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What is Securities Fraud?

Date Published
Oct 04, 2022

Securities fraud is a complex area of qui tam law that involves market manipulation and other financial schemes. Oftentimes, scam artists can illicitly claim thousands or millions of dollars using corrupt investment and lending practices. However, securities and commodities fraud can be successfully combatted by whistleblowers and other trustworthy people who step forward to report illegal market tactics, false claims, and other unfair lending practices.

The U.S. Securities and Exchange Commission (SEC) keeps tabs on securities fraud and runs the SEC whistleblower program, a mechanism that both rewards whistleblowers for their honesty and incentivizes further disclosures. If you suspect that you have information which may qualify you to become a whistleblower, speaking with a securities fraud attorney can help limit your own liability, protect your financial interests, and level the playing field for everyone. The law firm of Tycko & Zavareei LLP is available to help you understand the legal landscape, as well as what options, protections, and rewards are available should you choose to blow the whistle on financial fraud.

Securities Fraud Definition

Securities fraud is a serious kind of white collar financial crime. According to the Federal Bureau of Investigation (FBI), securities fraud is any kind of deception of investors or market manipulation using unfair practices. By nature, securities fraud can be difficult to spot by outsiders, but employees, financial insiders, and those who may be already embroiled in the scheme may be able to identify unscrupulous business dealings.

Common Types of Securities Fraud

A qui tam lawyer can help you report securities fraud to US Securities and Exchange Commission. Common types of securities fraud to look out for include:

  • Ponzi schemes: These financial scams, named after the 1920s con man Charles Ponzi, pay investors by continuously collecting funds from new targets.
  • Pyramid schemes: Pyramid schemes are very similar to Ponzi schemes in that the only profit or payout comes from recruiting new investors. They often promise the opportunity to own a business or make money selling goods that never materialize or which are a different quality from what was promised. In actuality, the only real source of income in a pyramid scheme comes from a constant influx of new recruits.
  • Late day trading: Late day trading involves falsely recording the date or time of trades made in order to affect the overall calculation of a share’s value.
  • Pump and dump schemes: Pump and dump schemes are becoming more common in the world of cryptocurrency. This new kind of financial technology is subject to less regulation than other kinds of trades and investments but can be reported for illegal activity nonetheless. In a pump and dump scheme, false or misleading information about a commodity or currency’s value will be reported in order to create a frenzy. This high level of investment will eventually bottom out, leaving behind a worthless good or commodity and allowing those behind the scheme to cash out at an artificially high price. Oftentimes, celebrities or seemingly trustworthy public figures may be recruited to spread the word during a pump and dump scheme.
  • Insider trading: Insider trading is a kind of securities fraud that involves making trades based on information that should not be publicly known or shared. Sometimes, an SEC whistleblower in the case of insider trading may be a family member, friend, or other personal connection who knew about or was asked to perform the illegal trade.
  • High yield investment fraud: High yield investment fraud usually involves making outrageous claims about possible investments that pose little or no risk. They may take the form of unsolicited offers to investors who are not financially savvy.
  • Advance fee schemes: In advance fee schemes, an initial buy-in is sought for a good, product, security, or share that does not exist. The potential investor may be milked for additional fees, “taxes,” or other payments before they realize there is no deliverable on the other end.

Securities Fraud Examples

One common example of securities fraud involves someone claiming to another person that a certain investment is a “sure thing,” with little to no risk associated. The investment in question may be a stock, a share, a commodity, a new kind of financial technology such as crypto, or an investment in foreign currency. The initial offer may be unsolicited, or it may come via an online forum about stocks and shares.

The unsuspecting person buys in to the initial offer, sending money to the scam artist. In a Ponzi or pyramid scheme, the investor may then be asked to recruit others, often close friends or family. In this way, a scam can reverberate through a community, wreaking havoc on close connections. In other kinds of high-yield or pump and dump schemes, the investment may turn out to be worthless, or not exist. Oftentimes processing fees, “taxes,” or other kinds of payments may be assessed in order for the investor to continue to remain “in” on the deal. One thing is for sure: the scam will collapse in on itself eventually.

What Should I Do if I Am Aware of Securities Fraud?

If you are aware of ongoing securities fraud, you have the power to act. The Securities and Exchange Commission exists in part to help catch scam artists and prevent them from taking advantage of would-be or inexperienced investors. Having a whistleblower lawyer by your side who fully understands the ins and outs of SEC whistleblower rules can help you feel comfortable coming forward to report wrongdoing.

If you suspect any of the aforementioned kinds of securities fraud, do not hesitate to report it. An SEC whistleblower attorney is available today for a complimentary consultation. Our qualified attorneys can ensure that you insulate yourself from liability, report securities fraud in a timely manner, and follow the rules for SEC whistleblower filing. You may also be able to qualify for a significant financial reward of up to 30 percent of the recovered funds in the event of a successful case.

