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In January of this year, the Securities and Exchange Commission (SEC) published a "Risk Alert" warning potential investors about four areas of concern—ways in which investment advisers are defrauding their clients. Let's briefly discuss each of these in turn, to see what concerning practices you should be on the lookout for. Hedge Fund Failure to Act Consistently with Disclosures The SEC is finding that some advisors are failing to take actions consistent with the material disclosures they have made to clients or investors, such as: disclosing one investment strategy but then using another; failing to follow the required practices in limited partnership agreements (e.g., fail to identify conflicts of interest); or charging them a fee based on the original cost basis of an investment when they've sold, written off, or otherwise disposed of a portion of that investment.In January of this year, the Securities and Exchange Commission (SEC) published a “Risk Alert” warning potential investors about four areas of concern—ways in which investment advisers are defrauding their clients. Let’s briefly discuss each of these in turn, to see what concerning practices you should be on the lookout for. Continue reading

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In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court's ruling clarifies pension fund providers' duties to their customers holding that pension funds owe significant responsibilities to its investors. Hughes v. Northwestern University In Hughes v. Northwestern University, the plaintiffs alleged that defendant Northwestern failed to meet the fiduciary duties required under the Employee Retirement Income Security Act of 1974 (ERISA) because it offered excessively expensive investment options and charged extreme recordkeeping fees. The Court of Appeals had held that, because the clients could ultimately pick a plan from a range of plans offered, Northwestern had fulfilled its responsibilities to them. However, the Supreme Court disagreed. Instead, the Court held that Northwestern's fiduciary duties required that it regularly analyze the value of the plans it offered. If the provider found plans that were less beneficial to their clients, the answer was not just to include more plans, but also to stop offering the less valuable plans. Accordingly, the fact that customers could exercise judgment in their plan selection did not alleviate Northwestern of its responsibility to make its own judgment calls.In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court’s ruling clarifies pension fund providers’ duties to their customers holding that pension funds owe significant responsibilities to its investors. Continue reading

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Before sitting down for her now-famous 60 Minutes interview, former Facebook employee Frances Haugen had filed eight complaints with the Securities and Exchange Commission (SEC). In these, she alleged that Facebook was misleading investors in how the company doesn’t act against hate crime, how it facilitates the spread of disinformation, how it harms young girls’ psychological wellbeing, and much more. Within days of Haugen’s interview, Haugen was testifying on Capitol Hill, members of Congress began debating new legislation to regulate Facebook, and Facebook stock prices dropped 15% from the previous month.  It’s hard to imagine that any whistleblower who isn’t thinking about Facebook and Haugen, particularly if the allegations would have a large impact on the company or the industry. But there are more practical considerations, in addition to headlines, that could impact a whistleblowing case. Let’s consider a few of these. The larger the case, the longer it will probably take Haugen isn’t the first to have made complaints about Facebook’s conduct. What made the difference, from the public reaction to the SEC’s investigation, was the sheer volume of material that she had accumulated. The larger the case, the more facts there will be to gather, so it will probably take longer to investigate and litigate. That’s true from your perspective: You may want to take more time to gather evidence before bringing in the information to the SEC. And a bigger case means you will have a longer wait before the case is resolved and you see an award.Before sitting down for her now-famous 60 Minutes interview, former Facebook employee Frances Haugen had filed eight complaints with the Securities and Exchange Commission (SEC). In these, she alleged that Facebook was misleading investors in how the company doesn’t act against hate crime, how it facilitates the spread of disinformation, how it harms young girls’ psychological wellbeing, and much more. Continue reading

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Of those who provide tips to the Securities and Exchange Commission (SEC) whistleblowing program, an estimated 20% are anonymous when they submit their information. And the SEC is required to keep whistleblowers’ information confidential. But what if you submitted the information anonymously, and your identity became known? The main thing to be aware of is that you’re protected from employer retaliation relating to your whistleblowing. The SEC acts strongly against employer retaliation—and it includes a broad range of bad acts to constitute retaliation. If retaliation does occur, you can sue for double-back pay and damages, and that money would be in addition to any award you receive for reporting the violation. And perhaps ironically, a retaliation claim is easier to prove if your identity is known. If you’ve technically remained anonymous, any employer can simply assert then it would be impossible for the firm to have retaliated against you for an act they didn’t know you had done.Of those who provide tips to the Securities and Exchange Commission (SEC) whistleblowing program, an estimated 20% are anonymous when they submit their information. And the SEC is required to keep whistleblowers’ information confidential. But what if you submitted the information anonymously, and your identity became known? Continue reading

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Perhaps one of the most difficult parts of becoming a whistleblower is feeling alone when you go against your company. But what if you and another colleague both decide to go to the Securities and Exchange Commission (SEC) and become joint whistleblowers? How does that change the equation? You and a colleague can become joint whistleblowers, and you can both receive an award. (For instance, in April 2021, the SEC announced that joint whistleblowers would share a $50 million award.) To become joint whistleblowers, you must submit the tip together, and then you’ll later need to file a joint Form WB-APP to claim an award. It can also be helpful if you share the same legal counsel to ensure you’re submitting the same information.Perhaps one of the most difficult parts of becoming a whistleblower is feeling alone when you go against your company. But what if you and another colleague both decide to go to the Securities and Exchange Commission (SEC) and become joint whistleblowers? How does that change the equation?

You and a colleague can become joint whistleblowers, and you can both receive an award. (For instance, in April 2021, the SEC announced that joint whistleblowers would share a $50 million award.) Continue reading

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One question many whistleblowers worry about: What if their whistleblowing uncovers their own participation in the wrongdoing? And if it does so, how might that impact their liability and eligibility for an award?   Some culpability is not an automatic bar from a securities whistleblower award. The Securities and Exchange Commission (SEC) understands that some whistleblowers may have participated in the wrongdoing at issue. That may be why they know about it in the first place.One question many whistleblowers worry about: What if their whistleblowing uncovers their own participation in the wrongdoing? And if it does so, how might that impact their liability and eligibility for an award?

