Ponzi schemes are infamous for promising high returns in a short time. Like most financial crimes, the scheme’s operators take investor funds and leave the investor with little to nothing. From the original scheme from Charles Ponzi to Bernie Madoff’s massive fraud, any Ponzi scheme uses the same basic framework:
- Solicit and take money from investors
- Use cash for whatever they like
- Solicit new money from new investors
- Use new funds to pay previous investors
The process continues until the principals can no longer obtain additional new money, or many investors decide to withdraw their funds. Eventually, and sometimes quickly, the scheme collapses.
Whistleblowers are vital to finding and stopping Ponzi schemes and other frauds against innocent investors. They alert the US Securities and Exchange Commission (SEC) to the activity and provide critical information that SEC staff and investigators may be unable to locate otherwise. In many cases, the SEC can stop the scheme, freeze assets, and sometimes return some or most of the investors’ monies.
Without whistleblowers, Ponzi schemes may never be uncovered or may continue until all monies and assets are exhausted before they’re discovered.
What Makes A SEC Whistleblower?
A SEC whistleblower alerts the SEC to a Ponzi scheme or other fraudulent activity. They can be anyone who knows about and understands the company’s misconduct and can provide original and credible inside information.
Without input from whistleblowers, a Ponzi scheme may be more difficult to uncover until large numbers of investors have lost money. Whistleblowers provide key information that helps the SEC investigate, uncover, and bring enforcement actions against individuals and companies engaged in Ponzi schemes.
Operators of Ponzi schemes often employ workers who don’t understand the true nature of the “business.” At some point, they may uncover this information and may decide to become a whistleblower.
Not all whistleblowers are employees. Anyone with information on a Ponzi scheme can share it with the SEC, including:
- A defrauded investor
- An investor’s family member, trustee, or beneficiary
- Industry experts and analysts who recognize the signs of a Ponzi scheme and can show the SEC how it works
- A member of the public who understands the company, its dealings, and why they suspect a Ponzi scheme
- Anyone else who has access to information about a fraud like a Ponzi
Submitting this information timely to the SEC can start the process of stopping a Ponzi scheme or other type of fraud.
SEC’s Whistleblower Program
In 2010, the SEC established its Office of the Whistleblower to offer financial awards and enable individuals with original information to voluntarily notify the agency of misconduct. The website lets whistleblowers submit their information quickly and easily online or by other forms of submission.
Whistleblowers can stop Ponzi schemes by reporting information to the SEC’s Whistleblower program. Alerting the SEC to a Ponzi scheme or other wrongdoing allows the agency to investigate and stop the misconduct before more investors are harmed. Individuals with knowledge of a Ponzi or other scheme often have vital information that investigators may not have access to or detect for some time. Submission of this information makes it easier for SEC staff to find and investigate, and saves time and available resources.
The SEC has additional information available on its website, including a page for Frequently Asked Questions.
How Do I Report A Ponzi Scheme To The SEC?
The SEC’s Whistleblower website has several options for submitting information. The SEC’s preferred method is using their Tips, Complaints, and Referrals form (TCR) on their website. This method gives a submission number, which can be used to update and submit additional information through the website portal. Joint whistleblowers can also submit information but each must create an individual TCR and mention the other party’s name in their submissions.
To remain anonymous, you must be represented by counsel.
Legal Protections And Financial Incentives For SEC Whistleblowers
SEC whistleblowers can encounter risks and hardships in the quest to do the right thing. Some may face harassment, demotion, job loss, a damaged reputation, and other disincentives to prevent reporting misconduct.
Whistleblowers may be eligible for monetary awards under The Dodd-Frank Wall Street Reform and Consumer Protection Act. Cases that bring in administrative fees and fines of more than $1M may mean a financial bounty for the whistleblower. A person who provides original information that leads to a successful enforcement action may be eligible for anywhere from 10% to 30% of the monies collected.
The SEC has awarded over $2 billion in whistleblower awards since beginning the program in 2010.
Investor money recovered is returned to the investors, not used for whistleblower awards. The funds used for the awards come from financial sanctions against the company or companies involved. These funds are added to a separate fund established by Congress for the purpose of rewarding whistleblowers.
SEC whistleblowers have legal protection under Dodd-Frank. No one has the legal right to prevent you from contacting the SEC to report wrongdoing, including an employer. Dodd-Frank also includes the right to sue an employer that retaliates against any individual who acts as a whistleblower. A successful lawsuit in federal court can bring reinstatement, double back pay, attorney’s fees, litigation fees, and even expert witness costs. A whistleblower’s identity is always kept confidential throughout the investigation and afterward.
How Our Attorneys Can Help
One of the biggest reasons to work with Silver Law Group and The Law Firm of David R. Chase is to have help going through the process. Both attorneys have experience working with SEC whistleblowers who report Ponzi schemes and other wrongdoing. They can first discuss your case with you, answer all your questions, and determine the best course of action, including:
- Gather evidence to support your information and make the best presentation to persuade the SEC to investigate leading to an enforcement action.
- Submit an anonymous claim on your behalf to the SEC or CFTC
- Be an advocate throughout the process and protect you from possible retaliation
- Preparing your claim for submission, including a monetary award for your assistance
- Protect your identity and keep it confidential to the fullest legal extent possible.
Before submitting your information to the SEC, contact our whistleblower attorneys and discuss your legal options.
Retaining Experienced SEC Whistleblower Attorneys
SEC whistleblowers help everyone by notifying the government of conduct that harms the investing public, while also earning a financial award for themselves. Experienced SEC counsel representing you may greatly increase the probability that the SEC will initiate an investigation based on your information. If you wish to remain anonymous, you must be represented by an attorney.
Silver Law Group and the Law Firm of David R. Chase have formed a strategic alliance and jointly have experienced SEC whistleblower lawyers, including a former SEC Enforcement attorney on the team. Our SEC whistleblower attorneys can help you if you have information regarding investment fraud or other violations of federal securities laws.
Contact us through our online form or at (800) 975-4345 for a consultation. Our attorneys work on a contingency fee basis. This means that it costs you nothing to hire us, and we collect our fees only if you receive an SEC bounty. Because we get paid when you do, we have the incentive to help you collect the maximum award available.