Since 2010, the Securities and Exchange Commission (SEC) whistleblower program has offered significant financial awards to individuals who voluntarily provide information concerning securities fraud, such as fraudulent statements in connection with an offer of securities, manipulation of a security’s price or volume, insider trading, and bribery of foreign officials.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), if a whistleblower reports non-public information to the SEC that results in a recovery of over $1 million, the whistleblower can receive between 10% and 30% of the amount recovered.
Whistleblowers do not need to be U.S. citizens, and they can report fraud to the SEC anonymously through an attorney. The SEC whistleblower program also includes safeguards against employer retaliation.
Between 2012 and early 2021, the SEC awarded approximately $1 billion to 207 individual whistleblowers.
Jeff Newman Law has a strong track record as SEC whistleblower lawyers. If you have information about a financial fraud involving securities fraud or foreign bribery, contact us today about potentially filing a report with the SEC whistleblower program.
There are many types of frauds that may generate SEC whistleblower matters. Keep reading for more information about some of the types of SEC whistleblower matters we handle.
Types of financial frauds
Securities fraud is a broad term that encompasses a range of illegal activities that involve the manipulation or deception of investors in order to profit illegally. These activities adversely affect the securities and commodities markets.
There are several different types of securities fraud that investors should be aware of, each with its own unique characteristics and methods of operation.
In this section, we will discuss the most common types of securities fraud, including:
- Insider Trading
- Financial Statement and Disclosure Fraud
- Insufficient Internal Controls in Publicly Traded Companies
- Failure of Duties by Investment Adviser and Broker-dealer Firms
- Money Laundering
- Failing to Protect Client Data
- Foreign Bribery and Corruption
- Front Running
Insider trading is a type of securities fraud that occurs when individuals with access to non-public information about a company use that information to buy or sell that company’s securities. This is illegal because it is a form of investment fraud that gives the individual an unfair advantage over other investors who do not have access to the same information.
Insider trading violates federal securities laws and can have a significant impact on the market and individual investors. When insiders buy or sell a company’s securities based on non-public information, it can affect the stock’s price and can lead to unfair profits. This can also harm individual investors who may have bought or sold the stock based on incomplete or inaccurate information.
Financial Statement and Disclosure Fraud
Financial statement and disclosure fraud occurs when individuals or companies manipulate their financial statements and disclosures in order to deceive investors and regulators.
Type of financial statement and disclosure fraud can include:
- overstating assets
- understating liabilities
- manipulating revenue and income
- concealing financial information
A company’s financial statements and disclosures are the primary way that they communicate their financial health and performance to investors, regulators, and the public.
When financial statement fraud occurs, it misleads investors, undermines investors’ confidence in financial markets more generally, undermines the integrity of the financial markets, and can lead to significant financial losses.
Insufficient Internal Controls in Publicly Traded Companies
Insufficient internal controls in publicly traded companies can lead to securities fraud by allowing fraudulent activities to go undetected or unreported.
Internal controls are the policies and procedures that a company puts in place to ensure that its financial reporting is accurate and reliable. Having sufficient controls in place requires a combination of the right teams, processes, and technologies in place, and a breakdown in any of those three can create issues.
When internal controls are insufficient, it becomes easier for fraudulent activities such as embezzlement, insider trading, or financial statement and disclosure fraud to occur.
Whether it be persons subject to U.S. sanctions or criminals trying to spend their illicit proceeds, money laundering is the process of disguising the proceeds of illegal activity as legitimate funds.
Various laws and regulations are aimed at detecting and preventing money laundering (often referred to as anti-money laundering, or AML laws). Financial institutions that fail to comply with these AML laws can face both civil and criminal liability.
Whistleblowers play a key role in exposing violations of AML rules, which protects the integrity of global financial markets and also helps governments stop the underlying criminal activity, whether it be avoiding sanctions, drug trafficking, or terrorist financing.
Cybersecurity refers to the protection of computer systems and networks from theft or damage to their hardware, software, or electronic data. Cyber attacks increasingly pose a threat to corporate entities, whether they be publicly traded companies or government contractors.
Cybersecurity threats can come in many forms, including:
- phishing attacks;
- spoofing attacks; and
- denial-of-service attacks
Whistleblower claims can be filed under the False Claims Act for incidents involving government contractors who do not meet the cybersecurity requirements the federal government demands of its contractors, while the SEC Whistleblower Program has also increased its focus on cybersecurity threats and incidents involving publicly traded companies.
Foreign Bribery and Corruption
The Foreign Corrupt Practices Act (FCPA) prohibits public companies from bribing foreign officials in order to obtain or keep business. Violating the FCPA can lead to civil and criminal penalties, sanctions, and remedies including fines, disgorgement, and even imprisonment.
The SEC and the Department of Justice (DOJ) both enforce the FCPA, but only the SEC has a whistleblower program to reward people who report foreign bribery.
Recent high profile FCPA cases include Goldman Sachs Group, Inc. agreeing to pay more than more than $1 billion to settle SEC charges that its senior executives bribed high-ranking government officials in Malaysia and the Emirate of Abu Dhabi to obtain business from 1MDB, a Malaysian government-owned investment fund.
Front running is a type of insider trading that occurs when a broker or other financial professional uses non-public information about a pending trade to make trades of their own account before executing the trade for their client. This is illegal because it gives the broker an unfair advantage over other investors.
For example, in its simplest form, front running can happen when a broker knows that a client is planning to buy a large amount of a certain stock. The broker could then buy that stock before the client’s trade, sell it to the client at a higher price, and reap an improper profit for themselves.
Becoming an SEC Whistleblower
If you are considering making a report through the SEC’s whistleblower program, it is important to report the misconduct promptly.
The information you have must be original and non-public. In other words, the SEC cannot already be investigating the same issue.
If your SEC whistleblower claim results in a recovery of over $1 million, the typical SEC whistleblower awards are between 10% and 30% of the amount recovered. Since 2016, the SEC has paid out more than half a billion dollars in awards.
The SEC whistleblower attorneys at Jeff Newman Law are experienced whistleblower lawyers, and we can discuss the information you have and determine whether you have an SEC whistleblower claim. We can guide you through the process.
Due to the limited resources of the SEC, your whistleblower claim could take a significant amount of time to resolve. To expedite the handling of your case, it is essential to build a compelling argument for why the fraud needs to be investigated.
The better your claim is, the more likely you are to have a faster turnaround time with the SEC. An experienced SEC whistleblower law firm will help you to develop your whistleblower complaint into a persuasive call to action.
SEC Whistleblower Protections
Employees who blow the whistle on their employers are doing the right thing by uncovering wrongdoing. But they often rightly worry that doing so may have negative repercussions, such as termination, demotion, suspension, or harassment.
Fortunately, the Dodd-Frank Act and the Sarbanes Oxley Act contain strong anti-retaliation protections for whistleblowers. If your employer takes action against you in violation of whistleblower retaliation laws, you can take legal action against them with the help of a whistleblower lawyer.
About Jeff Newman Law, whistleblower attorneys
At Jeff Newman Law, we represent whistleblowers in securities and financial fraud cases, and we have a track record of recovering multi-million dollar settlements on behalf of our whistleblower clients.
Contact us for a free confidential assessment of whether you might have a potential securities or financial fraud lawsuit that could result in a whistleblower award:
- Contact us for a free confidential consultation
- Call us at (617) 823-3217
There are many types of frauds that may generate SEC whistleblower matters. For more information about some of the types of SEC whistleblower matters we handle, click these links: