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In their latest announcement, the SEC has awarded $10 million to a whistleblower who provided considerable assistance that led to a successful enforcement action. The whistleblower met with SEC staff twice and brought them significant information. The charges in the enforcement action were closely aligned with the whistleblower’s allegations, which were essential to the SEC’s investigation. In a statement in the SEC’s press release, Chief of the SEC’s Office of the Whistleblower Creola Kelly stated, “The whistleblower awarded today provided information that resulted in the return of a significant amount of money to harmed investors. This illustrates how the Whistleblower Program works to benefit, via financial remediation, investors who are victimized by those who violate our securities laws.” Payments to investors are paid from a Congressionally established fund which collects from fines and financial sanctions paid by companies who violate securities laws. Investor money is returned to the defrauded investors and never used to pay whistleblowers. Identities of whistleblowers are always kept confidential and any identifying information is redacted from the order when published.In their latest announcement, the SEC has awarded $10 million to a whistleblower who provided considerable assistance that led to a successful enforcement action.

The whistleblower met with SEC staff twice and brought them significant information. The charges in the enforcement action were closely aligned with the whistleblower’s allegations, which were essential to the SEC’s investigation. Continue reading

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On September 26, 2022, the Federal Bureau of Investigation arrested three men for running a $100 million fraud based out of Hometown International, the corporate owner of a small New Jersey deli. According to the Securities and Exchange Commission (SEC), it was a classic “pump and dump” scheme. While the deli had less than $40,000 in annual revenue, the defendants claimed Hometown had a market capitalization of $100 million. But two years ago, the stock was worth just one dollar a share. When prosecuting a pump-and-dump, the SEC usually focuses on how the defendants misled the investors by providing false information about the company. Under the Securities Act of 1933, the “truth in securities” law, investors must receive accurate information about securities that are being offered for public scale. Further, sellers of securities are prohibited from making deceitful claims, misrepresentations, and other fraud to entice investors to make an investment. On September 26, 2022, the Federal Bureau of Investigation arrested three men for running a $100 million fraud based out of Hometown International, the corporate owner of a small New Jersey deli.

According to the Securities and Exchange Commission (SEC), it was a classic “pump and dump” scheme. While the deli had less than $40,000 in annual revenue, the defendants claimed Hometown had a market capitalization of $100 million. Continue reading

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The Securities and Exchange Commission (SEC) just announced the creation of two new offices—an Office of Crypto Assets (OCA) and an Office of Industrial Applications and Services (OIAS)—within its Division of Corporation Finance's Disclosure Review Program (DRP). While the offices haven't yet opened, it's already worth understanding their significance and expected roles. DPR is charged with reviewing company filings, to ensure that firms are in compliance with SEC rules relating to disclosure and accounting requirements. They analyze documents to determine if the disclosures for investors are complete and accurate, or if they are materially deficient in clarity or explanations. The scope of review varies, but DPR has at least some level of review for all reporting companies at least once every three years, while some companies receive more frequent reviews.  OIAS will focus on companies in the non-pharma, non-biotech, and non-medicinal product fields. This isn't necessarily a signal of increased enforcement, but it's more a recognition of the growth in these sectors. Therefore, OIAS will bring more specialized subject matter expertise than the existing staff can provide.The Securities and Exchange Commission (SEC) announced the creation of two new offices—an Office of Crypto Assets (OCA) and an Office of Industrial Applications and Services (OIAS)—within its Division of Corporation Finance’s Disclosure Review Program (DRP). While the offices haven’t yet opened, it’s already worth understanding their significance and expected roles. Continue reading

