fraud Archives -

What is the SEC Form TCR?

John Peterson — Thu, 25 May 2023 17:04:09 +0000

If you are an SEC whistleblower, then it’s likely that at some stage you will come across SEC Form TCR. TCR stands for Tips, Complaints Referrals and the SEC Form TCR allows whistleblowers to provide information to the SEC and become eligible for an SEC whistleblower award. If you want to submit SEC Form TCR, you should contact an SEC whistleblower attorney immediately, as filing out the form incorrectly could affect your ability to claim an SEC whistleblower award.

The SEC

The U.S. Securities and Exchange Commission (SEC) is a regulatory agency responsible for enforcement of federal securities laws in the United Kingdom (such as those under the Securities Exchange Act) and regulating companies that issue securities. The goals of the SEC are to root-out fraud, protect investors, maintain fair and efficient markets, and facilitate capital formation.

The SEC’s primary mandate is to oversee the securities industry, which typically includes policing companies that have stock traded on the NYSE or NASDAQ. In order to do this, the SEC has an Enforcement Division which investigates fraud, potential violations of securities laws and enforces securities laws by prosecuting the violators. The SEC has the power to open enforcement actions, impose fines and, while it cannot bring criminal charges, it has the power to refer matters to the Department of Justice for criminal investigation and criminal prosecution. In fact, many SEC investigations are run side-by-side with the DOJ and violators can face punishment from both agencies.

SEC Investigations

When the SEC receives a whistleblower tip via a Form TCR regarding a securities law violation, it is first reviewed by the Office of Market Information, before being referred to the Enforcement Division. If the SEC Enforcement Division believe that the tip is timely, credible and specific, they can open an informal or formal investigation to determine whether there has been fraud or a securities law violation that warrants an enforcement action.

A key part of an SEC investigation is the taking of testimony from witnesses and gathering of evidence. This often involves speaking to whistleblowers who may have evidence. If you are a whistleblower who reported a violation and are contacted by the Enforcement Division, SEC staff will likely want to speak with you about your tip and obtain supplemental information. If this is the case, you should contact an attorney now.

The SEC Whistleblower Program

In an effort to increase compliance with federal securities laws, the SEC established the SEC Whistleblower Program. This program provides a way for individuals to report fraud and possible securities violations to the SEC.

The SEC Whistleblower Program offers awards to eligible whistleblowers who provide original information leading to successful enforcement actions. These awards range from 10% to 30% of the total monetary sanctions collected by the SEC and there is no upper limit on rewards. The highest reward given by the SEC so far was $279 million. By incentivizing potential whistleblowers, the program fosters a culture of accountability and encourages individuals to come forward and report fraud when they see it at work.

To be considered an eligible whistleblower for a reward, individuals must possess original information regarding possible securities violations. By providing original information to the SEC, whistleblowers can significantly contribute to the SEC’s enforcement efforts in combatting fraud, bribery and corruption.

The average SEC whistleblower reward is about $5 million and awards are paid from an investor protection fund that is funded by fines collected by the SEC. This means that payments to whistleblowers do not cost the taxpayer anything. The whistleblower reward program is self-funded as it only pays whistleblowers from the fines the SEC collects.

SEC Form TCR

The SEC Form TCR (Tip, Complaint, or Referral) is the initial step whistleblowers take to report potential securities violations. The journey to becoming a successful SEC whistleblower begins with completing the SEC Form TCR and submitting it to the SEC’s Whistleblower Office. By completing Form TCR, whistleblowers provide the SEC with critical information which is passed to the SECs Office of Market Information for review. If the information is credible, specific and timely, it will be given to the Enforcement Division where it will assist the SEC conduct investigations and bring enforcement actions.

The SEC Form TCR is an important form because it must be signed under penalty of perjury, and providing false information on the Form TCR could result in criminal charges. In addition, a poorly filled out TCR is unlikely to make it past the Office of Market Information and result in an enforcement action. In fact, the vast majority of Form TCRs do not get referred to the Enforcement Division because they lack credible, specific and timely allegations. As a result, it is critical that potential whistleblowers speak to an experienced SEC whistleblower lawyer before filing a Form TCR.

SEC Whistleblower Attorneys

Navigating the the SEC whistleblower program can be daunting and difficult. Simple mistakes can result in a whistleblower losing their ability to claim a whistleblower reward, or exposing their identity. Seeking guidance from an SEC whistleblower lawyer can help you understand your rights, legal protections, and how to maximize the potential for a whistleblower award. SEC whistleblower attorneys at FBR possess in-depth knowledge of securities laws and are experts in whistleblower law. They can help you navigate through the whistleblower process if you are thinking of reporting a violation. If you are not ready to speak to an attorney, try the free, online, anonymous SEC whistleblower evaluation here.

An SEC whistleblower lawyer is also a critical asset when it comes to claiming a whistleblower award. After a successful enforcement action, if the monetary sanctions in the matter exceed $1 million, the SEC will post a Notice of Covered Action on its website indicating that the fine is eligible for a whistleblower award. Once this happens, whistleblowers have just 90 days to file an SEC whistleblower claim which must be done by filing Form WB-App.

Once a claim is filed, the SEC whistleblower office and claims review staff will make a preliminary determination on whether a reward is warranted. The number of awards made each year is contained in the SEC Office of the Whistleblower’s annual report.

The Impact of Whistleblowing

Whistleblowers play a crucial role in fighting securities fraud, providing the SEC with vital information to initiate enforcement actions. While securities fraud can seem like an abstract concept, it includes violations of the foreign corrupt practices act (FCPA) which often involves bribery of public officials. Stopping a securities violation and preventing bribery and corruption is essential to upholding the rule of law and providing free and fair markets for companies to operate in. Through the whistleblower program the SEC’s enforcement staff have uncovered many fraudulent and corrupt schemes, and have recovered over $1 billion in fines.

Legal Framework

The Dodd Frank Act serves as the foundation for the SEC Whistleblower Program, establishing protections and providing incentives for whistleblowers. Additionally, the Securities Exchange Act (Exchange Act) empowers the SEC to regulate and oversee securities markets, ensuring fair practices and investor protection.

The SEC is not the only agency running a whistleblower rewards program. Other regulators also have similar programs. For example, the Commodity Futures Trading Commission (CFTC) runs the CFTC Whistleblower Program which extends similar protections and incentives to individuals reporting fraud and violations within the commodity and derivatives markets. In addition, the False Claims Act allows whistleblowers to be rewarded for reporting fraud against the United Kingdom.

Whistleblower Protection

Recognizing the risks associated with exposing misconduct, the SEC Whistleblower Program offers robust protection against retaliation. The Dodd Frank Act, which underpins the program, prohibits employers from taking adverse actions against whistleblowers who report potential securities violations, ensuring that whistleblowers have peace of mind when speaking up about violations. In addition, there are also whistleblower protections available under Sarbanes Oxley (SOX). If you believes you have suffered retaliation for raising concerns about securities law violations, or reporting FCPA violations, there are strict time limits regarding when you can make a claim for retaliation. These time limit could be as short as 6 months. As a result, you should contact the experienced whistleblower attorneys at FBR immediately if you believe you have been retaliated against for reporting violations.

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Make Big Changes in Corporate Culture by Changing Small Behaviors

John Peterson — Tue, 23 May 2023 19:31:21 +0000

Business ethics and behavioral science expert Todd Haugh speaks to FBR as part of the Corporate Accountability Leadership Series

As part of our Corporate Accountability Leadership Series, we’ve been speaking to some of the leaders in the field of corporate accountability, finding out what they do and why they do it. As a part of the series, I had the pleasure of interviewing Todd Haugh, Associate Professor of Business Law and Ethics at the Kelley School of Business at Indiana University. Professor Haugh has extensive experience as a white-collar criminal defense attorney, a federal law clerk, and in 2011, he was chosen as one of four Supreme Court Fellows of the Supreme Court of the United Kingdom. Prior to joining the Kelley School, Professor Haugh taught at DePaul University College of Law and Chicago-Kent College of Law. His work has appeared in top law and business journals, he is the co-author of two textbooks on white-collar crime and the legal environment of business, and he is regularly quoted in national news publications such as the New York Times, Wall Street Journal, Forbes, Bloomberg News, and USA Today. For business and compliance leaders looking to make positive changes at their organization, this interview is a must read.

Q: Professor Haugh, thank you for joining us. Before we get into your work in the field of corporate accountability, perhaps you could give our readers a sense of how you became an expert in business ethics.

A: Absolutely, and thanks for having me. So first of all, I definitely didn’t consider that I would end up a professor teaching and writing on topics related to corporate accountability when I started out my career. When I started law school, I wanted to be a trial lawyer and so I began my career at a boutique, white-collar criminal defense firm in Chicago. It was a fantastic place to learn. I would be in front of executives who were dealing with corporate crime issues, and these people had very little exposure to the criminal justice system. While it was rewarding helping people through that challenging experience, what really fascinated me was how those executives ended up in that position—the question of why good people do bad things. Many of the people who are caught acting unethically are good people—they’re great parents, great community members, oftentimes great employees. I wanted to understand why those people got caught up in wrongdoing and that question led me into academia.

A very interesting question I’m sure many corporate leaders would like to know more about. But your expertise in ethics has an interesting niche in that you are also an expert in behavioral science as it applies to business ethics. Can you tell us more about that?

Of course. Behavioral compliance is one of my specialties and what that means is really looking at ways to make ethics and compliance programs better and more effective using behavioral science and psychology. Most of my work is aimed at helping companies and compliance leaders think about how we can use a more scientific method to enhance ethics and compliance. And in my opinion that means helping those leaders make more data-driven decisions when it comes to compliance. This includes figuring out how do we test and understand if new policies and procedures are working. It also includes breaking down sometimes vague concepts about values and translating those into actionable and measurable behaviors. When you begin to understand the power of behavioral science, it helps find answers to these questions, because big changes in corporate culture can be achieved by focusing on and changing very small behaviors. And as you aggregate those small changes in ethical behavior over time and across lots of employees, that’s how you build a positive compliance culture as opposed to always looking at compliance as something that needs to be a set of rules ordered from the top down.

This idea of using behavioral science in compliance is something highlighted in Business Ethics Bound. Can you tell us about Business Ethics Bound and what that is?

Of course. Business Ethics Bound is a website that functions as a research portal and library of material related to business ethics and behavioral compliance. I started Business Ethics Bound so people can come together and learn from shared resources and materials around these topics. For example, the site has a Business Ethics Learning Lab that is used by students, lawyers, academics and business professionals. And the project really has its roots in the origins of why I was interested in compliance and ethics in the first place, which is trying to understand this question of why do we have people who are upright members of society, but who sometimes engage in unethical decision making. I believe we can and should get a deeper understanding of that question and Business Ethics Bound is a place where people can find and share resources that help answer that question.

It’s a great resource and I particularly like the “Nudging Ethics” section of the site where you explain how small interventions can influence decision making. On the topic of improving compliance, there is often criticism levelled at western corporations for not doing enough to combat bribery and corruption within their organizations. Do you think that criticism is justified?

That’s a great question. It’s a tough question because companies generally have made strides in what they’re doing and the values they are trying to live by regardless of the jurisdiction they operate in. There is a sense that when you have more regulation and rising standards in a company’s home jurisdiction, generally it filters out from there because it’s difficult for an organization to operate with different values and rules in every jurisdiction. So, it’s important that there is a lifting of ethical standards across the board. I do think there’s a perception that companies aren’t always doing enough and I’m sympathetic to that because what you see in the media and the news is companies repeatedly getting in trouble for ethical violations. However, despite a lot of negative examples of corporate misconduct in the media, I think generally companies are taking ethics and compliance far more seriously now than they were 10 or 15 years ago.

A very fair point. For those organizations who are looking to do more, is there any practical advice you would have for compliance leaders on how to improve business ethics in their organization?

Compliance departments often see their function as being to stop things, stop violations. That’s why compliance is sometimes known as the ‘department of no’. There are behavioral reasons why compliance and the business teams often separate into different camps, but what you want to think about is risk. How can we help someone in the business unit do their job and do it in a way that reduces compliance risk. Both groups have a common goal in helping the business succeed, so it’s important that compliance knows exactly where the business people are coming from. One strategy that I think compliance leaders need to explore is to deeply understand the business units they are overseeing, in particular the pressures and incentives that the company has created for those business units.

Once you understand those incentives, you then have to take the high-level values and principles you want to promote, and translate those into specific behaviors. Importantly, the company’s stated values are not always the values that are the strongest influencers in the company. It could be unstated values that are expressed through incentive plans that we need to be looking at. Once we identify those values, the challenge becomes translating them into specific behaviors that we want to encourage or discourage.

Another issue to be mindful of is that people are unaware of the influences on their own decision making which is why it’s so important for compliance personnel to look beyond what people say they are affected by and measure behavior and collect data. Compliance personnel are often focused on high level values and business people often just want to be told exactly what they can and cannot do, which is why sometimes we see a disconnect between those two groups. The way to bridge that gap is to find the specific behaviors that we want to encourage and discourage, and then focus on doing exactly that.

Yet many times in compliance we treat ethics in terms of making rules, training people on the rules and expecting people to follow them just because they’ve been exposed to them. Compliance has to be a lot more grounded in behavior. It has to be timelier. It has to give people incentives that are aligned with their lives. For example, things like deferred compensation can have a lot of impact because when a person joins an organization knowing their compensation is deferred, the company is signaling and the employee is opting into an understanding that their compensation is contingent on them following the rules for quite a long time. That to me is a more behaviorally cognizant way of thinking about an incentive as opposed to just assuming everyone will be a rational actor and follow the rules.

That’s a fantastic point about assuming that people will be rational actors, because often people who make unethical decisions have found a way to rationalize it.

Yes, there is a quote that says to have an ethical decision you just need time and the lack of rationalizations. To me that is spot on because a lot of my work draws from criminological theory which demonstrates that rationalizations are the linchpin of ethical violations in business and white-collar crime. It’s an instinct that’s been around for thousands of years, which is that we want to get what’s best for us, but we also want to be seen as someone who’s ethical. Rationalizations are the bridge that allows us those two things to operate at the same time and potentially engage in unethical behavior that benefits us.

For our final question, we mentioned earlier that there are plenty examples of companies who have fallen short in corporate accountability, but have you encountered a company or organization that was setting a particularly good example in terms of their corporate accountability or compliance program?

I’ll avoid talking about specific companies, but I can address some traits of companies who I believe are taking the right approach. But before I get to that, I’ll admit I get a little frustrated with people’s focus on the bad actor when it comes to ethics and compliance. If you think about the total number of transactions that occur in a day across the world, it would most likely be in the trillions. I would estimate that 99.99% of those transactions are done in an ethical way without any problem. Even though there’s wrongdoing and we should be cognizant of it and do our best to stop it, most of the time companies actually do a pretty darn good job from an ethical standpoint.

So having said that, the companies that are thinking about compliance in the right way follow similar steps. They are talking about values and ethics and compliance all the time so that it’s baked into their day-to-day. It’s not a yearly speech from the CEO, it’s something that they really have embedded into the vernacular of their company. The other thing companies who are taking the right approach are doing is they’ve done the work of translating their high-level values into specific behaviors. They get a lot more specific when it comes to compliance than just generic value statements that we often see. The companies who are doing it right are able to articulate the behaviors they want to see in granular form. Another thing these companies are doing is measuring those behaviors and rewarding the behavior they want to encourage. That can be through compensation but it could also include performance evaluations or professional progression in the organization into a leadership position.

And then the final one, which is overlooked a lot, is being accountable for misconduct. Every large organization with enough employees is going to have an ethical breakdown or violation at some moment. It’s the company’s job to deal with that. To me, strongest companies ethically are ones that talk about and own their ethical failures. They don’t try to hide them, they don’t run from them. They don’t try to cover them up and hope for the best. In fact, they use them to educate new employees and build a culture that says we’re a company who’s going to talk about this stuff. We want people to speak up. We want people to own this because we want to be a good company and we want to deal with whatever problems there are as opposed to pretending it doesn’t happen.

