
9 result of the One Big Beautiful Act Bill, there have
10 been and will be changes to federal student lending.
11 And that might, I would say, is likely to push some
12 number of consumers into private student loans, to
13 bridge the gap in the amount of money that they need
14 to get for their education and what they can
15 actually get through federal loans.
16 The Governor has highlighted her interest in
17 ensuring that consumers understand their rights when
18 they're refinancing federal loans into private
19 student loans, because, as I think you're alluding
20 to, under the federal loan structure, there are
21 certain benefits that consumers can take advantage
22 of. Income-driven repayment plan is one. The
23 public student loan forgiveness plan is another.
24 But once you consolidate those loans and turn
25 them private, that's an irrevocable act, and you may
50
1 lose certain rights. And it's particularly
2 confusing now because the landscape is in flux on
3 the federal front.
4 And so the Governor has rightly proposed
5 requiring private student loan lenders to give
6 consumers an understanding of what rights they might
7 be losing if they do consolidate loans into private
8 loans.
9 SENATOR MYRIE: Thank you.
10 And my last question, and thank you for your
11 patience again: What is DFS's current understanding
12 of your authority as it relates to prediction market
13 platforms, if any?
14 I know this is a newer thing, and we're all
15 trying to respond and figure things out.
16 And I'm wondering if you have thoughts on
17 whether there should be some space for conversation?
18 These are -- these markets -- and this is
19 something Chair May has also been looking into --
20 that are not inherently financial, but there are
21 many financial transactions that end up taking
22 place.
23 And wondering if DFS has any thoughts on
24 that?
25 GABRIEL O'MALLEY: Well, I'm aware it's a
51
1 complex issue, and it presents some really fraught
2 issues.
3 The CFTC has historically had authority over
4 futures contracts, and there has been some
5 litigation over whether or not State action is
6 preempted. I'm aware of that.
7 I would say, ultimately, whether or not
8 New York is going to take some form of action in
9 connection with prediction markets is a really
10 important policy decision that the Governor and the
11 legislature will have to work through.
12 And we can provide technical advice, given
13 our understanding of the various markets that we
14 regulate.
15 SENATOR MYRIE: Thank you.
16 There are no further questions.
17 Thank you both for taking the time to testify
18 today.
19 GABRIEL O'MALLEY: Thank you. Appreciate it
20 very much.
21 LAURA CAMPION: Yes, thank you.
22 SENATOR MYRIE: Okay. We are next going to
23 hear from the office of the attorney general.
24 Good morning, and thank you for testifying
25 today. Take it away when you're ready.
52
1 STEPHANIE J. SWENTON: Good morning,
2 Chairs Myrie and May, Senator Murray.
3 Thank you for convening this important
4 hearing, and for giving our office, the attorney
5 general's office, an opportunity to share our
6 experiences, feedback, and insight.
7 Attorney General James continues to
8 appreciate the strong and constructive relationship
9 between our office and the legislature. And we
10 appreciate your consideration of legislative reforms
11 that will enable prosecutors to more effectively
12 combat white-collar crime schemes in New York State.
13 My name is Stephanie Swenton, and I have
14 served as chief of the attorney general's Criminal
15 Enforcement and Financial Crimes Bureau for over
16 eight years, and as a criminal prosecutor in
17 New York State for over 25 years.
18 I am joined by my colleague,
19 Shamiso Maswoswe, who serves as chief of the
20 attorney general's Investor Protection Bureau.
21 SHAMISO MASWOSWE: I began my career as
22 prosecutor 10 years ago with the Department of
23 Justice Criminal Division, and joined OAG 7 years
24 ago, and began serving as chief of IPB for the last
25 4 years, where I help lead our office's securities
53
1 and commodities investigations, enforcement actions,
2 and litigations.
3 STEPHANIE J. SWENTON: The attorney general's
4 Financial Crimes Bureau conducts investigations and
5 prosecutions of complex financial fraud schemes
6 across the state, including criminal securities
7 fraud prosecutions, and supplements the valuable
8 work done by the 62 county district attorneys in
9 this space.
10 The attorney general's Public Integrity
11 Bureau, Medicaid Fraud Control Unit, and Labor
12 Bureau are also active in the white-collar space,
13 prosecuting crimes based either on statutory grants
14 of authority or referrals from state executive
15 agencies.
16 Prosecution of white-collar crime cases is
17 very time-consuming. It's document-intensive, and
18 it involves testimony from dozens of witnesses.
19 However, a few simple reforms would greatly
20 enhance our ability to prosecute white-collar
21 crimes.
22 The first is simplifying the introduction of
23 business records in the grand jury.
24 Under New York law, with few exceptions, a
25 witness must testify in person in the grand jury to
54
1 admit testimony or even documentary evidence.
2 This means that a witness who has no other
3 relevant testimony to offer must travel to the grand
4 jury merely to be asked a few questions to show that
5 a document is part of their business records.
6 In most states and federal districts, this
7 type of personal appearance by a records custodian
8 is not required in the grand jury, nor even often at
9 trial.
10 The New York Legislature has already
11 recognized an exception for certain phone and
12 banking records, which can be introduced by
13 certification in the grand jury. These
14 certifications safeguard the reliability of the
15 records by requiring a business representative to
16 sign a written statement under oath, attesting to
17 their authenticity.
18 If this already-accepted certification
19 process were extended to all business records, it
20 would greatly streamline our grand jury process.
21 The second proposed reform to grand jury
22 practice is improving victim access to grand jury.
23 Large-scale fraud schemes typically target
24 victims across the state and across the country,
25 particularly now in the digital era, as well as
55
1 vulnerable victims such as the elderly.
2 Permitting witnesses who reside more than
3 100 miles from the grand jury, or whose mobility
4 issues substantially impair their ability to appear
5 in person before a grand jury, to instead testify by
6 simultaneous video testimony would enhance our
7 ability to prosecute white-collar crimes.
8 Such live videotaped testimony would still
9 maintain the integrity of the proceedings because
10 jurors would have the ability to observe the
11 witness, ask questions, and a certified recording
12 would be retained for future review.
13 The third reform is adding increased felony
14 levels to the "scheme to defraud" statute.
15 Most areas of the New York State Penal Law
16 hold the most egregious offenders accountable by
17 establishing increase in felony levels based on the
18 scope of the crime. For example, the larceny
19 statutes, someone who steals less than $1,000 is
20 guilty of a misdemeanor; more than $1,000, an
21 E felony; and so forth, with a theft of over
22 $1,000,000 constituting a B felony.
23 In New York, however, thefts must be charged
24 separately as to each victim. This means that a
25 stock broker who steals $1.1 million from a single
56
1 wealthy client can be held accountable on a Class B
2 felony. However, if a stock broker steals
3 $1.1 million by taking $1,000 each from 1,100
4 lower-income investors, that conduct is only
5 punishable in New York as a series of A misdemeanors
6 and an E felony scheme to defraud.
7 An example of this is the attorney general's
8 recent indictment of a tax preparer in
9 Madison County who was charged with operating a
10 massive Ponzi scheme over three decades, by which he
11 stole over $50 million from 988 investors.
12 Because he did not steal more than $1,000,000
13 from any one of those investors, the top counts
14 charged are only C felonies.
15 Adding increased felony levels to the
16 "scheme to defraud" statute would allow us to hold
17 the most egregious offenders accountable, and ensure
18 that offenders who target low- and middle-income
19 victims are equally accountable as those who target
20 wealthy New Yorkers.
21 Lastly, I would like to note the exceptional
22 partnership that the attorney general has had with
23 the legislature, particularly Senator Myrie in
24 combating deed theft.
25 Preventing deed theft has long been a
57
1 priority of Attorney General James.
2 The attorney general's office created a
3 dedicated Real Estate Enforcement Unit to
4 investigate and prosecute deed theft schemes, and
5 since 2019, has chaired the Deed Theft Fraud Task
6 Force.
7 The attorney general remains deeply committed
8 to rooting out deed theft in all of its forms, and
9 we look forwarded to continuing to work with the
10 legislature to develop criminal and civil tools to
11 guard against these crimes.
12 Thank you again for the opportunity to share
13 input on this important topic.
14 And you will next hear testimony from my
15 colleague Shamiso.
16 SHAMISO MASWOSWE: As part of our role as the
17 a state's chief law enforcement officer, the OAG is
18 a state securities and commodities regulator.
19 Through IPB, the OAG investigates and brings
20 enforcement actions against those who offer or sell
21 securities or commodities, including
22 cryptocurrencies, fraudulently or without
23 registration.
24 The OAG has regulated securities and
25 commodities for over a century, and has been on the
58
1 crypto beat for a decade.
2 Many of the fraudulent investment secure --
3 investment schemes that our office prosecutes today
4 involved -- involve cryptocurrencies.
5 As some of you know, Senator Myrie hosted a
6 roundtable on white-collar crime, which our office
7 attended, along with several DAs, the department of
8 financial services, and the New York State Police.
9 It was striking how many offices reported the
10 way that traditional financial crimes and other
11 forms of criminal conduct were generated or
12 facilitated using crypto.
13 Whether a scheme to defraud investors through
14 a crypto-based investment scam or using crypto to
15 hide money stolen through an elder fraud scam, it is
16 impossible to ignore crypto's connection to criminal
17 conduct, including white-collar crime.
18 This growth in crypto-related crime makes
19 sense.
20 When criminals want to lie, cheat, and steal,
21 they often choose cryptocurrency for a few reasons.
22 When they break the law, it's good to be
23 anonymous.
24 Second: In crypto, there is no bank or
25 centralized authority that's tasked with identifying
59
1 suspicious transactions or wallets or for rooting
2 out fraud before it happens, or even detecting it
3 afterwards.
4 And unlike in traditional securities
5 industry, no one is tasked with the visibilty -- no
6 one has visibilty into the trading activity
7 occurring across the marketplace.
8 And, third: In crypto, there's, largely, no
9 do-overs on the blockchain.
10 Chainalysis, an -- a blockchain analytics
11 firm, who I understand you'll be hearing from a bit
12 later, conservatively reports that crimes involving
13 cryptocurrency back in 2020 involved crypto in the
14 amount of about 11 billion. It more than doubled
15 the next year to 26.5 billion, and reached an
16 all-time high in 2022, at 54.3 billion. In 2024, it
17 estimates that it will reach -- that it reached
18 $51.3 billion.
19 In January of this year, our office, along
20 with several local district attorneys' offices from
21 across the state, joined District Attorney Bragg in
22 a letter to Senator Schumer, Gillibrand, and Woerner
23 about the two largest stablecoin issuers, Circle and
24 Tether, and their failures to cooperate with law
25 enforcement to stop fraud, and return assets to
60
1 victims.
2 Everyone agrees that this is a problem.
3 Congress has begun to draft legislation to
4 resolve it. But it expressly does not include a
5 requirement that digital asset service providers,
6 like Circle and Tether, cooperate with state and
7 local law enforcement, like OAG and local district
8 attorneys' offices, which is why your help is
9 needed.
10 We would like to bring your attention to
11 four ways that crypto entities facilitate crime,
12 which we believe could be addressed through
13 legislation.
14 First: Not all crypto companies comply with
15 law enforcement requests to freeze assets
16 temporarily, pending court action.
17 At least one stablecoin issuer, Circle,
18 routinely refuses administrative requests to
19 temporarily freeze assets that would allow -- that
20 law enforcement believes were involved in fraudulent
21 conduct. Instead, Circle directs law enforcement to
22 go to court and secure a court order even if there
23 may not be time to do so.
24 Second: Even once a court order is obtained,
25 requiring that assets be frozen, some cryptocurrency
61
1 firms will not comply with those orders or will
2 unreasonably delay compliance.
3 In one instance, our office and the
4 Queens District Attorney's Office asked Circle to
5 voluntarily freeze assets. And when we were told
6 no, and to get a judicial court order, we did so,
7 and Circle was directed to freeze those assets. But
8 it took the company three days to do so, which
9 allowed the crypto to be transferred out and
10 converted.
11 OAG has also been informed that platforms,
12 such as OKX and Binance, will not honor court orders
13 obtained by victims directly unless law enforcement
14 is involved or unless victims choose to indemnify
15 these companies.
16 Third: Even in the face of a court order,
17 requiring cryptocurrency firms to return the
18 proceeds of fraud, some entities have refused orders
19 to return these ill-gotten gains, failed to
20 cooperate with law enforcement to secure those
21 orders, or declined to cooperate unless law
22 enforcement jumps through numerous difficult and
23 unreasonable hoops.
24 The status quo is untenable and leaves law
25 enforcement, particularly state and local law
62
1 enforcement, and the victims of crypto schemes, at
2 the mercy of these entities who derive immense
3 financial benefit from underregulation and the
4 opacity of the crypto industry.
5 Even those crypto law firms -- even those
6 crypto firms that have provided voluntary compliance
7 in the past can, at any moment, decide to stop
8 cooperating with law enforcement to freeze and seize
9 defrauded crypto assets.
10 Finally, while the anonymity associated with
11 stablecoins is considered one of its prime benefits
12 for users -- it is in fact a feature, not a bug --
13 the opacity still applies even when law enforcement
14 is trying to investigate criminal conduct.
15 This seems difficult to justify when it's
16 clear that crypto has become a prime vector to
17 enable and facilitate criminal conduct.
18 OAG thanks the committees and Chairs Myrie
19 and May for providing the opportunity to share input
20 on this important topic.
21 We look forward to continuing to work
22 together, moving forward to address these issues,
23 and are now able to answer any questions that you
24 might have.
25 ///
63
1 SENATOR MYRIE: Thank you both.
2 Senator May.
3 SENATOR MAY: Thank you.
4 So let me start with you and talk about
5 crypto, because one of the things we heard from
6 Ms. Swenton is that there are very different
7 penalties, depending on the amount of money
8 concerned.
9 But, with crypto, the actual valuation of the
10 stablecoin fluctuates.
11 Does it even make sense to have monetary
12 levels on penalties, or, you know, assign penalties
13 according to the amount of money that is being
14 defrauded if you're in the crypto world?
15 Or how do you deal with that?
16 SHAMISO MASWOSWE: So IPB is a civil
17 enforcement. And so, for us, our goal is always to
18 just fully return assets to the victims, and then,
19 also, to pursue penalties and disgorgement where we
20 can.
21 The beauty of stablecoin, or the supposed
22 beauty of stablecoin, is that the value of
23 stablecoin isn't supposed to fluctuate. Stablecoins
24 are supposed to be pegged one-to-one with fiat
25 currency, so that one stablecoin is supposed to
64
1 equal one dollar.
2 And that's why it's often the tool of choice
3 and the currency of choice for criminals because
4 they don't like that other cryptocurrencies will
5 fluctuate so much in value.
6 So, for instance, on last Friday, Bitcoin was
7 valued at $65. But five months ago it was at
8 $126 -- at an all-time high of $126.
9 And so, often, it will go into stablecoin.
10 So because it changes value so often, and
11 many of the different tokens, criminals, and most
12 people, prefer to put it in stablecoin, which is why
13 creating legislation that focuses on stablecoin, and
14 requires compliance from Circle and Tether and other
15 stablecoin issuers, is so important.
16 SENATOR MAY: Okay. Thank you.
17 And on that same example that you gave,
18 Ms. Swenton, about, you know, where a stock broker
19 could take over $1,000,000 from one person or over
20 $1,000,000 from a lot of people and the penalties
21 would be different, I'm just wondering about, always
22 thinking from the consumer side, if you -- does each
23 one of those consumers have to file a complaint?
24 Does it have to be a class-action?
25 Like, it feels like it would be -- even if
65
1 the penalties were the same, the process would be a
2 lot harder.
3 And I just -- I'm not being a lawyer.
4 I would love to get your advice about how we help
5 those people for whom losing $1,000 may be more
6 consequential in some ways than someone else losing
7 a million.
8 What processes are in place to help them get,
9 you know, what they deserve?
10 STEPHANIE J. SWENTON: Thank you, Senator.
11 Before turning to the processes, and how some
12 of the reforms I've discussed I believe would
13 facilitate that process, I -- the example I provided
14 was related to monetary thresholds.
15 However, I will note that the current
16 Senate bill, 8594, imposes multiple levels of scheme
17 to defraud.
18 One of the ways to elevate the levels of
19 scheme to defraud is certain monetary thresholds.
20 Another way is the number of victims.
21 So in the incidents that you've suggested,
22 where there could be a counterargument regarding
23 valuation of a particular asset where there was a
24 fraud committed or a theft, that alternate provision
25 in the elevation of felony levels for more than
66
1 50 victims, more than 100 victims, more than
2 1,000 victims, so long as, you know, property is
3 obtained, is an alternate provision to target that
4 conduct, where not only the individual losses may be
5 smaller, but may be more difficult to quantify.
6 That being said, going back to the general
7 non-hearsay presumption in the grand jury meeting,
8 there is a presumption of in-person testimony.
9 The hurdles to bringing a B felony case,
10 where would you have to call over 1,000 victims,
11 would likely be insurmountable. Even over 100 would
12 be quite difficult.
13 You know, an additional amendment that I did
14 not discuss is that, potentially, permitting certain
15 testimony to be via affidavit rather than by live
16 testimony.
17 For example, in the context of stolen
18 property, stolen credit card numbers, there is a
19 provision in the New York State statute that allows
20 victims to -- where they're only testifying as to
21 lack of permission and authority, to provide an
22 affidavit as opposed to testimony, which would allow
23 prosecutors to effectively encompass a larger scope
24 of the scheme.
25 I think in a fraud scheme where there is
67
1 inducement and there is a narrative to be told,
2 I don't know that an affidavit would be appropriate.
3 But one particular gap in the law is related
4 to identity theft. There is clearly not an
5 exception for victims of identity theft to testify
6 via affidavit, simply to the fact that they did not
7 allow their personal identifying information to be
8 used by anyone.
9 And that is one way to attempt to, again,
10 attack these schemes that can be very broad in
11 scope, where a victim might have a limited scope of
12 testimony, which would be to consider what type of
13 testimony might be acceptable via affidavit.
14 But I also believe that the virtual testimony
15 provision could help to greatly increase the ability
16 of prosecutors to call more witnesses in a grand
17 jury to demonstrate the scope of a scheme, where the
18 individual losses for each person might be small,
19 but, collectively, they are quite large.
20 SENATOR MAY: Thank you.
21 I know, in discussing this in our conference,
22 people came down on either side of that.
23 Would you imagine putting guardrails on if it
24 was a case of a large number of victims, for
25 example, who presumably would all be giving similar
68
1 testimony?
2 Or, you know -- or would you think that that
3 person who was defrauded of over $1,000,000 would --
4 could -- should be allowed to testify remotely?
5 What are you thinking, that there should be
6 guardrails?
7 STEPHANIE J. SWENTON: I think the remote
8 testimony provision, I mean, in the draft
9 legislation we have reviewed, is based on their
10 physical ability to appear before a grand jury and
11 the distance to be traveled.
12 I do think there is an interest to the grand
13 jury hearing the narrative.
14 So I would never want to say that there is a
15 monetary threshold to whether a victim would be able
16 to testify via affidavit or via virtual testimony
17 versus live testimony.
18 I think there are other considerations, if
19 implemented, that could help to achieve the same
20 goals, which are the ones in the proposed
21 legislation.
22 SENATOR MAY: Okay. Thank you.
23 SENATOR MYRIE: Thank you.
24 Senator Murray.
25 SENATOR MURRAY: Thank you, Chairman.
69
1 I'm going to kind of piggyback -- and thank
2 you both for being here.
3 I'm going to piggyback on something
4 Senator May brought up in the last panel, and that
5 is, kind of, the one-stop-shopping aspect; and
6 I want to bring up the issue that I brought up, and
7 that is the escrow funds being stolen.
8 So is that DFS? Would that be the attorney
9 general?
10 I know there are licensing issues when it
11 comes to attorneys. I know there are things like
12 this.
13 But when you're stealing the amount that
14 appears to be being stolen now, it continues to
15 grow, this continues to be a problem.
16 Is that something you, the AG's office, would
17 take on directly, or would it be DFS, or a
18 combination of both?
19 How would that work?
20 STEPHANIE J. SWENTON: The attorney general's
21 office, our criminal jurisdiction is unique. There
22 are certain statutes that provide us direct
23 jurisdiction over certain subject matter areas.
24 The Martin Act, related to securities and
25 commodities fraud, is one. It has both civil and
70
1 criminal provisions.
2 Certain provisions of the labor law is
3 another, that give the attorney general direct
4 jurisdiction for civil and criminal enforcement in
5 that space.
6 Related to other types of crimes, the
7 62 county district attorneys, you know, obviously
8 have power to enforce those.
9 But that being said, we regularly partner
10 with state executive agencies who provide us with
11 referrals under the state Executive Law,
12 Section 63(3), to activate our jurisdiction for
13 areas of priority enforcement.
14 So if this is an area of priority
15 enforcement, obviously, we welcome complaints
16 related to all financial fraud schemes.