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Earlier this year, rumors circulated that the U.S. Securities and Exchange Commission is investigating cryptocurrency exchange Coinbase Global Inc. In July of 2022, the U.S. Securities and Exchange Commission began a probe into whether Coinbase improperly allowed Americans to trade digital assets that should have been registered as securities. But according to a Senate staffer, this investigation is just the tip of the iceberg. According to the staffer from the office of Senator Cynthia Lummis (R-Wy), every U.S. crypto exchange is currently under investigation, and there are more than 40 of them. This includes Binance, the world’s largest crypto exchange. Forbes reports that the SEC hasn’t responded to multiple requests for comment. While the SEC tries to crack down, the investigations raise questions about federal agency jurisdiction and just who has the authority to make rules for crypto exchanges. The SEC Versus The CFTC Before the first cryptocurrencies began appearing in 2014, the U.S. Commodities Futures Trading Commission asserted its jurisdiction over “virtual currencies.” In 2018, a federal court also ruled that the CFTC could pursue fraud cases involving virtual currencies. That year the chairman of the SEC also stated that he didn’t believe cryptocurrency was a security, implying that crypto should fall under the jurisdiction of the CFTC. But in June of 2022, the current SEC chairman, Gary Gensler, said that Bitcoin was the only cryptocurrency he was comfortable calling a commodity.Earlier this year, rumors circulated that the U.S. Securities and Exchange Commission is investigating cryptocurrency exchange Coinbase Global Inc. In July of 2022, the U.S. Securities and Exchange Commission began a probe into whether Coinbase improperly allowed Americans to trade digital assets that should have been registered as securities. Continue reading

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Twitter has been in the news quite a bit this year, and, in this case, not all publicity is good publicity. In August of 2022, the Washington Post and CNN gained access to a whistleblower report alleging mismanagement, spying, and security concerns at Twitter. The report came from Peiter “Mudge” Zatko, the company’s former head of security and noted hacker and cybersecurity expert. Zatko filed the whistleblower report with the U.S. Department of Justice and the U.S. Securities and Exchange Commission. The Whistleblower’s Backstory Twitter originally hired Zatko in January 2020, after hackers gained control of several high-profile accounts to promote a crypto-currency scheme. Joe Biden and Elon Musk were among the hacked accounts. But in January of 2022, the company fired Zatko for “ineffective leadership and poor performance.” Twitter isn’t taking the whistleblower allegations lying down. In the wake of Zatko’s report, Twitter fired back, stating, “Mr. Zatko’s allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers, and its shareholders. Security and privacy have long been company-wide priorities at Twitter and will continue to be.” Still, Zatko’s whistleblower report could have far-reaching legal implications for Twitter in the social media giant’s legal dispute with Elon Musk, federal lawmakers, the SEC, and other regulators.Twitter has been in the news quite a bit this year, and, in this case, not all publicity is good publicity. In August of 2022, the Washington Post and CNN gained access to a whistleblower report alleging mismanagement, spying, and security concerns at Twitter. The report came from Peiter “Mudge” Zatko, the company’s former head of security and noted hacker and cybersecurity expert. Zatko filed the whistleblower report with the U.S. Department of Justice and the U.S. Securities and Exchange Commission. Continue reading

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In August, CNN published an expose detailing accusations from a whistleblower that social media giant Twitter misled its board and U.S. Securities and Exchange Commission regulators about security vulnerabilities on its platform. The news has been explosive. The whistleblower is Peiter Zatko, Twitter’s former head of security and a noted cybersecurity expert. But Twitter fired Zatko in early 2022. In Zatko’s report, sent to Congress and federal agencies, he alleges major security problems threaten users’ personal information, company shareholders, national security, and democracy. The Allegations Zatko’s allegations are wide-reaching, from misleading the public about the prevalence of spam accounts on the Twitter platform to having foreign agents on the company’s payroll. Other allegations include: Mismanagement:Zatko’s report describes a reckless environment at Twitter, with too many employees accessing Twitter’s central controls and sensitive user information. A cover-up:The report alleges that Twitter attempted to cover up security problems on the platform, with senior executives misleading the board and SEC regulators. Zatko also alleges that some of the security vulnerabilities could lead Twitter open to foreign spying, manipulation, and hacking. Spying:Zatko claims that shortly before Twitter fired him, the U.S. government provided the company with information indicating that one or more employees were working for foreign intelligence services.In August, CNN published an expose detailing accusations from a whistleblower that social media giant Twitter misled its board and U.S. Securities and Exchange Commission regulators about security vulnerabilities on its platform. The news has been explosive. The whistleblower is Peiter Zatko, Twitter’s former head of security and a noted cybersecurity expert. But Twitter fired Zatko in early 2022. Continue reading