SEC Office of the Whistleblower

The SEC Office of the Whistleblower manages securities fraud settlements, investigations, and whistleblower payouts. They are in charge of SEC whistleblower rewards in the event that information reported leads to a successful recovery of funds by the government. SEC whistleblower cases can involve payouts of millions of dollars, as whistleblowers are eligible to receive 10 to 30 percent of recovered funds if their information is useful, unique, and delivered of their own free will.

You do not have to liaise with the SEC Office of the Whistleblower directly in the event of an investigation. Your SEC whistleblower lawyer can help keep track of all the SEC filing dates and deadlines, reporting of information to the government, and the progress of the recovery for you in the event that you become a securities fraud whistleblower.

How to Become an SEC Whistleblower

The first step for SEC whistleblowers is simple – reach out to a securities fraud law firm like Tycko & Zavareei LLP and schedule a complimentary, confidential consultation. You will be asked to share your suspicions with one of the SEC whistleblower lawyers on our team. They will ask you for any proof that you can provide to support your claim and which can be taken to SEC investigators to launch the discovery process.

Importantly, certain kinds of evidence are not admissible or required in certain states. Your securities fraud lawyer can help guide you through the SEC whistleblower process to ensure your anonymity and protection, as well as to look out for your own best interests.

SEC Whistleblower Guidelines

An SEC fraud whistleblower must follow certain SEC whistleblower guidelines to qualify for a reward. Examples include:

  • Information must be provided voluntarily.
  • Information must be original. Previously reported information is not eligible for a reward. New information about a known securities fraud scheme may be considered, however.
  • Information may come from independent knowledge or from an evaluation of publicly available knowledge.
  • Internal reporting to your employer is not necessary in order to be considered for an SEC award.
  • You must be represented by an attorney in order to claim an award through the SEC.
  • The monetary sanctions involved in your SEC whistleblower claim must exceed $1 million for you to qualify for an award.
  • Multiple people may act as whistleblowers together or separately, but companies cannot be considered for an award.
  • You do not have to be an employee of a company in order to report it for fraud.

Can SEC Whistleblowers Remain Anonymous?

When filing an SEC whistleblower complaint, you can remain completely anonymous. In order to file an SEC whistleblower claim anonymously, you must report the securities fraud through an attorney. Once you have done so, the SEC will not disclose your identity – not even through a Freedom of Information Act request. However, your identity may be required to be disclosed during certain administrative, governmental, or court proceedings, even if it does not become publicly available.

SEC Whistleblower Reward Program

Recent amendments to the SEC Whistleblower Reward Program were made in order to increase the amount that can be paid out to whistleblowers. One 2022 amendment allows whistleblowers to receive payment for their information and their assistance outside of the scope of the Program. Another amendment affirms the SEC’s ability to raise, but not lower, possible whistleblower rewards in certain circumstances.

SEC Whistleblower: FAQs

How do I report securities fraud?

You must work with a qualified securities fraud lawyer to anonymously report illegal securities schemes. An SEC attorney can make your claim to the SEC whistleblower program and follow up on the details of your possible payout.

Does the SEC protect whistleblowers?

There are many SEC whistleblower protections in place. Firing, demoting, harassing, or discriminating against a whistleblower are all prohibited by US law. Your employer may be required to rehire you and provide back pay, legal fees, and other financial penalties in the event that they retaliate against you for your disclosure. Speak to an SEC whistleblower lawyer today if you suspect your employer is discriminating against you due to your honesty.

What requires the SEC to pay whistleblowers?

The SEC Whistleblower Program was created in 2010 as part of the Dodd-Frank Act. This law incentivizes whistleblowers to come forward by promising a financial reward for any information they provide that leads to the successful recovery of defrauded funds.

Are SEC whistleblower rewards taxable?

Yes, SEC whistleblower rewards and other False Claims Act payouts are subject to taxation.

What is the largest SEC whistleblower award?

The largest SEC whistleblower award currently reported is for $114 million. This award was presented in 2020 to a whistleblower who suffered “serious personal and professional hardships as a result of their activities,” but whose tip led the SEC to open their investigation in the first place.

Ask an Experienced SEC Whistleblower Lawyer about Securities Fraud

To answer any further questions you may have, or to discuss the specifics of your situation, consult with a qualified SEC whistleblower attorney today. The team at Tycko & Zavareei LLP have helped whistleblowers recover millions in cases of securities fraud, False Claims Act violations, and other kinds of qui tam claims. A consultation with an expert attorney at our firm is free and confidential.

How can we help you?

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Our experienced qui tam attorneys are available for a confidential, no-cost, no-commitment, initial evaluation of your case. Call us now at (202) 973-0900, or begin the process by completing our Confidential Case Evaluation Form.
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