17 We do have an online portal that receives an
18 incredible breadth of financial fraud complaints,
19 and those are discussions we're happy to have.
20 SENATOR MURRAY: Okay. Thank you.
21 SENATOR MYRIE: Thank you.
22 And thank you both for the testimony.
23 For Ms. Swenton, first, I want to focus for
24 a second on elder fraud.
25 And, you know, we have in our laws the
71
1 definition of what would bump up consequence and
2 penalty for someone who has, you know, allegedly,
3 taken advantage of an older individual.
4 But we -- currently, the "vulnerable elderly
5 person" standard is something that, you know,
6 I think, in some cases, is a high standard to
7 achieve.
8 And I'm hoping you can maybe talk to us about
9 whether this is a workable standard for older adults
10 who we wouldn't, sort of, commonly consider them
11 vulnerable just because they are old. They still
12 remain sharp, et cetera, but they were still a
13 victim of a scheme or fraud.
14 And I'm hoping you can talk to us about
15 whether we need to reexamine that.
16 STEPHANIE J. SWENTON: I think there are
17 opportunities to expand the definition of a
18 "vulnerable elderly person" besides sort of an
19 arbitrary number related to age. There are multiple
20 issues that play into that in terms of capacity.
21 But, you know, those are definitely
22 discussions that we would welcome.
23 And, again, yet another aspect of what
24 I think would be incredibly powerful amendments to
25 the "scheme to defraud" statute is elevating levels
72
1 when one of the persons defrauded -- at least one of
2 the persons is a vulnerably -- vulnerable elderly
3 individual.
4 Just, in my role, in particular, we've
5 recently prosecuted fraud schemes in both
6 Queens County and Suffolk County, where elderly
7 victims were defrauded by trusted former investment
8 advisers of their entire life savings, leaving them
9 to have to return to work, sell their homes.
10 This is a particularly vulnerable pool, and
11 I do think it's a fruitful area of discussion, to
12 make sure that that definition is fully capturing
13 the scope of those individuals who are often both of
14 means because they have significant retirement
15 savings and subject to being preyed upon by
16 white-collar criminals.
17 SENATOR MYRIE: Thank you.
18 And to Ms. Maswoswe -- excuse me -- we're
19 steeped in the cryptocurrency stuff, where we know
20 the lingo, we know the acronyms, we know
21 [indiscernible].
22 Most people are not.
23 And part of what makes them more susceptible
24 to being taken advantage of is this knowledge
25 disparity.
73
1 And so I'm hoping you can talk to us, and
2 sort of say it as plainly as you can, what the
3 problem is as it relates to people being taken
4 advantage of.
5 If you are a person that has seen an ad or
6 you got a message that said, "I have a real great
7 opportunity for you to make a lot of money in
8 crypto," turns out that that is not true, you get
9 taken advantage of, what recourse do you have as the
10 law stands right now?
11 SHAMISO MASWOSWE: So I think that there
12 certainly is an information gap. There is a lot of
13 lingo surrounding crypto that makes it sound very
14 sophisticated and very fancy and very -- like,
15 there's a lot of "FOMO" around it; a lot of fear of
16 missing out. Like, this is your chance.
17 But what we have found and what studies have
18 found, that -- is that there's a lot of predatory
19 inclusion around this as well. There's a lot of
20 targeting of communities of color, of young people,
21 of, like, this is your chance to achieve the
22 American dream of, to get out of poverty, of
23 gambling, really.
24 And that is really taking advantage of
25 vulnerable populations, and is of great concern to
74
1 us.
2 And so -- and so -- and so that -- and
3 I think that also makes it a much more dangerous --
4 a much more dangerous kind of product to peddle; and
5 much more dangerous when you have celebrities that
6 are out and influencers that are out peddling this
7 as well, without the appropriate risks.
8 So, you know, when you're -- when they're
9 securities or they're bonds or they're much more
10 regulated products, there are warnings and there are
11 disclosures, and you get a lot more information.
12 When there's conflicts of interest, there's a lot
13 more information that consumers and investors will
14 get.
15 And you just don't get that with crypto.
16 So what are your remedies?
17 Your remedies are to report it.
18 Your remedies are to try and do your due
19 diligence, and to make sure that folks are
20 registered; that they're registered with the
21 attorney general's office, that they are
22 bit-licensed.
23 That you do searches to see if they are --
24 have -- that they are -- that they -- whether or not
25 they've been accused of being a scam. See what
75
1 other people are saying about them.
2 And that you, you know, are not pressured
3 when someone is saying "that you have to do it right
4 now." And that's a red flag.
5 The attorney general has done a number of
6 investor alerts and consumer alerts. I think we did
7 one just a couple weeks ago about pig butchering.
8 That that is a really big way that New Yorkers are
9 really being pick-pocketed by international
10 organizations -- criminal organizations from around
11 the world, that are coming and just picking the
12 pockets of everyday New Yorkers, when -- you know,
13 from romance scams and from other kinds of scams
14 that people are falling victim to.
15 And so your recourses are to do your
16 homework, do your diligence. And if you don't
17 understand it, if it sounds too good to be true,
18 then it probably is.
19 SENATOR MYRIE: Thank you.
20 And then, lastly, back to you, Ms. Swenton,
21 you made the comparison between the different scales
22 of consequence and penalties in the stockbroker
23 example, and I'm hoping to expand on that a little
24 bit.
25 If you can tell us what your office is
76
1 currently able to do within the confines of the law
2 now, and what you might be able to do should we
3 improve on the "scheme to defraud" statute, and what
4 types of activity do you think you would be able to
5 capture?
6 STEPHANIE J. SWENTON: Yes. So, you know,
7 under the current tools we have, we are able to
8 bring charges against individuals who defraud a
9 tremendous number of investors of lower amounts,
10 sort of in the thousands rather than the millions.
11 But the tools we have, in terms of holding
12 those offenders accountable, are quite limited under
13 the sentencing structures and speedy-trial
14 structures.
15 So the hypothetical that I provided, if it's
16 less than $1,000, which does happen in some very
17 pervasive schemes, that is a Class A misdemeanor,
18 which is a summons, it's a summons ticket, that
19 would have to be brought to trial within 90 days.
20 And a case of this kind of complexity would,
21 pretty much, be an insurmountable hurdle.
22 If -- even though there is an E felony scheme
23 to defraud that might encompass multiple of those
24 petty larcenies, that is a desk-appearance-ticket
25 offense. It's not a bail-eligible offense.
77
1 And any white-collar-crime penalty in
2 New York, except for a Class B felony, there is no
3 mandatory minimum sentence of incarceration. Those
4 are all probation-eligible offenses.
5 You know, obviously, incarceration is not the
6 only deterrent, and restitution is always a priority
7 for us as well.
8 But where we are able to bring charges that
9 most wholly reflect the scope of the criminal
10 conduct, we are able to achieve better resolutions.
11 Whether it is millions of dollars of
12 restitution, whether it is a deterrence of a repeat
13 offender who is cycling through and committing
14 frauds on different vulnerable populations, the
15 sentencing tools and the charging tools and -- that
16 are allowed to us over higher-level felonies are
17 quite different.
18 And, in particular, the example I think that
19 is now falling through the cracks is those crimes
20 where the thefts are less than $1,001, because
21 they're not even felony offenses, and typically not
22 presented to a grand jury on very accelerated time
23 frame.
24 And those cases, I believe, are probably
25 completely falling through the cracks,
78
1 unfortunately.
2 And I give the examples of the securities
3 fraud context, but those kinds of frauds span the
4 gamut.
5 The attorney general has done a lot of
6 enforcement in residential contractor fraud cases.
7 For some individuals, that may only be several
8 thousand dollars, but it may be everything they had,
9 and they're left with a home in ruins.
10 And those are the kinds of cases that are
11 very impactful that, unfortunately, present hurdles
12 under the current statute.
13 SENATOR MYRIE: Thank you very much.
14 And Senator May on a second round.
15 SENATOR MAY: Just for [indiscernible] --
16 because of your answer before, I'm curious.
17 You basically said, if people -- the remedy
18 for crypto fraud is for people to do their due
19 diligence and do their research, which we always
20 want people to do.
21 But it made me wonder if there's room for the
22 State to actually have a seal of approval on some
23 options that might -- you know, where people could
24 feel more confident of them.
25 Is that something that we do, or that you
79
1 think about doing, with vetting some of these
2 schemes?
3 SHAMISO MASWOSWE: Yes.
4 So, you know, I don't want to put, you know,
5 the burden on the victim. You certainly never want
6 to blame the victim. But, you know, everyone has to
7 protect themselves because, you know, ultimately,
8 you have to.
9 But, you know, making sure that folks are
10 registered is important. And so a lot of our work
11 around crypto has been going after folks that have
12 not -- that are not registered with our office.
13 Making sure that folks have a bit license is
14 also important, because, you know, when someone
15 chooses to operate in the shadows, that often is the
16 first sort of harbinger of fraud because, why are
17 you doing that?
18 Get registered, get a bit license. And if
19 you choose not to do that, then that's the first
20 single -- the first sign of fraud.
21 And so when we have pursued these
22 registration cases, then what we ultimately end up
23 finding is fraud.
24 So an example is our Coinseed case. We
25 brought that under our registration statute. And
80
1 then once we filed it as a registration case, then
2 we were hit with 200 complaints from the public that
3 said that they had been defrauded.
4 And so then we ended up going and getting a
5 TRO, getting a receivership, and it turned out to be
6 a massive fraud.
7 The same with KuCoin.
8 KuCoin is a major crypto platform. And we
9 filed a crypto registration, that they failed to
10 register a case with us.
11 And then it turned out that the feds were
12 also looking at them for anti-money laundering and
13 fraud. And that they contacted us -- DOJ contacted
14 us and said, Hey, you filed a registration case.
15 Are they going to talk to us if we contact them?
16 And we said, Yeah. We can give you their
17 number.
18 And so that's what we're fighting, is that,
19 if you're not willing to get registered, then
20 there's something wrong, and that's the first sign
21 of fraud.
22 Which is why, at the federal level, it's so
23 important to make sure that we are not preempted at
24 the federal level from registration, and certainly
25 not from fraud.
81
1 SENATOR MAY: And that registration, is that
2 something that's evident to the consumer who might
3 be contemplating a transaction?
4 Is that public and transparent information
5 for them?
6 SHAMISO MASWOSWE: Yes.
7 Whether they are registered with the AG and
8 have a bit license with DFS, that's all public
9 information.
10 Also, whether they are licensed with the SEC
11 or the CFTC, all of that is public -- publicly
12 available information.
13 SENATOR MAY: Okay. Great. Thank you.
14 SENATOR MYRIE: Sure, go ahead.
15 Senator Murray.
16 SENATOR MURRAY: Thank you, Chairman.
17 I just have one follow-up.
18 Earlier you had mentioned that young -- the
19 younger generation is the target a lot of times.
20 And you had mentioned celebrities, influencers.
21 Are they in any way responsible or held
22 accountable if they are pushing a product like this
23 and it ends up being fraudulent? Are they in anyway
24 held responsible?
25 SHAMISO MASWOSWE: Absolutely, absolutely.
82
1 They have been held responsible at the
2 federal level and they've been held responsible by
3 our office.
4 Just this last year, one of our larger cases
5 involved a large fund who was headed up by a very
6 popular person who used his credentials in the
7 financial -- in the traditional financial world.
8 And he was involved in Luna/Terra. And at that
9 point, Luna/Terra was trading at 33 cents --
10 33 cents.
11 And he made a secret deal with Do Kwan and
12 brought it over to the Western world. And, you
13 know, went around on Twitter, saying, This is the
14 next big thing. This is the -- it's -- it's going
15 to go up in value.
16 And he's a holder, and that their firm is a
17 holder, of this; all the while he was selling, he
18 was selling, he was selling. And it went up from 33
19 to a dollar. He said he was going to get a tattoo
20 if it went up to 100. It went up to 100. It went
21 higher than a 100, and then it crashed.
22 And they made hundreds of millions of dollars
23 and everyone else lost.
24 And so we went after them, and we got
25 $200 million from them. And we got also reforms
83
1 from them, because that's also important.
2 It's important that, in addition to getting
3 restitution and getting money, that we try to also
4 get reforms from these companies as well.
5 And -- yeah.
6 So, yes, it's important that we also go after
7 the people that are going and shilling on the
8 Internet and deceiving people.
9 SENATOR MURRAY: Okay, great. Thank you.
10 SENATOR MYRIE: Thank you both.
11 And thank you for the work that the office
12 continues to do.
13 Thank you.
14 SHAMISO MASWOSWE: Thank you.
15 STEPHANIE J. SWENTON: Thank you.
16 SENATOR MYRIE: We will next hear from a
17 number of district attorney offices.
18 I believe that we are joined by
19 DA Alvin Bragg who is the Manhattan District
20 Attorney; we are joined by the Albany District
21 Attorney, DA Lee Kindlon; and on behalf of the
22 Brooklyn District Attorney, Eric Gonzales, the head
23 of the virtual currency unit, Alona Katz.
24 So make your way down.
25 Okay, take it away.
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1 DA ALVIN BRAGG: Good morning, Chair Myrie,
2 Chair May, Senator Murray.
3 Thank you for the opportunity to testify
4 today.
5 As you know, New Yorkers lose millions --
6 billions, excuse me, to frauds and scams.
7 My office is investigating and prosecuting a
8 wide variety of white-collar conduct, from
9 investment scams, securities fraud, wage theft,
10 tenant harassment, cryptocurrency that's being used
11 to do terror financing, and all other kinds of
12 crimes that are being underwritten.
13 We submitted written testimony, but I in
14 particular wanted to highlight three proposals today
15 that would really, really help our investigative
16 work.
17 The first, the Scam Act, proposed by
18 Senator Myrie/sponsored by Senator Myrie.
19 And I heard my colleague from the
20 attorney general's office already talk about the
21 scheme to defraud, so I won't belabor it.
22 But I want to add to her comments, our
23 support from the Manhattan District Attorney's
24 Office.
25 You know, currently, as she said, if someone
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1 engaged in conduct with the intent to defraud at
2 least 10 people, and succeeds in defrauding at least
3 one person or obtains at least 1,000 through fraud,
4 they're charged with a Class E felony.
5 But if the same person attempted a fraud,
6 fill in the number, 50, 100, 1,000, they face the
7 same charge.
8 And so we're facing the same issues that the
9 attorney general's office is in terms of
10 accountability, a stratified penalty system, in
11 deterrence.
12 And so conduct that causes more widespread
13 and severe harm should be eligible for more severe
14 charges.
15 And I want to just underscore, in our docket,
16 the complexity.
17 You know, we are not talking about, you know,
18 if it's a grand larceny or petit larceny, we'll
19 prosecute it that way.
20 The schemes to defrauds that we're
21 prosecuting generally are complex actors who we
22 believe, in many cases, are pricing in. And
23 deterrence would be really, really garnered by
24 having more penalties.
25 There's some actors, obviously, that are
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1 acting impulsively, and added penalties might not be
2 a deterrent.
3 But in our docket what we see, is the people
4 that we're charging with scheme to defraud generally
5 are actors that we think would be deferred --
6 deterred by heightened penalties.
7 The second bill that I want to highlight in
8 my oral testimony, again, sponsored by
9 Senator Myrie, is the CRYPTO Act. It would
10 criminalize the operation of a virtual currency
11 business without a license.
12 And I'm sitting, listening to the testimony
13 and the colloquy about registration.
14 And registration is great, but there needs to
15 be a consequence if you're not licensed.
16 And, currently, an operator of an unlicensed
17 virtual currency business in New York faces only
18 civil penalties.
19 That's not true in a number of other states,
20 and it's not true in the federal system where a
21 criminal conviction carries -- can carry five years
22 in prison.
23 We would like to have that tool in our
24 toolbox.
25 And given the pervasiveness that we're seeing
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1 with money-laundering, underwrite all types of
2 crimes, from identity theft and types of scams we're
3 talking about here today, but also violent crimes.
4 And, you know, we tried a crypto-terror
5 financing case within the last few years.
6 And so the scope of the conduct that this
7 would touch, the CRYPTO Act would establish criminal
8 penalties for these unlicensed operators, and,
9 again, gets to the steam of increasing the severity
10 based on the value of the currency and the duration
11 of the conduct: Unlicensed crypto transactions
12 amount to $1 million or more. Within one year or
13 less would amount to a C Felony, carrying a maximum
14 of 5 to 15 years' incarceration.
15 And, again, I would underscore the types of
16 actors that we're talking about here.
17 These are people who are availing themselves
18 of shadowy corners of our markets.
19 We have traditional brick-and-mortar banking
20 systems that have requirements, like Know Your
21 Customer Rights.
22 These are people who are seeking out the
23 shadowy corners, using the anonymity to prey on
24 individual victims. And whether it's identity
25 theft, or even we're seeing in more violent crime.
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1 And so having these enhanced penalties for
2 not having the license, and having it be criminal,
3 is really, really paramount.
4 The third, and I heard my colleague
5 AG Swenton talking about, but -- and I know it seems
6 maybe wonky, but I want to underscore the provision
7 of the SCAM Act that aims to modernize the process
8 for introducing routine business records in the
9 grand jury.
10 We're just behind the times on this.
11 New York is the only state in the nation that
12 requires an in-person custodial witness rather than
13 a sworn affidavit to authenticate certain routine
14 business records.
15 And, here, I would just underscore really how
16 routine. We are talking about the same set of
17 boilerplate questions over and over to the
18 witnesses.
19 I hear my time is gone.
20 You have my written testimony, and you also
21 have two phenomenal colleagues that -- to hear from;
22 so I'll stop there.
23 Thank you.
24 SENATOR MYRIE: Thank you.
25 DA LEE C. KINDLON: Good morning, everyone.
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1 Chairman Myrie, distinguished members of the
2 committee.
3 My name is Lee Kindlon. I'm the Albany
4 County District Attorney.
5 I am grateful for the opportunity to appear
6 before you today, and to go on the record in strong
7 support of the SCAM Act.
8 As the chief law enforcement officer of
9 Albany County, I see every day what happens when the
10 laws fail to keep pace with the ingenuity of those
11 who seek to defraud our communities.
12 And when I talk about communities, I talk
13 especially about our vulnerable populations: Our
14 seniors, you know, those who might not have access
15 to lawyers who will take their phone call right
16 away; and also our immigrant population who have
17 always been susceptible to scams.
18 New York's white-collar crime and fraud
19 statutes have not been substantially updated for
20 decades. In that time, the landscape has
21 transformed beyond recognition. The criminals have
22 adapted and our laws have not.
23 Your bill, this bill, seeks to correct that
24 imbalance, which is why we are strong proponents of
25 it.
90
1 Just a few months ago, in December, my
2 office, in conjunction with the attorney general's
3 office, prosecuted one of the first deed cases in
4 the area, and we were successful.
5 But let me tell you, us getting to that point
6 was far harder than it needed to be.
7 We were able to secure a conviction, the
8 sentence is still pending.
9 But just to get from Point A to Point B, you
10 know, such things should not take herculean efforts.
11 It should be a very routine thing because this is
12 something that, obviously, we want to be able to
13 prosecute, because you find more and more scam
14 artists are, again, attacking the elderly when it
15 comes to, you know, the security of their home.
16 And, you know, the other thing -- and, again,
17 I have written testimony that highlights this -- but
18 the other thing we're finding with, you know, the
19 vulnerable population, especially seniors, is these
20 are very proud people who don't like to admit that
21 they may have been conned.
22 You know, and there are seniors in my life
23 who, educated, experienced, but they get the phone
24 calls, they get the visits at the front door, and
25 they are afraid to call, you know, me; they're
91
1 afraid to call people who could say, "no, that's a
2 scam," because they don't want to admit that this
3 happened to them.
4 So what this law does is, we are able to more
5 effectively prosecute cases, prosecute cases far
6 easier, going forward.
7 And it allows us to spread that message out
8 into the community that, Hey, you know, your
9 government is out there working for you, your
10 government is out there looking to protect you, and
11 prosecute these people who would try and take your
12 home.
13 I also want to highlight the wage theft
14 provisions.
15 I've now been district attorney for just
16 about 14 months. And when I came into office, I was
17 excited to be able to prosecute wage theft. This
18 was one of my big things, because, you know, you
19 find those shady contractors who are always looking
20 to undercut, especially our unions and our labor
21 force with cheap labor, out-of-state labor.
22 But what we found, as a practical matter,
23 when we really dug into it, was that there are so
24 many layers and shell companies and labor brokers
25 and, you know, systems set up to get around these
92
1 outdated laws that, again, as a practical matter,
2 especially for an office that -- you know, I have a
3 midsized office, I have resources, but I don't have
4 as much as I want.
5 Right?
6 But these laws make it easier for smaller
7 offices like mine to be able to go out and prosecute
8 wage theft.
9 And as Albany is looking at, and we're very
10 grateful for the State to give us the money to
11 rebuild our downtown. But we are looking at,
12 potentially, you know, a lot of renovations coming
13 to Albany. And I want to make sure that that money
14 goes to the right place.
