Securities fraud drains money out of government social and financial systems. Oftentimes, those who engage in securities fraud seek to enrich themselves by taking advantage of complicated statutes, inexperienced investors, shady swaps or trades, and new and emerging cryptocurrencies or other financial futures.
If you have information about US securities fraud, do not wait to come forward and report it. The number one mistake whistleblowers make is holding onto information that may help the government recoup misappropriated funds. By sitting on valuable information, you risk letting it be disclosed by another source, thereby losing eligibility for a significant financial reward, or even becoming implicated yourself in cases of ongoing securities fraud.
Contact the law firm of Tycko & Zavareei LLP to benefit from our years of expertise in qui tam and securities fraud law. Our team of securities fraud attorneys are available today to answer any questions you have about becoming a whistleblower and the rewards and protections that may apply in your situation.
What is Securities Fraud?
Securities fraud covers a wide range of white-collar crimes commonly involving misrepresented information to investors, manipulated financial markets, or misappropriated government-backed funds. Securities fraud is a serious issue with growing enforcement, thanks to the actions of whistleblowers and government agents.
The Securities and Exchange Commission announced a seven percent increase in enforcement actions filed in Fiscal Year 2021, involving those targeting emerging threats in the crypto and SPAC spheres. These 434 new actions brought the total of securities fraud enforcement actions filed in the most recent fiscal year to 697 total.
What is the SEC Whistleblower Program?
The SEC Whistleblower Program is one of the most powerful enforcement tools for addressing securities fraud. Passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC Whistleblower Program is part of a congressional and presidential effort to reduce fraud and financial instability in the American economy. Started in part by the reveal of the massive Bernie Madoff Ponzi scheme, the SEC Whistleblower Program targets multiple areas of securities fraud.
The SEC Whistleblower Program rests on three main pillars:
- Anonymous reporting: Securities fraud whistleblowers must be represented by a whistleblower lawyer. Legal representation ensures anonymity, reducing the threat of retaliation from the start and breaking barriers in corporate compliance culture. A qualified securities fraud whistleblower lawyer serves as a liaison between the whistleblower and the SEC throughout the proceedings. Whistleblower attorneys verify information through signed affidavits and advocate for the highest possible award for their client.
- Substantial monetary awards: Under the SEC Whistleblower Program, whistleblowers are eligible to receive 10 to 30 percent of the total sanctions collected through a successful action.
- Powerful employment protections: A reported 69 percent of securities fraud whistleblowers are former or current corporate insiders. In cases of retaliation by employers, the SEC Whistleblower Program allows for reinstatement, double back pay, litigation costs, and other substantive provisions designed to protect whistleblowers. Under the Dodd-Frank Act, whistleblowers are allowed automatic private right of action to pursue these protections in federal court.
In order to qualify as a whistleblower under the SEC program, the information provided must:
- Be previously undisclosed and unreported
- Be given voluntarily
- Lead to a successful order of monetary sanctions totaling over $1 million
The program is designed to reward and incentivize reporting. Any individual or group of individuals, regardless of citizenship or employment, is eligible to become an SEC whistleblower. Since the beginning of the program, there have been over 33,000 whistleblower tips received from all 50 states and 123 countries.
Examples of Securities Fraud
According to the FBI, securities fraud includes:
- High yield investment fraud
- Advanced fee schemes
- Foreign currency fraud
- Broker embezzlement
- Hedge fund fraud
- Late day trading
- Cryptocurrency and fintech fraud
While cryptocurrency is not in and of itself governed by securities fraud law, the SEC considers it to be a “security” if the initial coin offering (ICO) is marketed as an investment in a particular company, which is relatively common. Furthermore, crypto-related companies are regulated by SEC guidelines if and when they become publicly traded entities subject to reporting requirements.
High-Profile Securities Fraud Settlements
The first ever SEC whistleblower reward was made just one year after the SEC Whistleblower Program’s inception. The $50,000 award was presented to a whistleblower who remained anonymous, per Dodd-Frank reporting guidelines. It was made in the amount of 30 percent of the overall recoupment, the highest possible percentage for a whistleblower reward.
Since then, whistleblower rewards in securities fraud cases have only continued to rise. The SEC Whistleblower Program has paid out over $1 billion in total over the course of the program, as of FY2021. Percentages remain high, and recoupment amounts have risen as well. For instance, in FY2021, the SEC issued over $564 million total in whistleblower rewards, more than all previous years combined since it first began in August of 2011.
Some notable securities fraud settlements include:
- $114 million paid out in October of 2020 in the largest-to-date whistleblower payment. $52 million of the payment was from the SEC program, and $62 million was from another agency’s actions.
- $50 million paid out in April of 2021 to joint whistleblowers. The SEC statement on the settlement read, “The joint whistleblowers provided exemplary assistance to the SEC staff during the investigation, including meeting with staff numerous times and providing voluminous detailed documents. The information provided by these individuals resulted in the return of tens of millions of dollars to harmed investors.”
- $30 million paid out in September of 2014 to a foreign whistleblower. According to the SEC, a non-US citizen came forward with “information about an ongoing fraud that would have been very difficult to detect.”
- $27 million paid out in April of 2020 concerning fraud that occurred in part overseas.
Benefits of Becoming a Securities Fraud Whistleblower
Becoming a securities fraud whistleblower has several important benefits. Speaking up helps prevent harm to investors, reduce instability in financial markets, protect taxpayer-backed FDIC guarantees, and catch wrongdoing. Blowing the whistle on securities fraud can be done without jeopardizing your own employment and privacy. As a whistleblower, you are protected from retaliation and shielded by legal representation. Your identity will never be disclosed, even in the event of a successful recoupment.
Coming forward may allow you to collect a financial reward that can easily number into the million-dollar range. It also can reduce your own liability should you be implicated in an ongoing case of securities fraud. Even minor players may be eligible to collect financial rewards if the fraud is caught and reported early enough in the process.
Speak to a Securities Fraud Whistleblower Lawyer
If you have information that has been previously undisclosed or unreported about a Ponzi or pyramid scheme, market manipulation, crypto or fintech fraud, late-day trading, or another common or evolving kinds of securities fraud, do not wait to blow the whistle. Speak to the team at Tycko & Zavareei LLP today for a confidential consultation about your situation. As a securities fraud whistleblower, you can rest assured that you have done the right thing, protected your own interests, and may even be able to collect a significant award for coming forward.