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The U.S. Securities and Exchange Commission has recently ratcheted up enforcement of insider trading cases, announcing investigations against ten people in four different cases in July. The headline-grabbing case involves a former Coinbase manager, his brother, and a friend alleging a scheme to trade the cryptocurrency ahead of announcements that crypto assets would be available for trading. Increase in SEC Insider Trading Cases While crypto assets and nonfungible tokens (NFTs) are currently facing a great deal of scrutiny from the SEC and the U.S. Department of Justice, there’s something more to the flurry of new charges. The SEC attributed charges in three of its four new cases to data analytics from the Market Abuse Unit’s Analysis and Detection Center that identifies suspicious trading activity. SEC Enforcement Director Gurbir Grewal noted that these new tools will help the SEC “root out misconduct and hold bad actors accountable no matter the industry or profession.” As insider trading cases can have complex facts with targets who are intentionally hiding or destroying evidence, the SEC whistleblower plays a crucial role in helping identify and/or locating key pieces of evidence.The U.S. Securities and Exchange Commission has recently ratcheted up enforcement of insider trading cases, announcing investigations against ten people in four different cases in July. The headline-grabbing case involves a former Coinbase manager, his brother, and a friend alleging a scheme to trade the cryptocurrency ahead of announcements that crypto assets would be available for trading. Continue reading

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We hear about securities fraud when a big case comes along. Hollywood often mythologizes the topic in movies like The Wolf of Wall Street. But these headline-grabbing stories don’t tell the full story. Companies are often under immense pressure to meet market expectations. On the Bloomberg Law podcast, UCLA Law School professor James Park recently discussed his new book “The Valuation Treadmill: How Securities Fraud Threatens the Integrity of Public Companies.” The book covers the pressures that U.S. companies face to commit securities fraud. The Valuation Treadmill For SEC Reporting Requirements In his book, Park starts with the story of the company Under Armour, a maker of sportswear and athletic shoes. For twenty-six consecutive quarters, the company increased its revenue by an average of more than 20%. But the company feared that admitting such growth was unsustainable, and with slowing revenue increases, their stock price would go down. So, when faced with a failure to meet projected revenue growth, the company asked customers to accept delivery of merchandise Under Armour wasn’t scheduled to deliver until the next quarter. It pulled millions of dollars in sales forward without disclosing this maneuver in its public filings. After investors paid too much for Under Armour stock, the SEC sanctioned the company. The pressure to meet market expectations, even if unrealistic or unsustainable, encourages companies to exaggerate their expected growth or issue misleading reports. As a result, securities fraud is now a main focus of regulations for public companies. Investors continue to closely scrutinize public companies to predict future performance, which increases the pressure on these companies to deliver short-term results to meet market expectations. As long as these pressures continue, companies will continue to skirt the law.We hear about securities fraud when a big case comes along. Hollywood often mythologizes the topic in movies like The Wolf of Wall Street. But these headline-grabbing stories don’t tell the full story. Companies are often under immense pressure to meet market expectations.

On the Bloomberg Law podcast, UCLA Law School professor James Park recently discussed his new book “The Valuation Treadmill: How Securities Fraud Threatens the Integrity of Public Companies.” The book covers the pressures that U.S. companies face to commit securities fraud. Continue reading

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When the Securities and Exchange Commission (SEC) warns investors of types of investment scams—such as boiler room and Ponzi schemes—the agency routinely mentions the high-pressure aggressive sales tactics scammers rely on to help defraud their customers. So let's look at some techniques that fraudsters are using: It's A Once-In-A-Lifetime Offer! Scammers use this popular pitch to create a sense of urgency. This false claim conveys that there's a limited quantity (when, of course, there isn't). It communicates that the target will regret passing up this opportunity, so they should invest immediately. That's key because the goal is to convince an investor to forgo the time and research they would normally use to independently investigate the investment. Guaranteed Huge Returns—At Little-To-No Risk! This is another classic claim. And this plays on our desire to have a sure thing, but it also plays on our ego—suggesting we'd be fools to pass this up. But responsible, legitimate advisers would make it clear that there is always a risk with stock investment. (If there was a guaranteed profit, then it's likely to be a small return, such as interest from a savings account.) The more someone assures a potential investor of no risk and a big return, the more wary the customer should be.When the Securities and Exchange Commission (SEC) warns investors of types of investment scams—such as boiler room and Ponzi schemes—the agency routinely mentions the high-pressure aggressive sales tactics scammers rely on to help defraud their customers. So let’s look at some techniques that fraudsters are using: Continue reading

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