15 And so, again, this is the sign on the front
16 door, that wage theft won't be allowed as we rebuild
17 downtown Albany.
18 So the wage theft provisions, especially, are
19 things that I look for, and I look to be able to use
20 those tools to cut through a lot of these shell
21 companies, a lot of these labor brokers, to get to
22 the heart of the matter, and make sure we can
23 prosecute those individuals who would defraud and
24 undercut the labor market.
25 I always have so much to say.
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1 So I'll cut to the end because, again, I have
2 submitted written testimony.
3 Members of the committee, the people of
4 Albany County, like New Yorkers across the state,
5 deserve a legal system equipped to confront
6 twenty-first century fraud.
7 The SCAM Act is a serious and overdue step in
8 that direction.
9 It updates our statutes, closes loopholes,
10 and introduces proportionate new tools, and sends a
11 clear message that New York will not tolerate those
12 who exploit its residents for financial gain.
13 So I'm proud to add the Albany County
14 District Attorney's Office to the record in support
15 of this bill.
16 Thank you.
17 ALONA KATZ: Thank you.
18 Thank you, Chairperson Myrie, the Senate
19 Codes Committee, for inviting me to speak today, and
20 for your leadership in this matter.
21 Brooklyn District Attorney Eric Gonzales
22 strongly supports Senate Bill 8594, the Rip-Off Act,
23 and urges the legislature to pass this bill without
24 delay.
25 So my name is Alona Katz. I am a lifelong
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1 New Yorker, and I am currently chief of the Virtual
2 Currency Unit at the Kings County District
3 Attorney's Office.
4 I want to share with everyone what it is like
5 to be on the front lines of fighting to protect
6 New Yorkers, including some of Brooklyn's most
7 vulnerable residents -- seniors, immigrants, and
8 non-English speakers -- from a tsunami of online and
9 cryptocurrency scams.
10 With just a phone and an Internet connection,
11 international scammers are in the ears of
12 New Yorkers, targeting bank accounts, life savings,
13 and generational wealth that parents had planned to
14 leave their children.
15 Each year, scammers grow more adept at
16 stealing and laundering cryptocurrency, increasingly
17 using AI, a new technology, to exploit victims.
18 I spend most of my days talking to victims of
19 these scams.
20 Not a week goes by that I don't find myself
21 on the phone with a community member, struggling to
22 accept that every cent they have, and every dream
23 and goal they spent their whole life savings for, is
24 gone. They tell me they feel broken.
25 I have heard from a retired New York City
95
1 schoolteacher who lost her entire pension.
2 I've struggled to answer a senior citizen who
3 asked me how he would pay his rent next month, after
4 he invested everything in what turned out to be a
5 fraudulent cryptocurrency platform.
6 I've listened to the story of how a scammer
7 preyed on a New Yorker who tried to invest in
8 cryptocurrency because she was desperate to earn
9 more money so that she could spare her family the
10 burden of medical bills for her terminal illness.
11 In the fall of 2023, District
12 Attorney Gonzales established the Virtual Currency
13 Unit after hearing about the rise of Brooklyn
14 residents asking for help after being victimized by
15 these types of scams.
16 The unit's mission is to fight back to
17 aggressively investigate and [indiscernible] those
18 behind these devastating schemes, to arm our
19 community with the knowledge needed to protect
20 themselves, and to try and claw back stolen funds.
21 I have been an assistant district attorney
22 for about 15 years, and I am here to tell you we
23 need better tools, laws, and support to carry out
24 this mission.
25 The Rip-Off Act has answers and solutions.
96
1 Since the creation of the Virtual Currency
2 Unit, we have shut down hundreds of websites that
3 look like real cryptocurrency investment platforms,
4 replacing the fraud platform with a law enforcement
5 warning.
6 We've disrupted scam operations and alerted
7 victims.
8 We've expanded outreach efforts to warn
9 Brooklyn residents about staying safe online.
10 We've even managed to see some stolen
11 cryptocurrency. But because of the speed at which
12 cryptocurrency moves and legal limitations, it was
13 only a small portion of what was taken.
14 There is so much more that we could be doing
15 for our victims through a modernization of New York
16 State laws.
17 That's why we're urging the legislature to
18 pass Senator Myrie's bill, which provides
19 much-needed updates so that law enforcement can more
20 effectively and prosecute the crimes, and return
21 stolen cryptocurrency to victims.
22 And I just want to highlight some key
23 provisions of the bill that would be particularly
24 helpful.
25 It explicitly includes virtual currency as
97
1 property for the purpose of larceny crimes.
2 It defines a virtual currency transaction for
3 the purpose of money-laundering crimes.
4 It would allow for the admission of
5 cryptocurrency exchange business records as evidence
6 in the grand jury with a business record affidavit,
7 as traditional bank records already do.
8 And it would establish a procedure and legal
9 process for the return of stolen cryptocurrency of
10 fraudulent schemes to victims, including notice,
11 hearing, and evidentiary requirements.
12 If enacted, these modernizations will help
13 ensure that victims of cryptocurrency and online
14 crimes are treated no differently than victims of
15 more traditional crimes.
16 The urgency and need for this modernization
17 at the state level is growing, worsened by the
18 federal government's recent shift in priorities and
19 retreat from cryptocurrency enforcement.
20 As District Attorney Gonzales testified
21 recently at the city council, federal agencies are
22 losing resources to focus on investigating
23 cryptocurrency scams.
24 So what that means for most New York victims
25 of cryptocurrency fraud, this often leaves them only
98
1 with their local district attorneys' offices as a
2 meaningful defense and resource.
3 We simply can't afford to fail our victims
4 and residents by being ill-equipped to handle these
5 types of cases.
6 So once again, thank you.
7 SENATOR MYRIE: Thank you very much.
8 And I'm aware that Senator Murray wants to
9 ask some questions. May have to step out for a
10 committee meeting.
11 And so if you don't get the exchange that you
12 need, we'll try to get you on the second round
13 hopefully with the panel still being here.
14 SENATOR MURRAY: Thank you, Chairman.
15 I, literally, have to be at a committee
16 meeting in three minutes.
17 So I'm just going to throw a question out,
18 and I know I can't even listen to the answer, but
19 I want to make sure I get it on the record.
20 In particular, I want to talk about just
21 SNAP-benefit fraud and being stolen.
22 Is this becoming, especially in New York
23 City, it's prevalent there -- but, first off, let me
24 say this: That's on us; that's on New York State.
25 We have not moved as quickly as we should to get the
99
1 chip technology. We are behind.
2 Thank God, the Governor's put money in the
3 budget this time to at least start moving.
4 But we are 12 to 18 months away from them
5 being there, and that's being generous.
6 So are you seeing that this is more of a --
7 an organized scam, if you will?
8 This isn't just somebody, you know, stealing
9 one thing. But this is putting skimmers on things.
10 Is this more organized; is that what we're
11 seeing?
12 DA ALVIN BRAGG: So I really appreciate the
13 question. It's something that we've been focused on
14 in the office.
15 I would say it's a nationwide issue, is what
16 we're seeing. We are closely examining it.
17 There are someone one-offs. But, certainly,
18 from what we're seeing, it appears to be that there
19 are organized, complex networks.
20 And so we are in the process of investigating
21 a number of matters in this space.
22 SENATOR MURRAY: And do you have the tools
23 you need to do that?
24 DA ALVIN BRAGG: I think from an
25 investigative standpoint we do.
100
1 And I don't want to prejudge an investigation
2 before it ends.
3 But I think this could be one where the
4 "scheme to defraud" statute change would be
5 particularly helpful.
6 You know, if it turns out -- and, again,
7 I don't know, since it's a hypothetical, because we
8 haven't, you know, reached conclusions.
9 But you could see in this space, you know,
10 someone who is organizing across county lines,
11 across jurisdiction lines, where, again, the "scheme
12 to defraud" statute can also be helpful.
13 And taking amounts, you know, 500, 900, you
14 know, increments that add up, and so the -- both the
15 numerical victim change that's in the scheme to
16 defraud, and also the dollar amount, could very
17 well -- this could very well be an instance where
18 that change would be remarkably helpful.
19 SENATOR MURRAY: That's a great point.
20 Thank you.
21 SENATOR MYRIE: Thank you, Senator Murray.
22 Okay. So I've got a number of questions.
23 And I'll start first, with gratitude, to
24 New York City DAs who made the trip up here.
25 Thank you.
101
1 Our Albany DA had, you know, not too far a
2 distance to get here, but we're still very grateful
3 for your attendance.
4 So to DA Bragg, and thank you for your
5 leadership and work on the CRYPTO Act, and a number
6 of other issues.
7 You know, you've spoken about, in other
8 forums, our need to turn our attention to our
9 white-collar statutes.
10 And, you know, my position has been -- you
11 know, I chair the Codes Committee. A lot of very
12 important criminal justice issues make their way
13 through this committee. We have had to grapple with
14 a lot of things as a legislature.
15 But we have made a lot of investments as a
16 state and as a system in tackling, sort of,
17 colloquially called "street crime," and investments
18 in that direction.
19 And I don't think that we have done the same
20 thing on this front.
21 And I'm wondering, given your jurisdiction,
22 and being the financial capital of the world, what
23 value you see in us pursuing, sort of, more
24 attention to our white-collar crime statutes?
25 DA ALVIN BRAGG: And I thank you for your
102
1 leadership. I think we were all here together for
2 your convening. And so we thank you for -- I thank
3 you for your leadership.
4 Look, I think New York, in general, is
5 extraordinarily special.
6 Manhattan is the financial capital of the
7 world, and many of these provisions interact, you
8 know, with that.
9 We -- whether it's the virtual appearance.
10 We've got many victims who come for tourism,
11 tourist capital of the world we would also suggest.
12 And then they go back home, and reaching them and
13 getting them back. They are victims. And someone
14 who preyed upon them may also then prey upon someone
15 who lives here.
16 The CRYPTO Act with a banking center. And as
17 people shift away from the brick-and-mortar banks,
18 there's still networks here, and so we see
19 incredible activity.
20 I mentioned some of the matters we've done,
21 which we were able to do, much like my colleague in
22 Albany, we're able to do it, but it takes more work
23 because of the structures.
24 You know, we -- we've -- within the last few
25 years, have prosecuted a, you know, $5 million
103
1 unregistered Bitcoin ATA business that was marketing
2 to all sorts of criminal actors; a peer-to-peer
3 trader who laundered millions in drug proceeds;
4 a dark web drug-trafficking ring, all able to, sort
5 of, do the work. Sometimes, because these actors
6 take a foot out of the shadows and use the
7 traditional banking structure, and then we're able
8 to follow them. Sometimes it's old-fashioned
9 surveillance. Sometimes it's puffery on their part,
10 where they're bragging, you know, on some social
11 media app.
12 But that's what we've been able to do.
13 We know there is so much more. This market
14 is huge.
15 And so the licensing in particular, having
16 criminal penalties for not having a license.
17 They don't have a license, so they don't have
18 to know their customers, they don't have to do
19 suspicious activity reports.
20 And so I would say, particularly, you know,
21 what we see on our docket, having drawn in, over
22 generations, people who are engaged in all sorts of
23 financial transactions, they're here, they're used
24 to being in Manhattan. And now they see another way
25 to do it where they don't have to do this reporting,
104
1 and they're pivoting, and they're laundering, you
2 know, millions and millions of dollars.
3 And so, you know, all the changes, you know,
4 in the written testimony are particularly important.
5 But I would say the licensing regime.
6 And given the volume of our work, and this
7 is, I would say, both street crimes and white-collar
8 crimes, the grand jury business record. It would
9 just -- it would allow, you know, one, from a fiscal
10 standpoint, the amount of money that is spent, but
11 also the amount of grand jury time.
12 Grand jury time is precious.
13 We have to go to the people and get an
14 indictment, and the use of that time is precious.
15 And so even though that seems sort of wonky,
16 and I know you appreciate it, but I spend time on
17 it, because that time allows us to do more cases, do
18 more complicated cases. Save money for the state.
19 And, you know, all we contend, without
20 prejudice to any due process rights, because we're
21 only talking about the grand jury process.
22 As you know, I was a federal prosecutor
23 before this. You know, hearsay is allowed in the
24 federal grand jury.
25 We're not proposing that. We're not -- you
105
1 know, this is sort of a very, I would say, a small
2 step, but one that would be so impactful on both our
3 white-collar and our street-crime practices.
4 SENATOR MYRIE: And if you can, DA, the
5 bifurcation of white-collar and street crime is
6 something, as I have spent more time on this issue,
7 have realized, particularly in the crypto case, that
8 they are actually becoming increasingly, if not
9 wholly, related now, because of the mechanisms that
10 are being used by organized crime rings.
11 So I'm wondering if you could speak to that
12 as well.
13 DA ALVIN BRAGG: 100 percent.
14 I mean, you know, we tried a crypto case that
15 sounds white-collar. But thing that we alleged and
16 we proved and got a conviction, was using that money
17 to send it overseas to finance terrorism.
18 You know, closer to home, you know, we see
19 everything from supporting, you know, drug
20 trafficking, and other things that are sort of
21 traditional street crimes.
22 I mean, generally, we see, with some
23 organized, you know, crime rings, they want to make
24 money, and then they want to hide the money.
25 And you see this real intersection that --
106
1 you know, I became a prosecutor for the first time
2 in 2003. And increasingly, this is anecdotal, but,
3 increasingly, really, this intersection. And we see
4 it in our docket, where -- you know, I'll give just
5 one vignette:
6 There was, you know, someone who we suspected
7 was engaged in gun trafficking, but we couldn't
8 prove it.
9 He was much more open about his fraud which
10 he was advertising on a social media channel.
11 And so we did the fraud investigation. We
12 said, all things being equal, you know, let's do the
13 fraud investigation on the person we think is gun
14 trafficking.
15 And then when we brought that case down, we
16 did a search warrant, we found a gun as a part of
17 the search. Did a ballistics match and were able to
18 solve a shooting.
19 We are -- we're -- you know, that's one
20 example. But what we are seeing is sort of an
21 overlap, in effect, with staffing, also really
22 having more dialogue within our office between our
23 white-collar and our street-crimes practice.
24 SENATOR MYRIE: Thank you, DA.
25 Alona, I thought the testimony on sort of
107
1 your day-to-day practice and what you're seeing in
2 Brooklyn, and I'm not just saying this because I'm
3 from Brooklyn, but I think makes it very real for
4 people listening, to understand what the actual
5 implications are.
6 And so I'm hoping you can spend a little bit
7 more time talking about just the regular examples of
8 how illicit activity in the cryptocurrency space is
9 impacting regular New Yorkers.
10 This is not tech bros or, you know, people;
11 just everyday folks, what the implications are?
12 ALONA KATZ: Absolutely.
13 There is no such thing as a typical victim in
14 these scams.
15 When people ask me, "What can I do to protect
16 myself?" I tell them, You should think of yourself
17 as a potential victim.
18 Once you have the mentality of, "I can never
19 fall for that," you're vulnerable.
20 We have an action center, the Brooklyn
21 District Attorney's Office, that we regularly get
22 calls from. And we're also looking at NYPD
23 statistics and other federal databases to find our
24 victims.
25 It is, the harm that occurs is irreparable.
108
1 When I say "generational wealth," you know,
2 I've spoken to people that emphasized, I don't want
3 to be thought of as "I fell for this because I was
4 greedy."
5 I was trying to earn money in what I thought
6 was a viable, safe alternative to traditional
7 savings account, and that was money I was going to
8 give to my children and grandchildren.
9 Or, I thought that I was going to increase my
10 savings account so that I could actually retire
11 safely.
12 And I want to stress that the scam entities
13 that I'm talking about, they are not actual
14 cryptocurrency exchange that -- exchanges that are
15 operating and not registered.
16 They are simply a Telegram phone number,
17 a website, and advertising on Facebook.
18 No entity ever existed, no cryptocurrency
19 exchange ever existed. It was fraud from the onset.
20 What I've seen, particularly in Brooklyn that
21 has immigrant communities or communities where a
22 particular language is spoken, is that fraudsters
23 are finding them in an increasingly targeted way by
24 running advertisements on Facebook in a specific
25 language to target that specific community.
109
1 That helps to build trust, which also lends
2 to the betrayal that comes when the scam is
3 unraveled.
4 A large part of my day-to-day is not actually
5 going into the grand jury and arresting people
6 because these scammers are almost exclusively
7 overseas.
8 A large part of my day is spent talking to
9 victims, and explaining why I am so sorry, but
10 there's nothing that I can do as a state and local
11 prosecutor.
12 I try to give them information because
13 information is closure and protection.
14 I try to explain how their money, you know,
15 disappeared, you know, within five seconds of the
16 first send.
17 I try to offer them the resources of the
18 Victim Services Unit of the Brooklyn DA's Office,
19 and I try to help them protect themselves against
20 what we call, "secondary," or "follow-up scam,"
21 where there are scammers, knowing that this victim
22 has already been a target. They follow up a short
23 time later and they say that they're from a recovery
24 service.
25 So I tell them, like clockwork, you will get
110
1 a call in two weeks from a recovery service. It's a
2 scam. If you have any doubts, just call me back and
3 I can tell you again.
4 So there's a huge social services, I would
5 say, component to my work as well.
6 SENATOR MYRIE: Thank you.
7 Senator May, I don't know if you have --
8 SENATOR MAY: No, I don't.
9 SENATOR MYRIE: Okay.
10 SENATOR MAY: Sorry that I missed a lot of
11 your testimony.
12 SENATOR MYRIE: Well, let me thank all of you
13 for your testimony, and thank you for your continued
14 work.
15 And we appreciate the feedback, and we'll be
16 taking it all into consideration.
17 Thank you again.
18 DA LEE C. KINDLON: Thank you.
19 SENATOR MYRIE: Okay, the next panel.
20 Just before you testify, just say who you are
21 and your organization, and then take it away.
22 RICHARD BOURAS: Thank you very much,
23 Chairmans Murray and May.
24 My name is Richard Bouras. I'm part of the
25 Investigations and Intelligence Solutions team for
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1 Chainalysis Government Solutions, where we harness
2 transparency of blockchains for, like, governments,
3 banks, and businesses, to have the data they need
4 for this new digital economy to thrive.
5 We track cryptocurrency used by illicit
6 actors, such as those carrying out investment
7 impersonation scams; provide data on their financial
8 activity to private and public-sector customers,
9 including the U.S. public sector.
10 In each of the past five years, scam
11 operators have received over $12 billion in
12 cryptocurrency payments, and 2025 is estimated to
13 have been a record year for these scam revenues.
14 Our data shows at least $14 billion where the
15 cryptocurrency was scammed globally. We actually
16 expect that figure to exceed $17 billion as we
17 continue to retroactively identify more scams.
18 Overall scam inflows have also surged,
19 particularly through impersonation techniques that
20 saw a staggering 1400 percent year-over-year growth
21 as fraudsters leverage AI to target victims more
22 effectively than ever before.
23 Our analysis reveals that, on average, scams
24 with on-chain links to AI vendors extract
25 $3.2 million per operation, compared to $719,000 per
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1 operation without those on-chain AI links. That's
2 4 1/2 times more revenue per a scam.
3 This suggests both higher operational
4 efficiency and, potentially, broader victim reach.
5 This increased transaction volume indicates
6 that AI is enabling scammers to reach and manage
7 more victims simultaneously, but also making the
8 larger industrialized scams more persuasive.
9 Cryptocurrencies are the financial rails of
10 choice for scammers for the same reasons legitimate
11 users use them. Transactions are cross-borders and
12 instantaneous.
13 But I'm here today to emphasize that
14 fraudsters use of cryptocurrency should place them
15 at a fundamental disadvantage, given the
16 traceability and freezability of many of these
17 assets.
18 At Chainalysis we analyze the transaction
19 data from blockchain networks to provide clear
20 visual representation of scam networks and
21 laundering activities, a level of transparency that
22 isn't possible in traditional forms of value
23 transfer.
24 With this blockchain intelligence, law
25 enforcement and regulatory bodies can disrupt these
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1 networks, cut them off from the global financial
2 system, with sanctions and asset seizures.
3 Blockchain analytics offers unique
4 opportunities to trace proceeds of crimes, identify
5 additional victims, and partner with the private
6 sector to disrupt illicit networks and pursue
7 restitution rather than relying on those one-off
8 criminal investigations.
9 However, despite the potential for
10 disruption, scammers are exploiting the disjointed
11 and reactive nature of how the public and private
12 sectors respond to scams.
13 This crisis requires a unified and
14 technology-enabled response, preventing New Yorkers
15 from engaging with scams altogether, and identifying
16 and dismantling the groups responsible for
17 perpetrating these scams.
18 As such, we have two recommendations. These
19 include:
20 One: Leveraging advanced technology as to
21 combat scammers' growing sophistication and prevent
22 remediate -- and remediate scams.
23 Too often, scam victims are turned away from
24 local authorities who are ill-equipped to properly
25 assist crytpo-enabled crimes.
