Ponzi Schemes Remain A Focus For The SEC
Since 2008, the SEC has viewed traditional Ponzi schemes as a “vital” element of the agency’s enforcement activity. More recently, the SEC has expanded its sphere to Ponzi schemes involving cryptocurrencies.
The SEC continues to announce enforcement actions against alleged Ponzi schemes of all types, going after both comparatively small schemes of less than $5 million and larger ones that have taken investors for hundreds of millions.
In 2022 alone, the SEC:
- Brought charges against MJ Capital Funding, LLC, for a Ponzi scheme in which investors gave $196 million to fund loans for merchants. MJ Capital agents kept almost all of the money instead.
- Began prosecuting the individuals behind the “Trade Coin Club,” a $295 million crypto Ponzi scheme that had ensnared 100,000 investors around the world.
- Charged the 11 individuals running Forsage, another crypto Ponzi scheme that stole $300 million from millions of investors.
The SEC Continues To Learn from Its Mistakes In The Madoff Investigations
When insiders from employees to investors came forward with documentation and analysis demonstrating that Madoff couldn’t possibly be achieving the huge returns he claimed, SEC staff did not follow up.
Now, thanks to Dodd-Frank, the SEC whistleblower program’s sole purpose is to obtain exactly this kind of insider information and investigate credible leads. Realizing how valuable—and accurate—the Madoff analyses were, the SEC now looks for more than documents and other records, seeing insider analysis as one of the most important tools whistleblowers can provide.
The SEC continues to prioritize insiders’ tips (including those from investors, employees, and other agents) as well as those from people with no relationship to the entity. When outsiders do become successful whistleblowers (it has happened), it’s because they submit in-depth, remarkable analyses with their information.
What does this mean for a potential whistleblower? First and foremost, credible applications are essential.
The SEC receives thousands of tips each year. (In 2022 alone, the Commission received more than 12,000.) Most don’t come to anything. But when the program was first created, SEC staff—determined not to repeat the mistakes it made in the Madoff case—thoroughly reviewed each and every lead. Changes to the program in 2020 (discussed in the last post) allow staff to quickly dispose of tips they think are meritless, freeing up resources to pursue only the most compelling.
This means the SEC now concentrates primarily on information from insiders, posing a challenge for those who want to submit a tip anonymously.
Additionally, SEC staff want to see complaints that include the key facts, data, analysis, and information that quickly separate one whistleblower’s wheat from another’s chaff. They want to see substantiation. And they want to see it upfront, all at once: While SEC officials understand a whistleblower might come upon new information after submitting a tip, the agency regards multiple filings as suspect and takes them less seriously overall.
SEC staff also tend to see complaints filed by whistleblowers with the assistance of an attorney as serious and more likely to prove credible. Because attorney-prepared submissions are usually structured in a way that speaks to SEC priorities, agents can quickly determine whether a tip merits the use of the Commission’s limited time and resources. Experienced SEC attorneys also know how to convey the material and that their information comes from an insider—while maintaining their client’s anonymity.
These factors mean that whistleblowers who use attorneys specializing in whistleblowing reports—particularly attorneys with SEC enforcement experience—are better positioned to file a successful tip than those who submit without counsel.
If you’re considering becoming a whistleblower, Silver Law Group and the Law Firm of David Chase have created a strategic alliance to represent SEC whistleblowers like you.
With years of experience representing SEC whistleblowers, led by a former SEC Enforcement lawyer, we have an in-depth understanding of the SEC Whistleblower Program. We understand what the SEC is looking for. We can help you submit a tip that is more likely to result in a successful covered action. We are here to help whistleblowers maximize their opportunity to receive a financial bounty. For a free, confidential consultation, contact us by email or call us today at (800) 975-4345.