Some culpability is not an automatic bar from a securities whistleblower award. Continue reading

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If you are considering filing a whistleblowing report with the United States Securities and Exchange Commission (SEC), you might wonder if the SEC program covers violations that take place abroad. The short answer is: Probably, but it depends. As a starting point, it’s worth noting that there is no requirement for whistleblowers to be US residents or citizens. On the contrary, since the beginning of the SEC’s program, eligible whistleblowers from 130 countries—including the United Kingdom, Canada, China, Australia, and India—have come forward with tips for the SEC to review. When it comes to what (and where) the SEC can investigate, Dodd-Frank Act gives the SEC authority over extraterritorial malfeasance under one of the following two conditions: 1)  when the relevant securities transaction occurs outside of the US, the conduct within the US “constitutes significant steps in furtherance of the [securities] violation,” or 2) when the conduct outside of the US still “has a foreseeable substantial effect” within the US.If you are considering filing a whistleblowing report with the United States Securities and Exchange Commission (SEC), you might wonder if the SEC program covers violations that take place abroad. The short answer is: Probably, but it depends.

As a starting point, it’s worth noting that there is no requirement for whistleblowers to be US residents or citizens. On the contrary, since the beginning of the SEC’s program, eligible whistleblowers from 130 countries—including the United Kingdom, Canada, China, Australia, and India—have come forward with tips for the SEC to review. Continue reading

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If you hear the phrase “Ponzi scheme,” you may immediately think of Bernie Madoff’s $68 billion 20-year long fraud exposed in 2008. But there have been many high-profile Ponzi schemes since. Just in February 2022, film actor Zachary Horwitz was sentenced to 20 years in prison for his Hollywood-based Ponzi Scheme—a $650 million fraud. Then, later that month, the founder of cryptocurrency BitConnect was indicted for his role in a $2 billion Ponzi scheme. And just a couple of weeks later, a Utah business owner received a 19-year prison sentence for his Ponzi Scheme that defrauded 568 victims of $200 million. The phrase “Ponzi scheme” is sometimes thrown around to describe any fraud, but that’s not accurate. So let’s take a minute to explain what a Ponzi Scheme is.  Ponzi Schemes, Defined A Ponzi scheme is a specific type of fraud. The fraudster claims to invest the funds they receive; however, they’re actually taking money from new “investors” and giving it to the earlier “investors.”If you hear the phrase “Ponzi scheme,” you may immediately think of Bernie Madoff’s $68 billion 20-year long fraud exposed in 2008. But there have been many high-profile Ponzi schemes since. Just in February 2022, film actor Zachary Horwitz was sentenced to 20 years in prison for his Hollywood-based Ponzi Scheme—a $650 million fraud. Then, later that month, the founder of cryptocurrency BitConnect was indicted for his role in a $2 billion Ponzi scheme. And just a couple of weeks later, a Utah business owner received a 19-year prison sentence for his Ponzi Scheme that defrauded 568 victims of $200 million. Continue reading

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People toss around the term “fraud” all the time, often it to describe something fake or insincere. But when it comes to the legal understanding of the term in context of the securities laws, fraud means more than something fake. Understanding what fraud means is important for those who work in the financial sphere—especially if you’re working with clients who aren’t sophisticated investors. Where the line is between aggressive sales, marketing and investing, and actual fraud is sometimes hard to determine. It can be helpful to go back to the basics of what fraud entails.   Securities Fraud, Defined Generally speaking, the legal definition of fraud is: a materially false statement that is made with an intent to deceive a victim who relies on the statement, and the victim has suffered damages because of their reliance Each prong of this definition is important. As an example, suppose a firm promises every client that a live human answers every call on the first ring. But sometimes, the receptionist is on another line, and it takes more than one ring to answer. Also, the firm uses voicemail after hours.People toss around the term “fraud” all the time, often it to describe something fake or insincere. But when it comes to the legal understanding of the term in context of the securities laws, fraud means more than something fake. Understanding what fraud means is important for those who work in the financial sphere—especially if you’re working with clients who aren’t sophisticated investors. Where the line is between aggressive sales, marketing and investing, and actual fraud is sometimes hard to determine. Continue reading

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If you’re aware of a SPAC that is defrauding investors, you may be wondering if you should go to the Securities and Exchange Commission (SEC) and become a whistleblower. While how to best submit your case will always depend on your case, here are guidelines to help you understand the process. But one thing to keep in mind from the start: It’s important to realize that the SEC receives many tips, but it only pursues a few. So the real issue isn’t how you file a tip. Your real question should be, “How do you get the SEC to take an interest in your case?” The best way to do that is to have an attorney experienced in whistleblowing prepare and submit your tip for you. Industry watchers say that using an attorney automatically means that the SEC will take your application more seriously—because having an attorney saves the SEC time. Your attorney will have already pre-screened your case for its legal merit. And an experienced whistleblower attorney can craft a submission that is tailored to address the relevant legal standards and to meet the SEC priorities and other interests. If you’re aware of a SPAC that is defrauding investors, you may be wondering if you should go to the Securities and Exchange Commission (SEC) and become a whistleblower. While how to best submit your case will always depend on your case, here are guidelines to help you understand the process. But one thing to keep in mind from the start: It’s important to realize that the SEC receives many tips, but it only pursues a few. So the real issue isn’t how you file a tip. Your real question should be, “How do you get the SEC to take an interest in your case?” Continue reading

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