114
1 Addressing the challenge also demands a
2 paradigm shift from reactive enforcement to
3 proactive disruption through AI-powered
4 fraud-prevention technology to identify scammers
5 before they meet their victims.
6 Tools like Chainalysis's Alterya provides
7 realtime proactive fraud protection for exchanges,
8 blockchains, and wallet providers.
9 Alterya has already helped top crypto
10 exchanges decrease fraud by up to 60 percent,
11 reduced scam-related disputes, and improved the
12 efficiency of manual operations.
13 Alterya utilizes artificial technology and
14 other advanced techniques to identify scam
15 activities across various online sources, enabling
16 large-scale early upstream detection of these scams.
17 Over the past year, Alterya has prevented
18 more than $300 million in losses by supporting
19 customers and proactively reducing fraud.
20 This is what the future of combating scams
21 looks like.
22 Our adversaries are leveraging AI to rob
23 Americans of their life savings, and we must
24 leverage that technology to beat them at their own
25 game.
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1 Second: Provide legislation and guidance to
2 financial institutions and crypto businesses to help
3 them intervene when identifying a potential scam.
4 New York's DFS has, for years, been at the
5 forefront of regulating digital asset and
6 cryptocurrency businesses.
7 Continuing their leadership in this space by
8 providing clear and consistent guidelines could help
9 firms navigate when and how they can slow, block, or
10 scrutinize suspicious scam transactions, and what
11 forms of friction are appropriate without
12 overreaching.
13 Further, crypto ATMs continue to remain a
14 critical input for scammers who often instruct
15 victims to convert cash into cryptocurrency at these
16 kiosks before funds are quickly transferred.
17 Increased penalties like the ones recently
18 proposed in the CRYPTO Act would provide victims and
19 law enforcement agencies greater recourse to shut
20 down and prosecute unlicensed ATM operators and
21 other virtual asset service providers not complying
22 with the New York bit license requirements.
23 Again, thank you for this opportunity to
24 provide testimony on this important topic.
25 We look forward to partnering with you on the
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1 initiatives to better protect New Yorkers.
2 ARI REDBORD: Chair Myrie, Chair May, members
3 of the committee, thank you for the opportunity to
4 testify today on an issue directly impacting
5 families, retirees, and small businesses across
6 New York.
7 My name is Ari Redbord. I'm the global head
8 of policy at TRM Labs, where we work with federal,
9 state, and local law enforcement, regulators,
10 financial institutions, and national security
11 agencies in New York, and globally, to detect,
12 investigate, and disrupt illicit activity in the
13 digital asset ecosystem and beyond.
14 Before joining TRM, I served for more than a
15 decade as a federal prosecutor at the Department of
16 Justice, and later as a senior treasury official at
17 the U.S. Department of Treasury's Office of
18 Terrorism and Financial Intelligence, confronting
19 terrorist financiers, sanctions evaders, narcotics
20 traffickers, and transnational criminal enterprises.
21 I do not say this lightly: The
22 industrialization of scam networks, so-called
23 "pig butchering" schemes, targeting New Yorkers
24 is the most pervasive and economically destructive
25 financial crime threat I have encountered in my
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1 career.
2 New York sits at the center of global
3 finance, and that centrality brings exposure.
4 What we face is not simply more fraud, but a
5 structural shift in how exploitation is engineered
6 and scaled.
7 Organized scam networks now operate with the
8 discipline and reach of multinational corporations.
9 The consequence -- the consequences are
10 immediate and they are deeply personal.
11 Retirees lose their life savings.
12 Families absorb devastating losses.
13 Small businesses see operating capital
14 vanish.
15 This is economic violence at scale.
16 The numbers underscore the urgency.
17 TRM's 2026 crypto crime report estimates that
18 approximately $35 billion float into
19 cryptocurrency-related fraud schemes in 2025 with
20 only about 15 percent of victims reporting.
21 The true impact is far higher.
22 In New York alone, TRM data shows more than
23 100 million in crypto-related fraud in 2025, meaning
24 the real damage across the state is significantly
25 greater given chronic underreporting.
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1 Artificial intelligence is accelerating these
2 schemes.
3 Through Chainabuse, TRM's global scam
4 reporting platform, we have documented a more than
5 500 percent increase in AI-linked scam activity over
6 the past year.
7 Deep-fake impersonations, AI-generated
8 financial advisers, and automated engagement tools
9 expand scale and credibility.
10 AI also compresses laundering timelines,
11 moving funds across chains within days.
12 Although these networks are global,
13 enforcement begins at the precinct.
14 When a victim walks into an NYPD station
15 house with screenshots and transaction
16 confirmations, the investigative clock is already
17 running.
18 A wallet address and transaction hash anchor
19 tracing on a public ledger.
20 If those identifiers are not captured and
21 escalated immediately to investigators equipped with
22 blockchain intelligence tools, like TRM, recovery
23 prospects decline rapidly.
24 Meeting the moment requires tools and it
25 requires training.
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1 Blockchain intelligence capabilities must be
2 deployed across NYPD and district attorney offices
3 statewide.
4 Digital asset literacy should be mandatory in
5 the NYPD academy so every officer can identify and
6 preserve blockchain-based evidence.
7 Detectives and assistant district attorneys
8 must be trained to translate on-chain tracing into
9 admissible courtroom-ready evidence.
10 New York has shown already what specialized
11 capacity can achieve.
12 Under Brooklyn District Attorney
13 Eric Gonzales, prosecutors have built meaningful
14 blockchain investigative capability with leaders,
15 such as Assistant District Attorney Alona Katz,
16 integrating victim narratives, and on-chain analysis
17 into cohesive prosecutions.
18 That expertise must be scaled statewide.
19 The Rip-Off Act strengthens this response by
20 aligning criminal penalties with the scale of
21 AI-enabled fraud, and ensuring blockchain-derived
22 records can be effectively presented in grand jury
23 proceedings.
24 New York has always met evolving financial
25 threats with innovation and resolve.
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1 We must use technology for good, equipping
2 our officers and prosecutors with the tools to match
3 the speed and sophistication of this threat.
4 At TRM, we are here to support that mission.
5 Thank you, and I look forward to your
6 questions.
7 SENATOR MYRIE: Thank you.
8 Senator May?
9 SENATOR MAY: Yeah, thank you.
10 Thank you, both.
11 I feel like I'm learning so much here.
12 Mr. Bouras, I wanted to talk about the crypto
13 ATM issue that you raised.
14 As the Consumer Protection Chair, I'm always
15 thinking from the consumer's viewpoint.
16 Like, what signals are there?
17 I mean, I honestly am nervous about using
18 ATMs in general, because I know there are ways to,
19 you know, scam people with that technology in
20 general.
21 But with crypto ATMs, I've never used one.
22 But I'm wondering, what sign posts or
23 guidelines are there for the consumer to be able to
24 check if it's a legitimate one?
25 RICHARD BOURAS: Thank you.
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1 So there's a number of posts.
2 One is just going to be, signs can be up on
3 the legitimate licensed ATM, saying, like: Please
4 watch out. Is this a scam? Do you know who you are
5 sending to? Have you ever even spoken to this
6 person before?
7 You know, and so they kind of have those
8 warnings, both in signs on them, as well as while
9 you're going through the operations themselves.
10 Other things to look at, too, is going to be,
11 just with, you know, the registration and licensing,
12 what sort of verifications do you need when you're
13 using that ATM?
14 If they're telling you that you can send
15 thousands of dollars without ever having to provide
16 any sort of, you know, license or registration, and,
17 just, you don't even need to provide an e-mail, sort
18 of thing, [indiscernible] -- then it is -- it should
19 kind of like raise those alarm bells with them, that
20 this isn't normal.
21 You have to give some sort of ID. Even to a
22 traditional ATM, you're putting in your debit card,
23 you're putting in something, that has been checked
24 before.
25 And if these aren't asking you for anything,
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1 it's likely unlicensed, then.
2 SENATOR MAY: So is there -- is it just up to
3 whoever put the ATM there, to put this signage on
4 there, or is there -- are there any kind of
5 requirements? Should there be?
6 Is there something we should be doing?
7 RICHARD BOURAS: Yes, there should definitely
8 be requirements. And part of that is part of DFS's
9 registration.
10 And I think a lot of that, too, will now come
11 from, when we talk about the CRYPTO Act, of giving
12 that, you know, those legal teeth to it, of really
13 saying, like, now it is a criminal issue as well.
14 Different states have different regulations,
15 both to the limit that can be done per transaction,
16 as well as the type of KYC requirements.
17 You can also look at things then that can be
18 registered on the websites as well.
19 SENATOR MAY: Okay. Thanks.
20 ARI REDBORD: If I may just, sort of really
21 quickly, on that question, because it's a great one?
22 At TRM we see about double the amount of
23 illicit activity associated with ATMs as we do to
24 the broader ecosystem.
25 So there is no question it's a problem and it
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1 should be a focus.
2 I think the challenge is, how do you allow --
3 ensure that lawful users have access to this
4 technology and stop bad actors?
5 And I think with these machines in
6 particular, what's so important is to ensure that
7 they have the licensing which really comes with all
8 the compliance controls. Right?
9 You are required to be using blockchain
10 intelligence tools today as a New York DFS-licensed
11 entity; that you are -- you know, that you have the
12 policies and procedures in place, that you are doing
13 compliance.
14 So I think so much of this comes down to that
15 sort of initial licensing determination, and are
16 these entities you should be transacting with.
17 SENATOR MAY: Right.
18 Thank you.
19 And, Mr. Redbord, I appreciated your term,
20 "economic violence."
21 I feel like that's -- we don't think about it
22 that much, but that really is what it feels like
23 when you get scammed.
24 ARI REDBORD: One thing quickly on that
25 point, if you don't mind, and that is, I think one
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1 thing that's been missed to some extent in the
2 conversations today, is that these are truly global
3 organizations. This is organized crime.
4 Much of it is in Southeast Asia; but, now,
5 more and more all over the world, in the
6 Middle East, in Africa. And they are attacking, in
7 many cases, U.S. persons and New Yorkers at scale.
8 This is very different than any question to
9 me around licensing determinations or the great work
10 that New York DFS is doing around the bit license.
11 There is a growing lawful ecosystem.
12 These are just scammers.
13 SENATOR MAY: Yeah.
14 ARI REDBORD: And we need to target them not
15 just with crypto tracing. We need to put all the
16 tools in NYPD hands and prosecutors, as I mentioned.
17 But this is a national and global security moment.
18 And when we have this conversation in front
19 of the federal government, money -- much of it is
20 asking to ensure that we have the national security
21 tools and capabilities in place to actually go after
22 these bad actors globally.
23 SENATOR MAY: Right. I don't disagree.
24 But I'm more focused on, like, what happens
25 at the personal level.
125
1 So one thing you mentioned was training
2 for -- digital asset literacy training for police.
3 Did you have in mind for all, like,
4 rank-and-file police, or detectives, or, like, you
5 know, what level do you think --
6 ARI REDBORD: It's a great question.
7 And it can certainly be triaged I think for
8 everyone.
9 Look, if every crime is a financial crime,
10 and cryptocurrencies are going to be used in more
11 and more crimes, to include scams and other types of
12 activity, then that means the second you walk in
13 that precinct door with those screenshots, with
14 those transaction hashes, the person that you're
15 talking to, that intake officer, should know, have a
16 sense, of what you're talking about.
17 Hopefully, they were trained at the academy
18 on it.
19 But then, hopefully, they can get you right
20 away to someone who has access to the tools, who has
21 deep training, who can jump into TRM's platform and
22 start to track and trace the flow of funds.
23 So I would say, in a perfect world, it would
24 be a mandatory training across NYPD, but
25 understanding, like, we're in a triage moment with
126
1 resourcing. But as many as possible.
2 SENATOR MAY: And I represent upstate, so,
3 you know, it -- yeah, the resources aren't there
4 for -- necessarily.
5 But I hear you.
6 On the other side of things, you talked about
7 only 15 percent of victims reporting.
8 Like, how do we raise that number?
9 And I will say, as someone who was
10 victimized, you're embarrassed, you feel like an
11 idiot. It's, like, hard to bring yourself to go and
12 report something where you've been scammed.
13 But what kind of tools are there out there?
14 And how can we, as a state government, be
15 making sure that those are available to people, to
16 really make sure that --
17 ARI REDBORD: It's really the most --
18 SENATOR MAY: -- more people report?
19 ARI REDBORD: It's really the most important
20 question.
21 And I thought Alona's testimony was actually
22 some of the most beautifully I've ever heard
23 articulated on this topic and working with victims.
24 I would say that a massive public campaign
25 around scams is something that we've been talking
127
1 about at a federal level, but certainly at a state
2 level makes sense.
3 People should be able to, as quickly as
4 possible, identify themselves as a victim, because
5 I think part of the lack of reporting comes from,
6 sort of, not knowing exactly what's happening to you
7 in that moment.
8 SENATOR MAY: Right.
9 ARI REDBORD: But there's that other piece,
10 the shame piece, and it is very, very real.
11 And my feeling is that part of that training
12 would be for officers to understand more and more,
13 sort of, what a victim is going through.
14 We want to meet people where they are.
15 When I was a prosecutor, for a long time
16 I did domestic violence cases, and we talked about
17 victim-centered approach.
18 It's as important to take in these cases.
19 So I think it's a massive public awareness
20 campaign, as well as ensuring that when you are
21 engaging with law enforcement, that it's a good
22 experience.
23 I mentioned we run a website called
24 Chainabuse.com, which is just open source. We
25 encourage people to make sure that they are
128
1 reporting there. There's a portal to report
2 directly to law enforcement through there.
3 So there's all kinds of things that can be
4 done, but I think a lot of this is awareness.
5 SENATOR MAY: Yeah, okay. Thank you.
6 RICHARD BOURAS: I would also --
7 SENATOR MAY: We will be hearing from AARP
8 next --
9 RICHARD BOURAS: I would also like to add --
10 SENATOR MAY: -- and I know they are very
11 involved in that, too.
12 RICHARD BOURAS: -- that -- [indiscernible]
13 to that, there are also the parts that people don't
14 report because they simply do not realize yet, with
15 some of these scams being long-term scams, that
16 they're actually victims yet.
17 We've seen in, you know, what we call
18 "pig butchering," where we'll -- they might even get
19 payouts, you know, initially, where it looks like
20 they are making money. So then they start to, you
21 know, contribute more and more money, and they might
22 think everything is okay.
23 There's plenty of, you know, fraudulent
24 AI images of them showing, you know, different
25 balance transfers, and different accounting, "This
129
1 is your account balance now," on these entire
2 websites, where they think they're actually looking
3 at their accounts, when nothing is there.
4 So I think also working with the private
5 sector, too, when we're identifying these frauds.
6 Work with public and private to identify that these
7 are -- this is now a known and identified scam.
8 We're working with them so they can reach out
9 to their -- like, their clients that might be
10 utilizing this, and say, Hey, by the way, this --
11 you might actually be a scam here.
12 And getting that victim knowledge out there
13 that way as well.
14 SENATOR MAY: All right.
15 Thank you.
16 SENATOR MYRIE: Thank you, Senator May.
17 Senator Murray.
18 SENATOR MURRAY: Thank you, Chair.
19 And I apologize for scooting in in between.
20 But I had the same thing written down,
21 15 percent, I mean, and why so low?
22 But I think we know.
23 But with that said, is there a particular
24 target?
25 And is it because, maybe, are we targeting
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1 seniors more, because they're embarrassed, or don't
2 want to? Or are they targeting younger because
3 maybe they don't realize it?
4 Is there a particular target?
5 ARI REDBORD: There's really an extraordinary
6 range, and it's interesting.
7 I think we think of this, there's an
8 elder-fraud component to it.
9 But in these specific, sort of, pig
10 butchering scams start out as a romance scam and
11 ultimately end up as an investment scam.
12 It is just a wide array of different types of
13 people.
14 So in my view, the way we would need to do
15 this is to meet all of those different demographics
16 where they are, whether it is our elderly
17 population. But young people, who are more
18 crypto-savvy, have that sort of FOMO that the
19 attorney general's office talked about earlier in
20 the hearing.
21 Right?
22 So it is really a mix of people, which makes
23 this even more dangerous, because that's when you
24 can get to that 35 billion globally, the 100 million
25 in New York.
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1 It is not a subset. It is a large group.
2 SENATOR MURRAY: And that was my other
3 question.
4 As you had mentioned, this is global.
5 But is New York one of the top targets?
6 ARI REDBORD: So New York is always a top
7 target when it comes to the fact that it's a
8 financial center, and just population-wise.
9 We see New York as one of the -- sort of the
10 top states, along with Massachusetts and others,
11 when it comes to really targeted -- these targeted
12 pig butchering types of outreach.
13 I think the 100 million is extraordinary.
14 But when you think about the fact that that only
15 accounts for 15 percent or so of reports, that's
16 when you get to some really dangerous territory.
17 SENATOR MURRAY: Wow, yeah, good point.
18 Thank you.
19 SENATOR MYRIE: Thank you, Senator Murray.
20 So if we can, just to step back for a second,
21 I mentioned this at an earlier panel, about those of
22 us who are somewhat familiar with the cryptocurrency
23 space, who sort of speak fluently about it. But
24 some of the -- what we feel are intuitive things can
25 be lost on it.
132
1 So if we can -- I know we have said what
2 "pig butchering" is. It's kind of a stark term that
3 I don't think most people are aware what that is.
4 So to either of you, just for the record, to
5 explain what that type of scheme is.
6 ARI REDBORD: Yeah, happy to do it.
7 It really is that sort of mix of romance and
8 an investment fraud.
9 Oftentimes, a bad actor will reach out -- we
10 all get these every day; right? -- "Hey, how you
11 doing?" to your text message or social media, and
12 we'll start a conversation. And, ultimately, that
13 conversation will end up romantic in nature.
14 It could take weeks to grow, but then
15 ultimately ends up with some kind of question around
16 investment: I made a great investment. Would you
17 be interested in this?
18 The person makes that investment. Oftentimes
19 there's a larger return sent back, to start to
20 really create that believability. Oftentimes the
21 platform looks very legitimate. Maybe it's actually
22 a fake platform based on a real one.
23 And then, ultimately, after the victim sends
24 larger and larger amounts of funds, that's when --
25 as horrible of a term as it is, that's when the
133
1 "butchering" takes place; steal all the funds and
2 they're gone.
3 And I thought a great point earlier, about
4 the fact that, oftentimes, the victim doesn't know
5 for some time, because you really can't wrap your
6 head around it.
7 And there's just been a proliferation of
8 these types of cases. And so many of them are
9 coming from, you know, places in Southeast Asia;
10 Cambodia, Laos, Viet Nam, Myanmar.
11 And what this has turned into is wealth
12 transfer from lawful Americans to criminal networks
13 in Southeast Asia and beyond.
14 RICHARD BOURAS: Yeah, that's a great point.
15 And to add to that, too: When we're talking
16 about those victims, and how long this has gone on,
17 and how realistic it seems, you will even get to the
18 point where, when they are notified that this might
19 be, you know, a potential pig butchering scam, like,
20 you will get pushback, where they're, like, No.
21 They are fully still invested in this.
22 They -- again, it could be romantic. It could be
23 just be the investment. They've may have gotten
24 actual, you know, funds back initially and they've
25 seen this.
134
1 And so it's almost, you know, trying to
2 convince them.
3 That is part of the fight initially, is
4 really trying to get them to understand that this --
5 they are a part of this victim.
6 SENATOR MYRIE: And we've been talking and
7 focusing on the illicit activity in this space.
8 And, you know, I think that there is --
9 anytime, when we are proposing either increased
10 regulation or proposing new legislation, to any
11 industry, there is, I think, natural pushback on
12 what that should look like, and are we going too
13 far? Are we interfering in sort of the natural
14 occurrence of what that industry is doing?
15 And I'm hoping that you can clarify for us
16 whether your role in this ecosystem interferes with
17 sort of the inherently good things that happen in
18 cryptocurrency?
19 And what, if anything, we should be mindful
20 of, as we're stepping into this space, to try to
21 protect victims?
22 RICHARD BOURAS: Yeah, I'd say, not at all.
23 You know, our goal is to remove this illicit
24 finance, this fear of, you know, crypto being just,
25 you know, for, essentially, any sort of illicit
135
1 means. So that way, more people feel comfortable
2 with it, and it broadens it out.
3 Again, we work with both U.S. public sector
4 and private sector, because we want -- we want, you
5 know, the regulatory agencies, we want the law
6 enforcement agencies, to have this data so that they
7 can effectively go after the bad guys here.
8 And at the same time, we also want the
9 private sector to know, that if you're going to be
10 held to these standards, you also have this data so
11 that you can do the proper compliance, you can meet
12 those regulators, and understand exactly what it's
13 going to do to protect your clients, so you can
14 thrive in this.
15 You know, banks have had, you know, plenty of
16 regulation over the years, and they have grown
17 plenty. They have not seen any, you know, issues
18 with this.
19 And we see the same thing going from the
20 cryptocurrency industry as well.
21 ARI REDBORD: If I may just add: We put out
22 a report recently that said it was a record-setting
23 year for crypto-related crime, about 158 billion.
24 That still accounts for about 1.2 percent of
25 overall activity.
136
1 But that 1.2 percent is what keeps me up at
2 night because it's about people losing their life
3 savings.
4 So I think the challenge for this panel, and
5 beyond, is how do we ensure that lawful users have
6 access to truly transformative technology?
7 Right?
8 Cross-border value transfer at the speed of
9 the Internet, for remittances, for humanitarian aid,
10 for payments at scale, and yet at the same time,
11 stop bad actors.
12 And to me that means a couple things.
13 One, it means ensuring that law enforcement
14 have the tools and the training they need to go
15 after that -- those bad actors.
16 And to ensure that lawful entities are not
17 overregulated, but are required to act like any
18 regulated entity is. Have deep compliance controls
19 in place.
20 So I think that that is the challenge, is how
21 do we sort of walk that line?
22 But I think it's primarily going after the
23 bad actors in the ecosystem who make up this illicit
24 underbelly that still is a relatively small
25 percentage of overall illicit activity -- of overall
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1 activity.
2 SENATOR MYRIE: Thank you, and I appreciate
3 that.
4 And I will lastly ask, and, again, this is
5 for the edification of the public and for the
6 record, so that we can know:
7 Can you talk about the mechanics of the
8 blockchain, and what makes it different than
9 traditional financial institutions.
10 You are able to see every transaction,
11 literally, every transaction, on the chain. But
12 people are still able to get away with fraudulent
13 activity.
14 And I think both of those things happening at
15 the same time is a little hard for the public to
16 understand.
17 So if you can give us just some insight into
18 that, and what we need to do.
19 ARI REDBORD: Happy to kick that one off.
20 So, look, the -- every transaction that
21 occurs in cryptocurrency is on a traceable,
22 trackable, immutable public ledger.
23 When I was a prosecutor, I was investigating
24 cases involving both cash smuggling and networks;
25 the hawalas and shell companies and high-value art.
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1 There were no TRM to trace and track the flow
2 of those funds.
3 The challenge, though, is bad actors can now
4 move larger amounts of funds faster than ever
5 before. And so much of this comes down to speed.
6 And that is why it's so important, when you
7 have that intake at the precinct, that that officer
8 there is moving fast to that detective and beyond.
9 That's why the importance of public-private
10 partnerships; that we are able to move as fast as
11 these bad actors. That we're integrating AI into
12 the tools that we're using because bad actors are
13 using AI to move faster and faster.
14 So the promise of the technology, this idea
15 of it, you can now move larger amounts of funds
16 cross-border faster than ever before, is also why
17 bad actors are taking advantage of it.
18 But as you know, bad actors are always early
19 adopters of transformative technology.
20 And it's, like, how do we stop them to allow
21 lawful users to really have the promise of it?
22 RICHARD BOURAS: And to add to your point
23 about how the blockchain really works, it really
24 goes down into that -- not the anonymity of it, but
25 the pseudonymity of it.
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1 So every -- so we said every transaction is
2 recorded publicly; however, it won't just be
3 necessarily, like, my name going to Ari, or any of
4 that. It will just be a lot of, you know, numbers
5 and letters in these long strings of digits, you
6 know, going back and it shows that.
7 Where the real work comes from is how we now
8 can identify it, how we work to attribute who those
9 belong to.
10 So, you know, we have, you know, intelligence
11 teams that are going out and trying to find
12 everything; whether it be from, you know, those
13 private partnerships telling us, like, These are all
14 of our addresses on the blockchains.
15 So we now know this is, you know, the
16 legitimate exchange, this is the Coinbase of the
17 world, and every like that.
18 So our intelligence team is going out and
19 trying to find these bad actors. They are going
20 onto the dark-end markets, on a Telegraph, trying to
21 see, Oh, this is a fentanyl dealership right here.
22 This is someone trying to sell fraudulent paperwork.
23 This is something, this is a scam.
24 And now that they've given us these addresses
25 here, so we can now connect those right now to
140
1 [indiscernible]. So, that way, when we're looking
2 in the tools, you know, law enforcement, regulatory
3 agencies, aren't just seeing this long string of
4 digits that really doesn't mean anything to them at
5 that point.
6 They can say, Oh, wait. This belongs to
7 Illicit Actor A. This is how we know it.
8 SENATOR MYRIE: Great.
9 Thank you both very much for your time, and
10 for your expertise.
11 And I'm sure the committee will be in contact
12 with further questions.
13 ARI REDBORD: Looking forward to it.
14 Thank you so much.
15 RICHARD BOURAS: Thank you.
16 SENATOR MYRIE: Thank you.
17 Okay. We will next hear from AARP.
18 Whenever you're ready.
19 KRISTEN McMANUS: Thank you.
20 So thank you, Senator Myrie, Senator May,
21 Senator Murray.
22 I'm Kristen McManus. I'm the director of
23 government affairs and advocacy with AARP New York.
24 If you're not familiar with AARP, we are a
25 social mission organization that prioritizes the
141
1 needs of the 50-plus.
2 And I appreciate the opportunity to testify
3 today because elder financial exploitation and scams
4 and fraud that impact older adults is a very serious
5 and growing concern.
6 We have data from the latest FBI report that
7 shows that elder fraud saw a reported increase in
8 about 50 percent, and the associated losses also
9 increased around that same number, I think it's
10 43 percent.
11 This is the equivalent of older New Yorkers
12 losing about $30,000 an hour to scams and fraud.
13 And, also, this is really just the tip of the
14 iceberg. There are so many reports, about half,
15 that don't include the age of the victim.
16 And also we know that some people are too
17 embarrassed to report, or they have no idea that
18 they should be reporting that they were a victim, or
19 really don't see the point in doing it.
20 So this is like really just the tip of the
21 iceberg.
22 We -- New York currently ranks sixth among
23 all top states in elder fraud. Not a good list to
24 be at the top of.
25 And we know that people can be victims of
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1 scams at any age. But it's particularly harmful
2 when it happens to older adults, because they have
3 spent their whole lives building their nest egg or
4 they have home equity that these thieves are trying
5 to tap into. And it's much more difficult for them
6 to find the financial recourse to make themselves
7 whole.
8 You know, an 85-year-old who loses all of her
9 life savings really has very limited ability to go
10 back to work and try to make that money back.
11 We have a number of recommendations.
12 I first want to just give thanks to
13 Senator Myrie for both the SCAM Act and your efforts
14 on deed theft, particularly with the focus on how
15 these impact older adults, and how we know that they
16 can be sometimes specifically targeted in these
17 scams.
18 But we think one of the most effective ways
19 to make sure that older adults don't fall victim to
20 scams is to stop the money from leaving their
21 accounts in the first place.
22 Senator Cleare has a bill that would require
23 training for bank tellers, broker-dealers,
24 investment advisers, to recognize the signs of elder
25 financial exploitation, and then allow those
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1 financial institution employees to place a hold on a
2 specific transaction. This gives time for it to be
3 reported to law enforcement and/or adult protective
4 services. And sometimes that hold is just enough
5 time for the older adult to realize, like,
6 "Something was off with this in my gut. This is a
7 scam." And make sure that money doesn't leave in
8 the first place.
9 And we've seen 40 other states have this for
10 broker-dealers and investment advisers, and about
11 26 for bank tellers.
12 And we've seen this be successful in
13 intercepting some of the most egregious forms of
14 fraud and scams, because we know that sometimes it's
15 somebody that they know, a caregiver or a loved one,
16 who is trying to coax them into giving them money.
17 Sometimes people come into the bank and
18 they're on the phone with the scammer who's walking
19 them through what to say and what to do, to be able
20 to get this cash.
21 We also have growing concerns around crypto
22 fraud, and we've heard a lot about that today.
23 Sometimes it's the fraudulent crypto
24 investments, but, also, sometimes it's just the
25 vehicle for the scam.
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1 So we hear of people who are taking money out
2 and putting it -- you know, handing it over to a
3 courier.
4 I think the crypto kiosk is now the new
5 vehicle for that. We see some people putting in
6 tens of thousands of dollars, like their entire life
7 savings, into these crypto kiosks. And it's
8 happening around country.
9 So we have some recommendations around that.
10 Making sure that we're imposing daily
11 transaction limits at the crypto kiosks. And,
12 perhaps, even finding a way to let somebody get that
13 money back within a certain amount of time, because
14 the money is in the machine; so if it's within a
15 certain time frame.
16 I see that I'm running out of time, so I have
17 just a few more that I want to quickly mention.
18 We also are really grateful for the
19 legislature for updating the General Business Law
20 around unfair, deceptive, and abusive acts and
21 practices.
22 But we do think that consumers -- individual
23 consumers need a private right of action or some
24 sort of mechanism where they can go after these bad
25 actors.
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1 And I just want to quickly plug that AARP has
2 an entirely free resource. You do not need to be a
3 member; anybody can use it. It's called the Fraud
4 Watch Network. It keeps you up to date on all the
5 latest frauds and scams. It gives you tips on what
6 to do if you or somebody that you know has been
7 scammed; tells you how to report them.
8 And it just has a ton of good information to
9 keep people educated.
10 Thank you.
11 SENATOR MYRIE: Thank you.
12 Senator May?
13 SENATOR MAY: Thank you.
14 I have to run.
15 But I just want to thank you and AARP for
16 everything you do in this space, because I just know
17 that you all are always thinking.
18 I mean, the scams change day by day by day,
19 and you guys are on top of that, and really helping
20 people feel comfortable about reporting, and
21 recognizing what the problems are.
22 And I just want to thank you for that.
23 And, yeah, the private right of action,
24 I agree with you about that.
25 I think we haggled about that last year. But
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1 we'll keep working on it, trying to make sure that
2 that's available for consumers, because we need it.
3 KRISTEN McMANUS: Thank you.
4 SENATOR MAY: Thank you.
5 KRISTEN McMANUS: Thanks, Senator.
6 SENATOR MYRIE: Thank you, Senator May.
7 Senator Murray?
8 SENATOR MURRAY: Thank you, Chair.
9 And thank you for coming.
10 And, yeah, this is -- obviously, it's a huge
11 issue.
12 And thank you for the fraud watch network
13 tip. I'd like to share, because I think education
14 is the key. I think it's getting information out
15 there and getting people informed.
16 As far as the limitations, I will -- I like
17 the idea, but I also have concerns, and I'd like
18 your thoughts on this.
19 So, recently, I had an issue, where my bank
20 had changed the debit cards they were using, and
21 they had the chip technology and all this.
22 But I went to take money out and it was
23 denied.
24 I went to pay something in a store, it was
25 denied.
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1 I went to another store, it was denied.
2 A vet bill, denied.
3 I went, wait a minute, wait a minute. It's
4 not that there's not money in there. What's the
5 problem?
6 I called the bank and they said, well, it's
7 fraud. We're concerned about fraud, so we're
8 protecting you.
9 And I said, But you're going too far. You're
10 keeping me, preventing me, from getting my own
11 money.
12 Is there a danger there; can we go too far?
13 Because I agree with you, maybe a pause is
14 not a bad idea on investments, or something like
15 this.
16 But could it possibly go too far is my
17 concern?
18 What are your thoughts?
19 KRISTEN McMANUS: What I'll say is, that
20 we've worked on this bill across the country, and
21 have not seen widespread problems like that.
22 I think part of the issue here, and what the
23 bill requires, is that you have to be notified.
24 They have to tell you that they are holding that
25 transaction. And, again, it's just the transaction,
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1 it's not the entire account.
2 So the older adults who are impacted still
3 have access to all of their finances. It's just
4 that one suspicious transaction is not allowed to
5 move forward.
6 And I think if there are family members or
7 somebody who is also on the account, like a trusted
8 contact, they get that notification, also.
9 So I think the notification here really is
10 key so the people understand why this specific
11 transaction is being held.
12 And we know a lot of that conversation
13 happens at the counter. It's just that the teller
14 doesn't have any real ability to intervene when they
15 see something that is egregiously, obviously wrong.
16 SENATOR MURRAY: And I think maybe education
17 on the bank levels, too, because what ended up
18 happening was, I got a hold of someone, and they
19 kept using the excuse that it was fraud.
20 It ended up, there was a problem with the
21 chip.
22 So they ended up sending a new card, and
23 everything's working fine now.
24 But they were using this excuse that it's
25 fraud protection, it's fraud protection, which
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1 really got me concerned about, could that possibly
2 go too far?
3 So maybe even an educational thing with the
4 bank as well, on how to respond when you get these
5 inquiries might be helpful.
6 KRISTEN McMANUS: Yeah, I think that's a
7 great idea.
8 SENATOR MURRAY: Good. Thank you.
9 SENATOR MYRIE: Thank you, Senator Murray.
10 And I would echo Senator May's thanks for the
11 work that AARP does.
12 They do a lot of work in my district, we do a
13 lot of work together. And so thank you for that.
14 We've heard a lot today about the reluctance
15 to come forward, and some of the -- what we've heard
16 from previous panels, just such small percentages of
17 people that report this.
18 Is there something specific about our older
19 adult population that might make them less likely to
20 come forward?
21 What have you heard?
22 What do people come to you to tell you?
23 Are there folks that come to you and don't
24 come to law enforcement, and say, you know, You're a
25 trusted entity and organization. I trust the
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1 members?
2 And if so, are there things you think we can
3 do about that?
4 KRISTEN McMANUS: Yeah, I think there's
5 education that's certainly needed so that people
6 understand the importance of reporting.
7 And I totally get it. I mean, anybody can be
8 a scam victim, truly.
9 Like, we have somebody who does these fraud
10 education presentations for us, and almost fell
11 victim to a grandparent scam, who only realized at
12 the last minute, like, actually, I think something
13 here is wrong.
14 So it can happen to the experts.
15 And I think part of it is letting people know
16 that there could be recourse for them; not just in
17 catching the criminal, but there may be funds
18 available that can try to make them whole. Or, how
19 just important it is to have all of the information
20 possible for law enforcement to be able to follow
21 the leads, and to prevent other people from being
22 scammed by the same bad actors.
23 SENATOR MYRIE: Okay. Thank you; thank you
24 for that.
25 And the low percentages and the difficulty
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1 right now in trying to get restitution, I think,
2 sort of as obstacle, as you mentioned.
3 And you put forward as a recommendation, the
4 Senator Cleare bill, on having other actors in the
5 system.
6 Are there any other entities in the system
7 that you think should play a larger role; i.e., are
8 there our family courts or other parts of our courts
9 that could be helpful?
10 Are there law enforcement things?
11 Are there social service things?
12 And anybody else that you think we should
13 say, Hey, you should be doing more to protect our
14 older adults?
15 KRISTEN McMANUS: Yeah, thank you for that
16 question.
17 And I would actually say everybody.
18 New York is like the only state that does not
19 mandate reporting of elder abuse.
20 Every other state has some statute that
21 reports it. The lists of professions vary state by
22 state. But in our statute it's a "may," not a
23 "shall."
24 So I think that that's really important,
25 looking at who is going to be reporting this and
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1 making sure that they know that they have to do it.
2 And, obviously, we can always use more
3 funding for adult protective services, to make sure
4 that they're able to do this work and intervene
5 where appropriate.
6 SENATOR MYRIE: Great.
7 Thank you very much for your patience and
8 your testimony.
9 KRISTEN McMANUS: Thank you.
10 SENATOR MYRIE: We're going to keep rolling.
11 We've got a couple of panels left.
12 But I think we have the next panel with us
13 here: Mark Anderson and Charles Johnson.
14 Do we want to bring the pastor -- we're going
15 to bring the pastor up, or no?
16 OFF-CAMERA SPEAKER: Yeah, sure.
17 SENATOR MYRIE: Pastor, do you want to come
18 down?
19 That's quite the tie you have there, Pastor.
20 [Laughter.]
21 That's how you come testify in Albany.
22 Okay. Whenever you're ready, take it away.
23 CHARLES JOHNSON: Chair Myrie, Ranking
24 Members, and members of the Senate, thank you for
25 the opportunity to testify.
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1 My name is Charles Johnson. I serve as the
2 political action chair for the New York State NAACP
3 Conference, and also under the leadership of
4 Madam President LJoy Williams.
5 Deed theft is a white-collar crime with
6 devastating real-life consequences. It involves
7 fraudulent or coerced transfers of real-property
8 title, often through forgery, misrepresentation, or
9 falsified documents, and it has stripped families,
10 especially elderly homeowners, of homes and
11 generational wealth across New York.
12 This is not isolated.
13 More than 6,000 deed theft complaints have
14 been filed statewide since 2014, disproportionately
15 impacting seniors and disabled homeowners.
16 For many victims, the first sign is not a
17 warning. It's an eviction notice, a foreclosure
18 action, or an unexpected ownership dispute. And
19 once title is compromised, restoration is often
20 slowed and costly, creating a pipeline of
21 displacement.
22 Now, New York has taken important steps
23 recently.
24 In 2023, the State enacted a civil deed theft
25 protection, authorizing prosecutors and the office
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1 of the attorney general to stay evictions and
2 foreclosures, filing notice to warn the market, void
3 fraudulent instruments, apply civil tools to address
4 fraud after relevant convictions, and extend
5 remedies under the Home Equity Theft and Prevention
6 Act.
7 In 2024, the State criminalized deed theft as
8 grand larceny, extending the statute of limitations,
9 and granted the attorney general concurrent criminal
10 jurisdiction statewide.
11 Now, those reforms matter, but the NAACP's
12 position is clear: The State must continue to
13 respond with a stronger, more coordinated approach,
14 focused on prevention, protection, and enforcement.
15 Specifically, we urge the Governor and
16 legislators to:
17 Prioritize deed theft enforcement in
18 historically targeted communities because where the
19 harm is concentrated and the impact is
20 intergenerational;
21 Strengthen elder-focused safeguards, because
22 seniors and disabled homeowners remain the most
23 frequently targeted and least equipped to fight back
24 quickly;
25 Increase funding to the homeowners protection
155
1 program so victims can access legal help early
2 before displacement becomes inevitable;
3 Early warning systems and brief
4 administrative holds. So county clerks should
5 provide free recording alerts, either e-mails, text
6 messages, voice plus mail notices, whenever there's
7 a deed, mortgage, or power of attorney is filed,
8 paired with the authority for brief administrative
9 recording, hold when there's -- clear red flags
10 appear;
11 LLC transparency and beneficial ownership, to
12 ensure that the LLCs cannot be hidden behind shell
13 entities, because we're noticing that, with LLCs,
14 they're masking as fraud, and are used to launder
15 ownership of stolen homes;
16 Engage in greater due diligence around lien
17 sales, where notice, fees, process gaps can
18 accelerate loss of homes and increase vulnerability
19 to fraudulent transfers;
20 And, finally, enforcement must be paired with
21 a broad awareness and education, so homeowners know
22 the warning signs, where to seek help before damage
23 is irreversible.
24 Thank you for your leadership on the issue,
25 and the NAACP New York State Conference stands ready
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1 to support continued reform and coordinated
2 enforcement.
3 Deed theft is not just theft. It's also
4 displacement and the destruction of
5 intergenerational stability.
6 I'm happy to answer any questions.
7 Thank you.
8 MARK ANDERSON: Good morning, Senators.
9 Thanks so much for having me.
10 My name is Mark Anderson. I'm the managing
11 partner of a firm called Anderson Bowman, which is
12 based in Kew Gardens, Queens.
13 We're real estate and consumer litigators.
14 One of the reasons that I believe I was
15 invited to testify here today is because we're at
16 the forefront of a massive class-action lawsuit
17 involving manipulation of interest rates on
18 foreclosures across the state.
19 There's been reporting that's been done by
20 both Gothamist and New York Focus, that piggy-backed
21 on top of our litigation, that found that over
22 10,000 auctions that had occurred across the state
23 had manipulated the surplus monies that were
24 available in foreclosures.
25 I'm joined today by my client, Dr. Bond,
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1 from the Cathedral -- Citadel Cathedral in
2 South Brooklyn. He is one of the victims of one of
3 these crimes. And we intend to continue on with
4 this class-action lawsuit.
5 Procedurally, it's not worth going into; it's
6 too boring.
7 But for right now, it's a very, very
8 hot-button issue that I really do appreciate you
9 taking the attention to.
10 I can go through kind of the crux of the case
11 or we can just talk about it.
12 But what it boils down to is, the amount that
13 banks are allowed to charge in interest on
14 foreclosure cases is being miscalculated, and
15 they're doing it on a systematic basis and they're
16 hiding it behind the color of law.
17 And so, right now, although I do believe that
18 the law is very clear on not being able to charge
19 cumulative interest against residential
20 foreclosures, I do think that it should be more
21 clear that what they're doing is illegal.
22 So right now, the lawsuit is -- it's going
23 against the banks, the servicers, and their
24 attorneys. And I'm looking forward to getting to
25 the bottom of all this, and I do appreciate you all
158
1 taking the attention.
2 I did provide some prepared remarks which
3 kind of further explains the issue, which
4 Senator Myrie and I have talked about --
5 And thank you so much for the attention
6 you've been giving it.
7 -- because we do want to bring some clarity
8 and some justice to individuals, and churches like
9 Dr. Bond's.
10 SENATOR MYRIE: Thank you, Mark.
11 Dr. Bond, if you want to say a few words?
12 DR. MARK BOND: I'm so glad to be here today,
13 to have this space to say something, because it's
14 even more egregious for -- in my case, because my
15 church is Citadel Cathedral, and the Lutheran Synod
16 has been adding thousands of dollars on to a pay-off
17 amount, that we couldn't even get a chance to pay it
18 off because the numbers kept shifting.
19 And then on top of all of that, after the
20 auction, they even took the surplus of $140,000.
21 So it's theft, theft of property, because
22 it's ours.
23 We have a 30-year-old congregation that will
24 be homeless unless we can do something about this.
25 ///
159
1 SENATOR MYRIE: Thank you.
2 And thank you for sharing the experience.
3 Senator Murray, I don't know if you have
4 questions?
5 SENATOR MURRAY: Thank you, Chair.
6 So for the novice, give me the elevator pitch
7 on how does it happen?
8 First the deed theft. But then, on top of
9 that, obviously the banks, I mean -- well, let's go
10 to the deed theft first.
11 MARK ANDERSON: So I should back up by
12 saying, I appreciate the testimony provided, because
13 we also litigate issues involving deed theft.
14 And we also appreciate the Foreclosure Abuse
15 Prevention Act, because it's been extremely helpful
16 in my practice area, because it has cleared up a lot
17 of what I didn't view as very vague law. I think it
18 was actually very clear before. But now it is
19 absolutely clear, what is and what is not a
20 time-barred mortgage.
21 So I do appreciate all the work that you guys
22 have been putting into that.
23 I'm -- let me -- let me speed back up, and
24 then -- I'm sorry, could I ask what the question was
25 again?
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1 SENATOR MURRAY: So deed theft, now, you see
2 commercials.
3 And the reason I bring it up is because I'm
4 wondering, and maybe some folks at home are
5 wondering, you see the TV commercials all the time
6 now, the radio commercials: We'll protect you
7 against that.
8 And I -- and my first thought, call me a
9 skeptic, is, is this fraud? Like, are they -- is
10 this company real, or are they asking for money for
11 protection that I really don't need?
12 So how does it work?
13 MARK ANDERSON: The deed theft itself?
14 SENATOR MURRAY: First the deed theft, yes.
15 MARK ANDERSON: Right.
16 So deed theft itself can take on many forms.
17 And so it could be just as simple as, someone
18 that comes to the door of an elderly individual --
19 it doesn't have to be elderly, but it happens a
20 lot -- and -- or they don't speak English, or they
21 just don't understand the law very well.
22 And what they'll be told is: Oh, I see
23 you're behind on your mortgage. Let me help you get
24 a modification on your mortgage.
25 And amidst those documents that they'll be
161
1 signing, there's a deed, and it transfers it over to
2 a new individual. And they have no idea that it
3 happened.
4 It's as simple as that.
5 SENATOR MURRAY: That's the one. But then
6 there's also --
7 MARK ANDERSON: But there's other issues,
8 yeah.
9 CHARLES JOHNSON: There's another way, too,
10 though.
11 There's the situation where someone can pass
12 away, an older person could pass away. And what
13 they will do is, there's companies that will find
14 like this long-lost relative that will come into
15 play.
16 Another thing that we're noticing, too, is
17 that, because there's a lack of information and
18 education about it, you will have elderly people, or
19 even migrants, or -- yeah, migrants in The Bronx
20 area, who are not reporting -- because I remember
21 you had mentioned that earlier -- they're not
22 reporting because there's a language barrier. These
23 people are coming to them, speaking fast. You know,
24 telling them, Hey, we can help you with this.
25 Other pieces, that they could actually have
162
1 paid off their mortgage. But then there's this a --
2 there's a notification saying that they owe
3 $800,000, or something to that extent.
4 And because they're elderly, they're not as
5 quick on their feet as, you know, most people would
6 be; so they just kind of sit on it, and not being
7 educated in the law.
8 So then, that's that way.
9 But, again, there's a multitude of different
10 ways. But, it's -- yeah, it's unfortunate, but,
11 yeah.
12 SENATOR MURRAY: But I've heard of, like,
13 even online theft, where they don't even talk to
14 you. You just -- you get a notice that, by the way,
15 you're being foreclosed on because you haven't paid
16 your mortgage on this -- this house.
17 How does that happen?
18 MARK ANDERSON: I mean, if -- if people are
19 going to -- it's -- it's really -- I mean, if
20 there's a drain, there's going to be water that goes
21 through it.
22 So, I mean, in this situation, I mean, it's
23 as simple as, if somebody is going to commit a
24 crime, there's nothing preventing them from
25 submitting a fraudulent deed to the clerk's office.
163
1 It's very hard to detect because the, you know,
2 signatures look authentic. Perhaps they forged the
3 notary that was on it.
4 Any number of things could happen.
5 But, I mean, if -- if something does get
6 recorded, then the clerk's office and a title
7 company are going to look at it and say, Well, how
8 are we to know that it's not authentic?
9 The goal I think is --
10 [Simultaneous speaking.]
11 MARK ANDERSON: I'm sorry.
12 CHARLES JOHNSON: No, no, no.
13 MARK ANDERSON: The goal is to, when it is
14 spotted, that there should be severe consequences
15 for it --
16 CHARLES JOHNSON: Right.
17 MARK ANDERSON: -- to deter people from doing
18 these things.
19 But it's, also, from the judiciary and from
20 law enforcement, which I've talked to many times,
21 from the DA's office, the police office, and the
22 courts themselves, is it's really a lack of
23 knowledge about how this actually works and how
24 title is actually transferred, because it's not
25 actually that complicated.
164
1 But it can -- but when you're looking at it,
2 it does. I mean, a deed is sometimes 8 to 15 pages.
3 What am I looking at.
4 SENATOR MURRAY: Right.
5 CHARLES JOHNSON: Just to add on to that:
6 I think the other thing, that goes back to just
7 financial literacy in the community.
8 And I say that because what I notice is that
9 they're targeting -- they're targeting people who
10 are asset rich but cash poor, or they just have
11 100 percent equity.
12 And a lot of communities of color don't
13 recognize and understand how to utilize equity so
14 they can have a home in Brooklyn where there's
15 $3 million in equity. And they don't realize that
16 they could be utilizing that. And they're just --
17 literally, there's people that are just salivating
18 at the mouth to try to approach that.
19 I think another issue is this, too --
20 And I think back to my mom, because my mom
21 just learned how to text not too -- a few years
22 back.
23 MARK ANDERSON: [Indiscernible.]
24 CHARLES JOHNSON: Yeah, you know, it's the
25 first time.
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1 -- but with AI, with all these other things
2 or whatnot, with scamming when it comes to the
3 e-mails and [indiscernible], like, they'll publish
4 and making it seem like it's from a government --
5 governmental agency. But when you actually click on
6 the address, it's some Gmail account. A lot of
7 elderly people, they're not, you know, tech-savvy.
8 And, again, they're taking advantage of that.
9 But I think it goes back to what he was
10 mentioning before about just the education piece,
11 because I don't think our communities actually
12 understand that, okay, well, once you own a home,
13 then you're now susceptible for someone to try to
14 steal from you.
15 They just think, that, hey, I own this home,
16 I paid this off, and that's just what it is.
17 But, again, criminals are going to do what
18 they're going to do. And I think now, with
19 technology advancements, they have, you know,
20 utilized some of those things.
21 SENATOR MURRAY: And the reason I ask, it is
22 complicated.
23 CHARLES JOHNSON: Yes.
24 SENATOR MURRAY: And so when we talk about
25 education, it's, where's the right spot for that
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1 education?
2 To your point, is it:
3 You're about to pay off the loan on your
4 mortgage, you're just about to own it outright.
5 Is that the point where we say, "You need
6 this information," and we send it? Or is it when
7 you're buying the home?
8 Like, when's the sweet spot?
9 CHARLES JOHNSON: I honestly think it's both.
10 I think that you have to start off.
11 And I was just talking to some friends who
12 now own homes, but they didn't realize that there
13 were different tax breaks, things of that nature,
14 until 10 years in.
15 And I think, also, when you're talking about
16 just elderly, you need to -- we have to have
17 community outreach, whether it's governmental or
18 whether we have particular coalitions going out,
19 including NAACP, where we're having these
20 conversations with them, having public hearings in
21 the local communities with them.
22 Hearing stories like the reverend here, you
23 know, so they can actually see this.
24 But I think you have to approach it from two
25 angles, because, yes, you have the older generation
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1 that's being impacted, but then you also have a
2 group of younger folks that don't necessarily
3 understand what -- this could happen to them later
4 on down the road.
5 SENATOR MURRAY: Right.
6 MARK ANDERSON: Now, with that said, you
7 know, if we get out of the forest and we go into the
8 trees, there are some things that I do think that
9 the State could implement that would create a little
10 more transparency in a lot of this process.
11 And so, as an example, and one of your
12 questions was: Well, how does the scheme actually
13 work, let's say, in our class action?
14 It's something that no one would ever detect
15 unless they know exactly what they're looking at.
16 And even if they do know what they're looking at,
17 very few do.
18 And so the problem is, is that there is a
19 situation where there's surplus monies that are
20 being taken at a closing, that no one attends, and
21 it's a bank representative, a referee from the
22 court, and checks just get transferred, and later on
23 we find out what happened.
24 And on that document that summarizes what
25 exactly happened, it looks good. It looks like they
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1 did the right calculations.
2 But when you do the actual math, you find out
3 that every single time, out of 14 to 15 firms that
4 we looked at, they're all doing them wrong.
5 And so in one of the situations, we found out
6 that -- through the reporting of Gothamist and
7 New York Focus, we found out that one -- that the
8 servicers are actually dictating to their attorneys
9 how they should be doing the calculations; not the
10 reverse.
11 Their attorneys should actually be guiding
12 them, and not the other way around.
13 And so one way that I think, and I've, you
14 know, been thinking about this since we first spoke,
15 Senator Myrie, is one way to actually systematize
16 the calculation method would be to actually just
17 create --
18 And I am not on the budget committee or
19 anything else, and I don't understand what it would
20 cost.
21 -- but I think it would be a very simple
22 calculation and a very simple computer program,
23 which is that the court requires them to just input
24 the information into a computer program that
25 actually dictates what actually they get from a
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1 residential foreclosure, because every calculation
2 is the same for a residential foreclosure.
3 Commercial, you get what you signed up for.
4 I mean, everyone knows it's a little more
5 complicated, people are considered to be a little
6 more sophisticated.
7 But if the judiciary actually just said, You
8 know what? Put it into the State calculator, and
9 this is what comes up. That's what you get.
10 And if they end up taking more then that,
11 then they've committed a crime, and then they lied
12 to the court.
13 And it's as simple as that.
14 Now, the law is very simple already, and it
15 has been for over a century, about what the law is
16 that I'm arguing in this class action.
17 It's, just, I've been litigating with banks
18 and servicers and their attorneys for my entire
19 career. And they will make everything seem like
20 everything is just fine. Everything's just fine.
21 And they'll find some judge in some county
22 outside that agrees with them. They'll cite to it
23 in their papers. And once it's adopted, it becomes
24 gospel.
25 CHARLES JOHNSON: Yep.
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1 MARK ANDERSON: And then it will go to the
2 Second Department or the First Department, the
3 Third Department, Fourth Department, maybe someone
4 will agree with them there.
5 And then, all of a sudden, we have a
6 disconnect between the departments.
7 And then, all of a sudden, we have judge- and
8 lawyer-created law.
9 And that's exactly what I'm dealing with
10 right here.
11 And I'm sure you deal with it yourself.
12 CHARLES JOHNSON: Yeah, yeah.
13 SENATOR MURRAY: Okay.
14 MARK ANDERSON: So they will -- my class
15 action, if you look it up, you will -- they will
16 come up with all sorts of creative arguments. But
17 the one thing they do not say is that I'm wrong.
18 SENATOR MURRAY: Right, right.
19 If you have any suggestions, if you could
20 submit them.
21 MARK ANDERSON: So the last page of my
22 remarks, I can read through it if you'd like right
23 now.
24 SENATOR MURRAY: No.
25 MARK ANDERSON: But I do have them on the
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1 back page, and I look forward to any comment.
2 I've practiced in all these areas, and I do
3 have some input that I would love to give you guys;
4 but I obviously don't have the time for it today.
5 But I do appreciate the interest, and I look
6 forward to helping out as best as I can.
7 SENATOR MURRAY: Thank you.
8 SENATOR MYRIE: Thank you.
9 MARK ANDERSON: Just one quick --
10 SENATOR MYRIE: Thank you, Senator Murray.
11 CHARLES JOHNSON: Oh.
12 SENATOR MYRIE: Go ahead.
13 MARK ANDERSON: I would just say, because it
14 ties into the educational thing, but education is a
15 preventative tool.
16 But I do think that if we look at free record
17 alerts and brief administrative holds for clear red
18 flags, I believe that that also helps. It stops,
19 you know, the early fraud -- early fraud detection
20 early, and then also avoids, you know, the expensive
21 litigation pieces.
22 But, again, it's about actually reaching --
23 meeting people where they are and letting them know
24 exactly what's going on.
25 So -- yeah. That's all I want to say.
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1 SENATOR MYRIE: Thank you.
2 Thank you very much.
3 And thank you, Senator Murray.
4 We've been joined by Senator Brisport who has
5 a couple of questions.
6 SENATOR BRISPORT: Thank you, Senator Myrie.
7 And thank you all for being here.
8 To Mr. Johnson from the NAACP, thank you
9 for your testimony on deed theft, an incredible
10 scourge in our communities.
11 And, you know, in my office we have
12 introduced a suite of legislation to build off of a
13 lot of the great work that's been done by
14 Senator Myrie and the AG.
15 I just -- I did notice in your written
16 testimony -- I'm sorry for missing your verbal
17 testimony -- one of your recommendations was to
18 increase funding for HOPP.
19 And I was just curious if the NAACP had put
20 forward a dollar amount that you thought would be
21 good?
22 CHARLES JOHNSON: Not right at this moment.
23 But we can definitely get back to you with a dollar
24 amount. That's not a problem.
25 SENATOR BRISPORT: Okay. The budget is due
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1 April 1st. So --
2 CHARLES JOHNSON: No, no. We can get it to
3 you this week.
4 SENATOR BRISPORT: Thank you.
5 That was it. Thank you.
6 SENATOR MYRIE: Great. Thank you.
7 And I'll just say: This is an issue that
8 I care very deeply about.
9 In anticipation of this hearing, I wrote a
10 similar letter of inquiry, that I had directed to
11 the student loan industry, to a number of law firms
12 that conduct foreclosure proceedings.
13 Most of them ignored and flat-out did not
14 respond.
15 And I did get a response from one particular
16 firm, who referred to me as Senator Mylie [ph.],
17 misspelled the name. And also said --
18 OFF-CAMERA SPEAKER: Can I guess?
19 SENATOR MYRIE: -- and said, on the advice of
20 counsel, that they were going to refuse to answer
21 any questions.
22 Which I think speaks to the condition that we
23 find ourselves in, where regular New Yorkers who do
24 not have State Senate letterhead, who do not chair
25 the Codes Committee, who are not elected to office,
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1 have no shot at getting any accountability if we
2 don't get even a bare response.
3 So thank you for the work that all of you are
4 doing, and continue to do. And we look forward to
5 continuing the engagement.
6 Thank you.
7 MARK ANDERSON: Thank you, Senators.
8 CHARLES JOHNSON: Thank you.
9 SENATOR MYRIE: We will next hear from
10 Mr. Scott Buchanan.
11 Whenever you're ready.
12 SCOTT BUCHANAN: All right. Thank you very
13 much.
14 Chair Myrie and Chair May, and committee
15 members, thank you for the invitation to testify
16 today about areas of fraud concern, especially in
17 the student lending market.
18 I am Scott Buchanan, the executive director
19 of the Student Loan Servicing Alliance, which
20 represent more than 95 percent of all student loan
21 servicing in the country, including New York State.
22 We are the designated customer service
23 operations of private lenders, as well as the
24 federal government who itself originates more than
25 90 percent of all student loans to 40 million
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1 consumers.
2 Given that role, we are on the front lines
3 everyday, often dealing with our impact when fraud
4 is committed.
5 Today we see three main areas of actual fraud
6 that are similar to what you've heard before today,
7 that can and should be the focus of enforcement by
8 the State.
9 The first major area of concern today is
10 schemes to apply for and take out new student loans
11 or refinancing them by using false identities.
12 These scammers apply for and take a loan
13 online with a lender or school using stolen or
14 synthetic borrower information, like SSNs, and then
15 unenroll and leave the school, and then taking the
16 cash and leaving the school, the lender, and the
17 government on the hook.
18 And the borrower's identity who was stolen is
19 left to deal with undoing the harm on credit reports
20 and disputing the loan.
21 Lenders and schools use proprietary
22 strategies to try to identify the fraud before the
23 loan is made. But the fraudsters, too, have become
24 more sophisticated today despite our best efforts.
25 The second area of fraud from the past is
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1 likely to reemerge with some vigor, as Congress
2 recently made material changes to the federal
3 student loan program.
4 This other scheme is offering independent
5 counseling for an up-front fee, or offering things
6 like the ability to lower their payment below what
7 their servicer will offer them, or access to or
8 priority consideration for secret loan forgiveness.
9 All of these are false claims.
10 They then pocket the fee, and often lie to
11 the servicer, to skim part of the payment the
12 borrower thinks that they are making.
13 Months later, the borrower will often
14 discover that the harm has been done in bad credit
15 reporting or increased loan balances.
16 These scammers prey on borrowers when
17 confusion or large change happens in the loan
18 programs, as will occur this year, and are abetted
19 by so-called "borrower advocates" who scare
20 borrowers from talking to their actual loan
21 servicer, the only who can offer any of these
22 loan-forgiveness programs or better repayment
23 options and does not charge borrowers to do so.
24 Great work has been done by the FTC, with the
25 support of my members, to reduce this issue
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1 nationally, but it continues to be a problem.
2 The final area of fraud that should be
3 carefully overseen is deceptive or misleading claims
4 by institutions of education themselves.
5 The vast majority do great work in educating
6 consumers on the realities and risks and costs of
7 getting a post-secondary education or certificate.
8 But some in the past have made promises in marketing
9 materials to induce students to attend, spend their
10 money, and borrow.
11 Often these have been claims of guaranteed
12 employment or specific salary increases that
13 graduates of their program or school will get,
14 knowing full well those claims are unfounded.
15 It is certainly much better today, but we
16 must be vigilant for New Yorker consumers, to try
17 and improve their economic prospects.
18 I know my time is limited, so I'll address
19 what changes can reduce this kind of fraud.
20 Better focused enforcement of existing laws.
21 Today, in New York, all of these activities
22 are illegal, especially under new authority this
23 legislature gave, effective last month, that,
24 essentially, expands UDAP authority.
25 Providing additional resources to the AG and
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1 other agencies to root out these clearly bad actors
2 and enforce the laws on the books is the most
3 effective step you can take today.
4 And while I'm not sure needed, any further
5 legislation really must ensure standards of
6 materiality of consumer impact and intentionality to
7 not drive out good actors; to wit: in my example of
8 counseling services, there are many good nonprofit
9 firms or others who are doing this work today and
10 charging maybe a small fee. And they often can make
11 bona fide mistakes, trying to navigate the
12 labyrinthian system of repayment options created by
13 the federal government.
14 Not making allowance in law or regulation for
15 reasonable standards will likely only make the
16 situation worse, as good-scaled and regulated actors
17 feel for -- fear for fear -- flee for fear, if
18 I could speak, of unintentionally making any error
19 with little to know borrower harm.
20 This will create a vacuum in New York, filled
21 with those who really don't care about compliance
22 anyway and ignore licensing requirements.
23 And by the time you find who they are, they
24 will have vanished.
25 So I urge you really to be thoughtful about
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1 unintentional impacts.
2 You know, I think we want to continue to work
3 with you all on the sort of opportunities here,
4 share stories that we're hearing on the front lines,
5 and continue to work with you on legislation to
6 improve the situation, and make sure we can continue
7 to reduce fraud and harm that's happening in the
8 state of New York.
9 Thank you.
10 And I'm happy to take any questions.
11 SENATOR MYRIE: Thank you.
12 Senator Brisport?
13 SENATOR BRISPORT: Not yet.
14 SENATOR MYRIE: Senator Murray?
15 SENATOR MURRAY: Thank you, Chairman.
16 To be honest, I didn't realize, you brought
17 up the first example, and that is, you know,
18 identity fraud and people stealing from false
19 student loans. I didn't realize it was as big as it
20 is.
21 What percentage would you say that is of
22 this?
23 SCOTT BUCHANAN: I would not characterize it
24 as a huge marketplace. Right?
25 I think it is more disruptive, though,
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1 because it's harder to root out, because when you
2 take out a student loan, for example, most of those
3 loans go into a grace period for a certain period of
4 time.
5 So it can be many months before a consumer
6 would know that a loan had even been taken out on
7 their behalf, as opposed to other credit products
8 that show up relatively instantly, right, sort of,
9 if you pull your credit report or something like
10 that.
11 So I would not characterize it as a huge
12 marketplace, but it is growing, especially as
13 synthetic identity theft continues to expand, as you
14 heard about earlier today.
15 SENATOR MURRAY: And what's the best
16 protection against that?
17 SCOTT BUCHANAN: Yeah, well, I mean, I think,
18 from an average consumer perspective, there's not
19 much you can do up front -- right? -- because, if
20 someone steals your identity and has gotten it,
21 there's not -- I mean, obviously, there are ways to
22 make sure that you reduce the amount of personally
23 identifiable information that's available for you on
24 the Internet.
25 That's difficult to do these days.
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1 But when people get synthetic demographic
2 information or real demographic information, it's
3 hard to do.
4 So I think being vigilant. Monitoring your
5 credit report, monitoring your credit score, that's
6 the one thing you can do.
7 Now, you may not be able to stop it, but you
8 can catch it early.
9 SENATOR MURRAY: Okay.
10 Thank you.
11 SENATOR MYRIE: Thank you.
12 And thank you for your testimony.
13 I think the portion of it directed at some of
14 the ancillary activity that happens outside of
15 legitimate servicers I think is really concerning,
16 and I think it's important for us to keep our eye on
17 the ball there.
18 I just want some clarity because, as
19 I mentioned in my opening, when I reached out to
20 some of the servicers, they -- many of them referred
21 me to MOHELA, and then MOHELA referred us to you.
22 And so I just want to clarify that you do
23 represent MOHELA?
24 SCOTT BUCHANAN: Yeah -- yes. MOHELA is what
25 [simultaneous speaking] --
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1 SENATOR MYRIE: MOHELA. I'm sorry. Okay.
2 SCOTT BUCHANAN: Yes, they're a member of my
3 trade association.
4 SENATOR MYRIE: And MOHELA suggested to me in
5 the letter, having not answered any of the
6 questions, that we should go through you.
7 And so I guess my question to you is: On
8 issues of previous penalties on any of the actions
9 that were brought to light by litigation or any of
10 the CFPB actions, whether MOHELA and other servicers
11 would be willing to answer this committee's
12 questions?
13 SCOTT BUCHANAN: Well, I think one of the
14 challenges, especially for MOHELA, is that they are
15 a federal contractor. Right?
16 So the bulk of the student loan servicing
17 work they do today is with the department of
18 education data. And so they are under contractual
19 obligations not to share that with third parties.
20 So I think there's an opportunity, though,
21 to, you know, perhaps open a line of dialogue with
22 the department of education whose data it is, so we
23 can share more of what the oversight is that is
24 conducted pretty regularly by, as you highlight, not
25 only the department of education, the CFPB, state
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1 regulators, DEEP. New York DFS oversees and
2 regulates and licenses and examines servicers like
3 MOHELA.
4 SENATOR MYRIE: Okay. So we should go
5 through the department of education and not the
6 servicers?
7 SCOTT BUCHANAN: So I -- on the federal
8 student loan program, we are contractually obligated
9 to refer you to the department of education. So...
10 SENATOR MYRIE: Okay. You know, I just
11 wanted to be clear, because we have, of course, the
12 responsibility to New Yorkers, and those are our
13 constituents, and those are the ones that are having
14 to shoulder the burden of the student loan payments.
15 And when there are issues, when someone comes
16 into my office, I often don't have the luxury of
17 saying, well, this is really not my thing, and you
18 can go speak to someone else.
19 And so we just have to get, I think, absolute
20 clarity on whether there's going to be any sort of
21 dialogue with the servicer themselves who are under
22 contract, as you mentioned, by way of taxpayer
23 dollar, to service these loans.
24 And if you are, as I understand it, to the
25 tune of billions of taxpayer dollars, have the
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1 contract to service the loans, and are not willing
2 to answer those questions to that public, but,
3 instead, refer us to the department of education,
4 I think a lot of us would find that problematic.
5 And when it's time to come collect that loan
6 payment, there isn't a conversation about, well, you
7 should go here or you should go there, you should go
8 to another place.
9 The demand is, pay the amount.
10 And I think that that should work in two
11 directions if we have questions about what those
12 service practices are.
13 But I do appreciate you coming to testify
14 today.
15 SCOTT BUCHANAN: Yeah, and if I might just
16 say, that I look forward to working with you and
17 your staff as well.
18 We do annual reports to DFS today that has a
19 ton of data about, sort of, performance standards,
20 delinquency, what interaction looks like with
21 borrowers, as well as the examinations that the
22 State does to actually go in and verify that what
23 we're doing, and from a customer service level,
24 whether that's looking at call reportings, checking
25 sort of, you know, audit trails, all that sort of
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1 stuff.
2 I know DFS has a lot of that data today. So
3 maybe there's an opportunity for us to work
4 together, to get them to share some of that with
5 you.
6 SENATOR MYRIE: Thank you.
7 Senator Brisport.
8 SENATOR BRISPORT: [Inaudible.]
9 SENATOR MYRIE: Thank you very much for your
10 patience and your testimony today.
11 SCOTT BUCHANAN: Thank you.
12 We are next going to hear from Winston and
13 Andy if they are here.
14 Whenever you're ready.
15 WINSTON BERKMAN-BREEN: All right. Can you
16 hear me.
17 SENATOR MYRIE: (Nods head.)
18 WINSTON BERKMAN-BREEN: All right, great.
19 Thank you, Chair Myrie, members of the
20 committee.
21 My name is Winston Berkman-Breen, and I'm the
22 legal director of Protect Borrowers, a nonprofit
23 policy organization focused on household credit and
24 debt.
25 Previously I was a financial regulator at
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1 DFS, where I was the student loan ombudsman and the
2 director of consumer advocacy, and was legal
3 services attorney before that in New York and
4 Long Island.
5 I've submitted more detailed written
6 testimony, and so I will focus my time today on
7 conveying a few important points.
8 Specifically, I want to stress that, for our
9 existing consumer protection laws to have any
10 meaningful effect, there has to be meaningful
11 enforcement which requires a strong private right of
12 action alongside government enforcement.
13 And I will say, a little off-script, most of
14 what I've heard today would be addressed by a strong
15 private right of action: crypto, deed theft,
16 fintech, student loan servicing, et cetera.
17 Back to script.
18 So, first, I want to acknowledge the abuses
19 that New Yorkers are facing today.
20 Just a few examples from our legal services
21 colleagues:
22 A company persuaded a 73-year-old social
23 security benefit recipient to charge $22,000 on her
24 credit card for a bogus entrepreneurial workshop;
25 A fraudulent debt-settlement company
187
1 charged -- or, pressured a 79-year-old woman to stop
2 paying her credit cards and to mail them her
3 payments instead;
4 A mortgage loan servicer charged an
5 unauthorized convenience fee for homeowners to pay
6 their mortgage online, rather than by mail;
7 And, again, as we've heard, deed theft
8 remains a huge issue in the state.
9 With sky-high prices and stagnant wages,
10 households across the state, literally, cannot
11 afford to be price-gouged or taken advantage of like
12 this. And with the right consumer protection law,
13 they wouldn't have to be.
14 Unfortunately, New York's General Consumer
15 Protection Law, GBL 349, is out of sync with the
16 majority of the country.
17 The bedrock of consumer protection in this
18 country is the prohibition against unfair,
19 deceptive, or abusive acts and practices, called
20 "UDAPs."
21 My written testimony provides more
22 information about UDAP and its well-established
23 history in the country, as New York's UDAP, GBL 349,
24 is one of the weakest in the country because it does
25 not completely prohibit unfair, deceptive, or
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1 abusive conduct. Until last year, it didn't
2 prohibit unfair or abusive conduct at all.
3 You may recall the FAIR Act which was enacted
4 last year and took effect a few weeks ago, and
5 increased the attorney general's authority to
6 prosecute unfair or abusive practices. It did not,
7 however, extend those authorities to the existing
8 private right of action which still only applies to
9 deception.
10 For this reason, New York's law is weaker
11 than 42 other jurisdictions which allows for --
12 these other jurisdictions allow for private
13 enforcement of all of their rights.
14 As a New Yorker, I feel lucky to have a
15 strong prosecutor in Attorney General James, who we
16 heard from earlier. But her office cannot address
17 every wrong that every New Yorker experiences
18 everywhere in the state, nor should that be the
19 objective of government enforcement.
20 The Attorney General may be the people's
21 lawyer, but she cannot be every person's lawyer.
22 The UDAP standard is not new. But without
23 private enforcement, there cannot be meaningful
24 accountability.
25 For this reason, industry opposition to a
189
1 private right of action should be met with great
2 skepticism.
3 Another point I'd like to make is that
4 improving New York's law is necessary in light of
5 what we're seeing at the federal level and their
6 complete abdication of consumer protection.
7 The FTC and CFPB are the primary agencies
8 responsible for enforcing federal UDAPs, but neither
9 of them are doing that today.
10 For example: The Trump Administration is
11 gutting the CFPB. They fired nearly all the staff,
12 terminated most of their enforcement actions, and
13 stopped complying with at least 87 statutory
14 responsibilities.
15 My organization estimates that this has cost
16 households over $18 billion already.
17 This federal abdication is also affecting
18 New Yorkers.
19 Based on analysis of CFPB complaint data that
20 we've done, complaints filed by New Yorkers nearly
21 doubled from 2024 to '25, from 180,000 complaints to
22 over 300,000.
23 The largest percent increases were in the
24 Fingers Lakes, Mohawk Valley, Capital Region, and
25 Western New York, with the largest absolute increase
190
1 in New York City.
2 At the same time that the number of
3 complaints coming from New Yorkers has increased by
4 nearly 70 percent, the number of complaints closed
5 with consumer relief has decreased by 10 percentage
6 points, from 51 percent to 41 percent of closed
7 complaints.
8 Put differently, while the number of
9 complaints is increasing, the relief is decreasing.
10 It's clear that New Yorkers cannot count on
11 the federal government to help them.
12 I'll conclude by noting that enacting a
13 stronger UDAP now is also a sound investment in
14 New York's future.
15 If the recent years have showed us anything,
16 it's that we cannot say with any certainty what the
17 next few years will bring.
18 A strong UDAP has the flexibility to address
19 whatever issue may arise; whether that's price
20 gouging during a future crisis or surveillance by
21 tech and AI firms.
22 There's no need to run back to the
23 legislature every time a new harm emerges.
24 Let me make clear: That unfair, deceptive,
25 or abusive contact is never permitted in the state.
191
1 Thank you.
2 ANDY MORRISON: Okay. Thank you.
3 Good afternoon, and thank you Senators Myrie,
4 May, Murray, and Brisport.
5 I'm Andy Morrison. I'm the associate
6 director of New Economy Project, a New York
7 City-based economic justice organization.
8 We are working with community groups across
9 the city and state to build an economy that works
10 for all, based on cooperation, racial justice,
11 neighborhood equity, and ecological sustainability.
12 My testimony today focuses on financial
13 technology, or "fintech," schemes that are
14 structured to evade New York's longstanding usury
15 and consumer protection laws.
16 As the committee members know, payday lending
17 is categorically illegal in New York State.
18 Our civil usury law caps interest at
19 16 percent, and it's a felony to charge more than
20 25 percent interest on a loan; yet fintech companies
21 operating under the label of "earned-wage access"
22 have -- are conducting business right here in our
23 state.
24 They're making loans with average interest
25 rates -- average interest rates -- that exceed
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1 330 percent APR.
2 We estimate that this industry has extracted
3 more than half a billion dollars from working
4 New Yorkers' paychecks since 2019.
5 That is, effectively, forcing workers to pay
6 to get paid.
7 So how does an industry that charges
8 effective interest rates so far above the usury cap
9 that we set as a matter of public policy in this
10 state operate here?
11 The answer is, that fintech companies falsely
12 claim that their loans -- excuse me -- that their
13 products are not loans in order to circumvent our
14 robust and longstanding consumer protection laws.
15 How do they do this?
16 Well, they aggressively market their products
17 on social media, in workplace break rooms, even on
18 the New York City subway, only -- and that they lure
19 New Yorkers in who are struggling to make ends meet,
20 only to impose high and hidden fees that trap them
21 in cycles of repeat borrowing. These are expedited
22 transfer fees, subscription charges, and even tips.
23 They feed user data into proprietary AI
24 underwriting systems so that they can monitor
25 workers' accounts, so that they can ensure that they
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1 get paid as soon as that worker gets paid.
2 And that -- those predictions are often
3 inaccurate, and that leads to cascading financial
4 harm, like overdraft fees.
5 At every step, EWA companies design their
6 products to evade enforcement of laws that prohibit
7 high-cost lending.
8 The industry seeks to nullify state usury
9 protections by claiming its products are not loans,
10 an argument that relies on strained interpretations
11 of legal concepts, such as recourse.
12 This is regulatory arbitrage, designing a
13 business model to exploit loopholes and sidestep
14 laws meant to bar high-cost lending.
15 It's targeting working people and communities
16 of color.
17 The government accountability office found
18 that these apps are mostly used by people earning
19 less than $50,000 a year.
20 The Community Service Society of New York did
21 a survey, and found that New Yorkers under 30 are
22 using these payday loan apps frequently, or all the
23 time in many cases.
24 Black and Latino workers were significantly
25 more likely to report frequent use than White
194
1 respondents, underscoring the industry's
2 disproportionate impact on communities of color.
3 So New York bans payday lending for a reason.
4 Our usury laws reflect longstanding public
5 policy to protect New Yorkers from exploitative
6 high-cost loans that strip wealth from communities
7 and trap people in cycles of debt.
8 Fortunately, the attorney general has taken
9 enforcement action against two leading EWA
10 companies, finding: Gross and systematic
11 misconduct. APR's as high as 750 percent. People
12 borrowing multiple times a week from these apps.
13 One worker took out hundreds of advances over
14 a two-year period, paying nearly $1400 in fees.
15 This is part of the business model.
16 And so what we are asking for this --
17 demanding, really, this session is that the Governor
18 and the legislature step up and protect working
19 people from widespread financial predation and
20 wealth extraction.
21 We can't rely on enforcement alone.
22 It's important what the attorney general is
23 doing, but the legislature needs to step up. And it
24 can do that by passing the Stop Taking Our Pay Act
25 sponsored by Senator Brouk. That's 8939. And that
195
1 would clarify existing law that EWA advances are
2 loans, and that New York's usury laws and the
3 interest rate caps apply to this industry.
4 So thank you very much for inviting us to
5 testify today.
6 SENATOR MYRIE: Thank you, both.
7 Senator May.
8 SENATOR MAY: Thank you.
9 Thank you for your testimony.
10 I wanted to ask -- sorry --
11 Mr. Berkman-Breen, a question.
12 I really appreciate the data in your written
13 testimony that shows how the -- effectively, the
14 closure of the CFPB is affecting New York.
15 And I'm wondering if you have an analysis of
16 why, basically, my district, or the Finger Lakes,
17 Mohawk Valley, Central New York, would be
18 dramatically higher than other areas of state?
19 Like, what would be driving these regional
20 differences, in your opinion?
21 WINSTON BERKMAN-BREEN: Thank you, Senator,
22 for that question.
23 I should follow up and say, too, that happy
24 to follow up with the committee or any member on
25 district-specific. I just need your ZIP Codes, and
196
1 then we can go from there.
2 You know, it's hard to say, because there's a
3 lot of factors that go into our lives. You know, we
4 sometimes bucket these things into different terms
5 or committees.
6 But, ultimately, we're all living as sort of
7 holistic people who have different experiences.
8 And it could be anything from fewer cops on
9 the beat. Right? The federal government isn't
10 doing its job. And maybe your region doesn't have
11 as strong of a local consumer protection.
12 I'm a New York City resident. The department
13 of consumer and worker protections is phenomenal.
14 We are so lucky to have them.
15 We also have a very holistic 311 system in
16 New York City.
17 So that, you know, local resources filling
18 the gap can be one a reason.
19 There could also be larger macroeconomic
20 considerations. Maybe your region has had more
21 layoffs. People are just having, you know, tighter
22 budgets in their household than other parts of the
23 state.
24 So it really varies, and it's going to vary
25 probably between regions, why they're experiencing
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1 it. I don't think there's any one.
2 But I do think, having just said that, there
3 are blanket things the State can do.
4 I completely endorse my colleague Andy's
5 testimony about these products that -- like EWA,
6 like buy now, pay later, which the State has already
7 regulated -- and thank you for that -- that go in
8 and take advantage of them. I mean, I did this, so
9 can industry. Right?
10 And so they can go in and say, Hey, this part
11 of the state, this part of city, people are hurting.
12 Let's go offer them free money and then charge them
13 for it.
14 So there's -- it's hard to diagnose the
15 cause, but I think we can still arrive at some
16 solutions.
17 SENATOR MAY: Okay, thank you.
18 And I just have to ask about this line on
19 page 6, where it says that the exam -- "CFPB is
20 making its examiners make a humility pledge" --
21 WINSTON BERKMAN-BREEN: Yes.
22 SENATOR MAY: -- "to each company before
23 commencing an exam."
24 Can you just tell me what that is?
25 WINSTON BERKMAN-BREEN: Yes. So that is the
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1 current Trump Administration, CFPB, led by
2 Russ Vought, again, which is trying to kill itself
3 off, like very explicitly. I'm not hyperbolizing.
4 The exams -- just so we're on the same page,
5 and DFS does exams as well; as does DCWP, the local
6 and New York City equivalent: An exam is just an
7 audit for compliance with financial laws. Whether
8 that's a sort of safety and soundness prudential,
9 anti-money laundering, or whether that's a sort of
10 consumer protection market conduct, "how are you
11 treating people?" compliance.
12 But it's just compliance with state, federal,
13 and local laws, depending on the jurisdiction.
14 So an examiner will go on-site, look at books
15 and records. We heard from Scott Buchanan, maybe
16 audit some calls, et cetera.
17 And, normally, they do that, and maybe that
18 would be force of being a government regulator. You
19 know, they -- I don't want to be crude, but they say
20 "jump." Regulated and [indiscernible] are supposed
21 say, "how high?"
22 And there's is a good-faith relationship
23 there. But there can -- there has to be candor; you
24 have to open your books and records.
25 We've seen a very robust -- under the
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1 Rohit Chopra CFPBM [sic], the President Biden's
2 Administration, a very robust, not inappropriately
3 so, but a robust consumer protection agency out of
4 the CFPB.
5 The response to that, in addition to rolling
6 back, is that now examiners, when they go on-site,
7 have to, literally, read a one-page humility pledge
8 out loud to the industry that they're about to
9 examine, which talks --
10 I could have appended it, and I should have.
11 But I'll follow up with you, and send it as a link.
12 -- which, as the title suggests, basically
13 says, you know, I am not here to overstep. And, you
14 know, I'm not going to be aggressive like our
15 predecessors.
16 And it is very much in the, you know, ilk of
17 what we're seeing under this administration, really
18 demonizing previous appropriate law enforcement; but
19 also just, literally, putting industry up on a
20 pedestal when it should be the reverse relationship.
21 SENATOR MAY: Okay. Unbelievable.
22 WINSTON BERKMAN-BREEN: Yeah, you can't
23 really make this stuff up.
24 SENATOR MAY: Yeah, right.
25 And, Mr. Morrison, just following up to --
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1 looking at the data in the other testimony, I'm
2 wondering about the payday loans and some of the
3 oversteps that you talked about.
4 Do you have regional data on that?
5 Is that something that -- where we can find
6 out how this is affecting my district or my region
7 of the state?
8 ANDY MORRISON: Definitely. It's linked in
9 an end note of our testimony.
10 We put out a report last year called
11 "$500 million and counting." I think it's the
12 second end note.
13 And if you take a look at that report, we
14 broke out the wealth extraction that these companies
15 are engaging in by region. I can't remember the
16 regions off the top of my head, but we looked across
17 the state, and found -- yeah, that -- you know, all
18 over state we have a deepening affordability crisis.
19 So where people are living paycheck to
20 paycheck, they're looking for solutions. And these
21 companies are preying on that sort of vulnerability.
22 And so we're seeing it across the state, and
23 it is draining money right out of people's
24 paychecks.
25 SENATOR MAY: Thank you.
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1 Yeah, I mean, I chair the Commission on Rural
2 Resources, and I represent a district that has the
3 city of Syracuse. But it has a lot of rural
4 communities in it as well.
5 And what we know about smaller municipalities
6 is they don't have the resources to fight back
7 against a lot of these things, and so the people
8 feel helpless, too.
9 So the more that we have kind of centralized
10 information, and potentially centralized solutions,
11 the better for their -- our consumers.
12 ANDY MORRISON: Oh, sure.
13 I mean, to your point, regular working
14 New Yorkers are outmatched by an industry that's
15 backed by Silicon Valley venture capitalists.
16 It's -- the industry is increasingly getting
17 investment from Wall Street, banks, and investment
18 houses. And they're spending huge amounts of sums
19 on lobbying and campaign contributions, to normalize
20 and entrench this business model.
21 And that is very concerning to us because,
22 unless this legislature and Governor act, this can
23 become just a normal part of every day life for
24 working people.
25 And we can't accept that in New York, where
202
1 people have to pay to just get the paychecks that
2 they've earned through their labor.
3 SENATOR MAY: Thank you.
4 SENATOR MYRIE: Thank you.
5 Senator Brisport?
6 SENATOR BRISPORT: Thank you, Mr. Chair.
7 Thank you both for being here today, your
8 testimony.
9 Mr. Berkman-Breen, great to see you made it
10 up here safely from Brooklyn.
11 I just --
12 WINSTON BERKMAN-BREEN: Senator, thank you.
13 SENATOR BRISPORT: Of course.
14 -- I had a few questions.
15 Looking at some of your recommendations for
16 policy, I was just -- just a general-question
17 curious: If you have identified existing
18 legislation you wanted to uplift, or if you figured
19 these policies would best be served by a new
20 legislation?
21 WINSTON BERKMAN-BREEN: Thank you for the
22 question, Senator.
23 I think there will be new legislation
24 introduced, and that's in large part because
25 existing legislation, such as the Community and
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1 Small Business Protection Act (CSBPA), is somewhat
2 mooted because the FAIR Act did pass. And so
3 there's contradictory parts of what that bill would
4 have done, that's already been accomplished, and
5 what still needs to be done.
6 So I do think that, as a single vehicle or a
7 sub-bill, there needs to be new legislation, even if
8 it's just taking piecemeal parts of existing
9 legislation and reentering them.
10 SENATOR BRISPORT: Amazing. Thank you.
11 And then I know you said New York is well
12 behind a lot of the country on these issues.
13 Do you know if there's a state-by-state
14 breakdown anywhere of what practices are being used
15 in other states or not?
16 WINSTON BERKMAN-BREEN: There is.
17 So one of the footnotes is to the National
18 Consumer Law Center's "50 State Guide."
19 But, also, I'll be able to follow up with the
20 committee with my colleagues from -- Immobilization
21 for Justice created a very simple 50-state color
22 graph. And you see the 8 states in red, of which
23 we're one, and you see the 42 other states in green
24 where there are stronger laws.
25 SENATOR BRISPORT: Thank you so much.
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1 WINSTON BERKMAN-BREEN: Sure.
2 SENATOR MYRIE: Senator Murray.
3 SENATOR MURRAY: Thank you, Chairman.
4 Thank you both for being here.
5 And, Mr. Berkman-Breen, you had mentioned --
6 well, let's say this: We can put the laws in place,
7 we can even get the enforcement in place. But if
8 there is no bite to it, if there is no punishment to
9 it.
10 I know there are some that believe that
11 punishment is not a deterrent.
12 I disagree, I think it is. I think most
13 agree that it is.
14 I'm reading your testimony.
15 It says, "Finally, New York's law has
16 severely outdated damages provisions. The current
17 statutory damages are $50, which is meaningless
18 deterrent for bad actors."
19 You even went on to say, "New York's UDAP law
20 is" -- "basically, it's toothless even with some of
21 the improvements that were made."
22 So how do we step it up?
23 I mean, you know, is punishment, is the
24 actual punishment, is that lacking? And if so, how
25 much; I mean, how much should it be?
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1 You mentioned the $50, what should it be?
2 WINSTON BERKMAN-BREEN: Right.
3 So in recent legislation, we proposed $2,000.
4 I think, candidly, anywhere in the one to
5 two thousand dollars, and this, again, where there
6 is a finding of the legality. Right? This is not
7 the threat of. This is a judge that's made a
8 determination that someone broke the law. And per
9 violation, there should be a meaningful penalty.
10 You can step it up for protected classes as
11 we have often done. If it's a senior citizen, if
12 it's a combat veteran or their family or a service
13 member, et cetera.
14 There's plenty of, you know, trebling you can
15 do there.
16 But I think it's meaningful penalties --
17 right? -- in addition to actual damages. Make the
18 person whole, and then add a deterrent factor on top
19 of it.
20 But then, also, and I don't want to overlook
21 my main point, which is, this needs to be privately
22 doable. Right?
23 We have the private deception component now.
24 But we know that's been failing us because it's been
25 failing us for the last 50 years.
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1 The whole point of the FAIR Act was to get
2 everyone on board with the tools we need. And it
3 is, again, a necessary but insufficient fix that
4 we've given to the Attorney General because her
5 office, we even heard from, and there's testimony,
6 is doing such great work. We're so lucky to live in
7 this state with her at the helm, the department of
8 law.
9 But we need, as the legislature recognized in
10 1980s when it added a private right of action to a
11 law that did not have one, [indiscernible], did not
12 start with a private right of action, and you all
13 added it in, your predecessors, that you need to
14 have that private partnership across the state.
15 In parts of the state where there are --
16 I mean, I work with attorneys in the Syracuse area.
17 They are there. This is not a sort of, you know, if
18 you build it, they won't come. If you build it,
19 this will get used, but the economics have to make
20 sense for it.
21 SENATOR MURRAY: Okay. Thank you.
22 SENATOR MYRIE: Thank you, Senator Murray.
23 And thank you again, to Winston and Andy, for
24 your testimony. Thank you for your patience, for
25 waiting, and we look forward to continuing to
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1 engage.
2 Thank you.
3 WINSTON BERKMAN-BREEN: Thank you.
4 ANDY MORRISON: Thank you all.
5 SENATOR MYRIE: And our last panel for the
6 day, and we thank them for their patience, Emma and
7 Christopher, who are making their way down.
8 EMMA KREYCHE: Shall I jump right in?
9 SENATOR MYRIE: (Nods head.)
10 EMMA KREYCHE: First of all, thank you for
11 having me today.
12 My name is Emma Kreyche. I'm the director of
13 advocacy, outreach, and education at the Worker
14 Justice Center of New York. We are a legal services
15 and advocacy organization serving low-wage workers
16 across New York State, with a primary focus on
17 immigrant workers.
18 So the people we serve include farm workers,
19 day laborers, hospitality industry workers, domestic
20 workers, and many others who labor in industry where
21 wage theft and other forms of labor abuse are,
22 unfortunately, quite widespread.
23 The crime of wage theft takes many forms.
24 And exploitative employers can get remarkably
25 creative with their schemes to defraud employers
208
1 of -- employees of their pay.
2 So we've seen it all: Paying workers off the
3 books to avoid paying the proper overtime rate.
4 Unlawful deductions. Misclassification of workers.
5 Requiring people to perform preparations before they
6 clock in. It kind of runs the gamut; the list goes
7 on and on.
8 It's really hard to overestimate or
9 overstate -- I'm sorry.
10 It's hard to overstate the scale of wage
11 theft that occurs routinely in our communities or
12 its devastating impact on working people.
13 Estimates of stolen wages and benefits range
14 from 1 billion to upwards of 3 billion dollars
15 annually in New York State, with the DOL only able
16 to recover a very tiny fraction of that sum, as
17 little as 1 percent as we heard earlier today.
18 We're talking about billions of dollars each
19 year that workers can't use to pay their rent or
20 feed their families at a time when the rising cost
21 of living has already far outpaced wage increases.
22 One of the reasons it's difficult to get
23 precise data on wage theft is because so many cases
24 go unreported due to victims' well-founded fear of
25 retaliation. And this is particularly true of many
209
1 immigrant workers who fear that any sort of
2 complaint against their employer could prompt a call
3 to ICE.
4 We've even been contacted about suspected
5 schemes involving employers purposely contracting
6 immigrant workers, and then reporting them to
7 immigration authorities to avoid payment of wages.
8 In most cases, however, I will say the
9 implied threat of possible immigration consequences
10 is sufficient to prevent workers from coming
11 forward. We receive so many calls that never result
12 in official complaints because workers conclude that
13 the risk is simply too great when weighed against
14 the likelihood of recovering their stolen wages.
15 And unscrupulous employers are making the
16 same calculation: Building wage theft into their
17 business model as a routine practice, thereby
18 gaining a competitive advantage over law-abiding
19 employers.
20 And wage theft, of course, is not a new
21 problem. And as lawmakers, some of you have of
22 course sought to address this crisis through the
23 legislative process. You know, we have the Wage
24 Theft Prevention Act in 2011; amendments to the
25 penal code to allow criminal prosecution for both
210
1 wage theft and immigration-related threats; and
2 then, more recently, the DOL's expanded authority to
3 collect on judgments.
4 So these are all steps in the right
5 direction. But good lawmaking does not
6 automatically translate into effective enforcement.
7 Criminal prosecution of wage theft is
8 relatively rare, especially outside of New York City
9 where we work.
10 Meanwhile, DOL's capacity for civil
11 enforcement is woefully insufficient due to chronic
12 underfunding and well-documented staffing
13 challenges, with a federal government that has
14 drastically scaled back worker protections, and
15 continues to escalate attacks on immigrant
16 communities.
17 New York absolutely must do better.
18 The Empire Worker Protection Act is a
19 necessary part of the solution to New York's ongoing
20 wage theft crisis. Modeled after a successful
21 California law that's been on the books for over
22 two decades, the Empire Act would expand public
23 enforcement of the labor law by creating a mechanism
24 that allows workers, whistleblowers, and labor
25 unions to bring claims on behalf of the State only
211
1 if and when the department of labor and the office
2 of attorney general declined to investigate the
3 matter.
4 Empire actions would allow for recovery of
5 civil penalties, generating a projected $211 million
6 annually for the State to reinvest in public
7 enforcement, compared with the $2.2 million that was
8 stated earlier as the total penalties collected last
9 year. This would enable the DOL to hire more staff,
10 raise salaries for investigators, and more
11 effectively combat wage theft.
12 All of this has borne out in California under
13 the PAGA law.
14 The whistleblower component of Empire is
15 particularly important for protecting vulnerable
16 immigrant workers, as it would allow actions to be
17 brought without naming the workers affected by the
18 violations in the complaint.
19 And just before concluding, I would like to
20 acknowledge that Governor Hochul has included
21 funding in her budget for district attorneys in
22 rural communities to take on new criminal wage theft
23 investigations.
24 And while this initiative may be well
25 intended, we know from experience that most
212
1 vulnerable workers in New York's rural communities
2 simply do not feel safe coming forward to law
3 enforcement officials in their regions.
4 Without clear prohibitions on the collusion
5 of local enforcement agencies with federal
6 immigration authorities, immigrant workers are
7 unlikely to come forward to report the crime of wage
8 theft.
9 And this is just one of the many reasons why
10 criminal prosecution of wage theft is just not a
11 practical way to fill that gap in enforcement.
12 And while there's a place for law enforcement
13 in combating wage theft, strengthening civil
14 enforcement, and properly resourcing the DOL by
15 passing the Empire Act will have a far greater
16 impact.
17 Thank you.
18 CHRISTOPHER MARLBOROUGH: I want to thank the
19 Senators for inviting me.
20 My name is Chris Marlborough. I am a board
21 member of NELA New York, the National Employment
22 Lawyers Association's New York affiliate.
23 I am a practicing attorney, with -- where
24 I represent low-wage workers against white-collar
25 wage thieves. And I want to tell you a little bit
213
1 more about the scope of the problems and things that
2 might not be -- every legislator may not be aware of
3 as to what workers are dealing with; not only how
4 they're getting ripped off of 3 billion -- up to
5 $3 billion a year in the state of New York alone,
6 but also how the deck is stacked against these
7 workers from the day they start working, in many,
8 many circumstances.
9 To start with, I will tell you that there is
10 several categories of wage theft, but one of the
11 biggest ones is independent contractor fraud, where
12 people are totally misclassified as an independent
13 contractor. Nothing independent about what they do
14 whatsoever.
15 You could be sitting in an office all day;
16 you could be a cheerleader -- right? -- who is lined
17 are up to move your fingers in unison with everybody
18 else, nothing independent about you, and they'll say
19 you're an independent contractor, and they'll say
20 you're not entitled to protections in the labor law,
21 and they'll say you're not entitled to contributions
22 to unemployment insurance, contributions to workers'
23 compensation, social security contributions from the
24 employer.
25 There are companies that will sell a package
214
1 of how to make you cut your labor costs by
2 30 percent by reclassifying your actual employees as
3 independent contractors. And those middlemen will
4 often stay involved during the course of
5 litigation -- right? -- to provide those services,
6 when, eventually, those people get sued.
7 And let me tell you some ways that employers
8 will stack the deck against workers even before they
9 start.
10 They will start in the independent contractor
11 case with an independent contractor agreement. Oh,
12 it's not an employment agreement; it's an
13 independent contractor agreement. But in that
14 agreement it will say things, like:
15 You can only bring your case in arbitration.
16 You cannot -- you waive your right to bring your
17 case in a court of law;
18 You can -- must waive any multiple-plaintiff
19 actions. So you can't bring in your case in court
20 and you can't bring a class-action effectively in
21 state court, or three plaintiffs have to bring three
22 separate arbitrations together in the arbitration
23 proceeding;
24 And you can be required to waive your statute
25 of limitations, from six years under the New York
215
1 labor law, where New York labor has a great statute
2 of limitations. Very few states can compete with
3 that;
4 But as a condition of your employment, you
5 can't start working here until you sign this. And
6 even if you don't sign it, the fact that you're
7 working here says that you consented enough for us
8 to say that this can be held against you;
9 Six years, to six months, statute of
10 limitations, losing a huge amount, more than
11 90 percent of your potential damages.
12 And courts will say those are enforceable.
13 So those issues come up both in the
14 independent contractor misclassification and in
15 standard wage theft cases, where people are subject
16 to forced arbitration class-action waivers in --
17 more than half of New York workers are subject to
18 that. And it disproportionately affects minorities
19 and women, the largest two demographic groups
20 affected by these agreements.
21 And when we're dealing with this, you know,
22 we have a concept that, you know, the labor law will
23 favor workers. But they don't look at it in the
24 context of the labor law. They look at it in the
25 context of contract law; and, look, you agreed to
216
1 this contract.
2 And it doesn't matter that you can't speak
3 English or read the contract that's written in
4 English, or that you didn't understand the legalese
5 of the contract. Right?
6 None of that matters once you get on to the
7 concept of following the contract laws.
8 And who's writing these laws?
9 The wage-theft lawyers are writing these
10 agreements to make them -- to enable employers to
11 get away with this -- right? -- to -- particularly
12 in the context of misclassification, where they know
13 this is a misclassification case.
14 The only thing they don't know is if -- the
15 only thing that they are worried about, not that
16 they're doing something illegal, but not getting
17 caught.
18 So the department of labor can't handle the
19 number of cases here. Independent contractor cases
20 are very difficult to prove because there's many,
21 many factors to an independent contractor
22 misclassification. No matter how obvious it is, you
23 still got to go through all of those factors.
24 Right? A lot more work for the department of labor.
25 Maybe they'll just take the guy who doesn't get paid
217
1 for his overtime.
2 And I will end there, but there is a lot more
3 to tell you about the subject, and I'm happy to
4 speak with any of you individually on this.
5 SENATOR MYRIE: Thank you very much, and
6 thank you both for your testimony.
7 Senator May.
8 SENATOR MAY: Thank you.
9 I wanted to follow up on the forced
10 arbitration piece.
11 CHRISTOPHER MARLBOROUGH: Please do.
12 SENATOR MAY: There is a bill in my committee
13 that's just a sunshine bill, basically, that we need
14 to know how arbitrators -- how the decisions come
15 about, because there's a lot of evidence that the
16 arbitration companies are associated with a lot of
17 the companies that are -- they're arbitrating about,
18 and they tend to decide in favor of the corporate
19 side and against the consumers or the workers. And
20 nobody knows who they're working for or how -- how
21 the -- what the outcomes are. They may, you know,
22 99.9 percent of the time be deciding in favor of the
23 big guys.
24 And so I'm just wondering if you have
25 proposals for how to make that whole process more
218
1 fair and more transparent, so that we can -- or are
2 you aware of this bill and do you support that bill?
3 CHRISTOPHER MARLBOROUGH: I'm not aware of
4 the particular bill you're talking about.
5 I do know that there -- that outcomes in
6 arbitration are much less favorable than outcomes in
7 court.
8 I also am aware of a lot of the barriers to,
9 once you get into that arbitration world, you're no
10 longer in a courtroom world.
11 So just as you want to have statistics, you
12 know, I would like that, when a wage thief, when
13 someone misclassifies -- 12 employers who bring
14 12 arbitrations and get 12 separate rulings against
15 them because their misclassification is so obvious,
16 that information is not -- is private. That
17 information is not shared. You don't have any
18 precedential value to say, Look, this guy just did
19 this to 12 different people. And now, look, he's
20 doing it to Number 13.
21 I want to use that evidence, but you don't
22 are have access to that evidence because it's a
23 private proceeding, unlike a case in court.
24 I will also add that some issues -- some ways
25 to work -- deal with the arbitration issue is the
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1 Empire Bill that Emma just discussed. Those private
2 attorney general actions are not subject to
3 arbitration or class-action waivers because they --
4 you're taking on the shoes of the attorney general
5 who is also not subject to that. That's agreement
6 between the employee and the employer; or sometimes
7 not even in the employer. Sometimes it's just
8 another company, and the employer says, Well, that
9 should count for me, too.
10 And the courts, guess what they say?
11 Yeah, okay, it counts for you, too.
12 It doesn't matter that you didn't sign it.
13 None of that matters.
14 Getting out of this rubric where the deck is
15 so heavily stacked against workers, and getting into
16 an opportunity where their claims could be heard and
17 the criminal exploitation can be made public.
18 EMMA KREYCHE: The Empire Act would bring --
19 essentially, take the -- the -- bring the action
20 back into the public enforcements sphere out of this
21 privatized venue.
22 So that is why the Empire Act is one of the
23 solutions to the issue of forced arbitration.
24 CHRISTOPHER MARLBOROUGH: I will add that
25 I am admitted in the state of California, and I have
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1 seen the transformation of this forced arbitration
2 scenario in California, where it is a completely
3 different world. And employers are rightfully
4 afraid of violating the law.
5 And I don't believe that that's the case in
6 New York.
7 SENATOR MAY: Okay. Good to know.
8 Thank you.
9 Thank you, Chair.
10 I've got to go, but I really appreciate
11 everybody who has testified, and all that I have
12 learned today.
13 SENATOR MYRIE: Thank you.
14 Thank you, Senator May.
15 Senator Murray, I don't know if you have any
16 questions.
17 SENATOR MURRAY: No.
18 SENATOR MYRIE: Great.
19 Let me express my thanks to both of you.
20 And I will incorporate my closing comments
21 for the entire hearing.
22 The point was very well taken, Emma.
23 How do you pronounce your last name?
24 EMMA KREYCHE: Kreyche.
25 SENATOR MYRIE: Kreyche. I want to make sure
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1 I got that right for the record.
2 Thank you for making the point that the
3 ability for us to prevent bad things from happening
4 to workers and wage theft from happening is not the
5 sole province of our criminal law. And that there
6 are many really good reasons why workers would not
7 feel comfortable communicating with law enforcement
8 or pursuing a law enforcement solution.
9 So we have to also have pretty strong civil
10 enforcement.
11 It's part of the reason why we wanted to do
12 this as two committees, the Codes and the Consumer
13 Protection, so that we could bring both of those
14 views to bear.
15 I think, ultimately, whether it is wage theft
16 or fraud in any other industry, we have a
17 responsibility as a legislature to respond because
18 this is as pocketbook an issue as it gets. People
19 are, literally, having money taken from them.
20 And if we do not address that part, we are
21 leaving a lot to be desired in way of protecting
22 New Yorkers.
23 So I want to thank you again for the work
24 that you do, for your testimony, for being patient
25 throughout the entire day.
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1 And I want to thank my colleagues that have
2 joined and have been in and out.
3 And let me also thank my staff who did an
4 excellent job putting all of this together.
5 I am very grateful for Cody and Zach and
6 Anslem [ph.] and Liza [ph.] and Godfre and Matt, and
7 everyone for all of the work that you did; and
8 Rachel May's staff who helped us put this hearing
9 together.
10 We look forward to continued engagement.
11 We are hoping to put forward some responses
12 to this hearing, and, hopefully, we'll get to the
13 right solution to protect New Yorkers.
14 So thank you again.
15 And thank you, everyone, for watching.
16 EMMA KREYCHE: Thank you.
17 (Whereupon, at approximately 1:26 p.m.,
18 the public hearing of the joint committees
19 concluded, and adjourned.)
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