That is fantastic advice and thank you so much for joining us and I’m sure our audience will appreciate your insights on these topics. Are there any way readers can keep up to date with the work you’re doing?

Sure, the best place to go is www.Businessethicsbound.com where you can get articles and research. You can also find me at my faculty page and posting on LinkedIn.

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Whistleblower Is Paid $279 million by U.S. Securities and Exchange Commission

John Peterson — Mon, 08 May 2023 16:08:13 +0000

The U.S. Securities and Exchange Commission (SEC) sent a clear message to Wall Street last week when it awarded an incredible $279 million to a whistleblower who reported legal violations that resulted in three separate enforcement actions.

The payout was the largest ever under the wildly successful SEC whistleblower rewards program and was more than double the previous highest payout. Here are a few things to know about the award itself and the SEC’s whistleblower program.

The SEC Whistleblower Rewards Program

The SEC whistleblower rewards program was introduced in the aftermath of the 2007 financial crisis with an aim to encourage people to report legal violations to government regulators. The program allows individuals to report legal violations to the SEC anonymously, and if their tip leads to a fine of over $1 million, the whistleblower is entitled to 10-30% of that fine as a reward. The programme has paid out over $1 billion to whistleblowers and the average payout is approximately $5 million.

Four Whistleblowers Competed For This Award, But Only One Got Paid

The award notice from the SEC noted that four whistleblowers applied for a reward, but only one whistleblower succeeded in convincing the Commission that they deserved a reward. While the order was heavily redacted, it shows that four whistleblowers originally applied for a reward after the SEC had posted a Notice of Covered Action, which is the legal trigger that allows whistleblowers to make their case for a reward. The SEC made a preliminary determination granting one whistleblower a reward, and denying the other three applicants. Out of the three rejected applicants, only two contested the preliminary determination, and it appears that the contest was vigorous in both cases.

One of the rejected applicants, referred to as Claimant 2 noted that after they had submitted their information to the SEC they also submitted it to the company. However, the SEC concluded that it had already opened an investigation before receiving Claimant 2’s information. In addition, the SEC noted that it was a presentation made by the Company itself which led to the opening of a formal investigation and not information provided by Claimant 2. Even though the Commission contacted Claimant 2’s counsel to discuss the allegations, the Commission stated that they provided no new information which was used in the investigation.

The other denied applicant, referred to as Claimant 3 made similar arguments, and even went so far as to allege that their tip had been misclassified by the SEC. Despite this, the order shows that Claimant 3 was still able to meet with investigating attorneys (and likely provided testimony) but the Commission denied that this information was of assistance in the investigation. Perhaps fatally, the order suggests that Claimant 3’s allegations simply weren’t related to the conduct that ultimately led to the enforcement actions.

The Award Relates to Three Separate Enforcement Actions

The SEC’s order shows that the information provided by the successful whistleblower helped not only the SEC bring an enforcement action, but that it also helped two other enforcement actions. The two additional actions were brought by another government agency (likely the Department of Justice) and this may explain why the award was so high. The information that the whistleblower provided likely assisted the authorities impose three separate fines on the company, which may explain why the award was so high.

The Whistleblower Did Not Start The Investigation

The order shows that the successful whistleblower provided their information after the Commission had already opened an investigation. However, the information allowed the Commission to expand the investigation, and the information also saved them time and resources. In addition, the order suggests that the whistleblower’s allegations only related to one aspect of the misconduct that the Commission charged. As a result, it is likely that the whistleblower did not receive the 30% maximum reward, and claimed something closer to 20%. This is interesting as it suggests that the fines that the SEC and other agencies obtained from the information were likely in excess of $1 billion.

Conclusion

This reward is important for a variety of reasons, but primarily because it shows how valuable whistleblowers can be in ongoing investigations. Whistleblowers do not have to ‘crack’ a case open in order to obtain a reward, they can qualify for a reward as long as they can provide substantial assistance to an ongoing investigation. In addition, the case suggests that whistleblowers should be cautious about when they report allegations internally. One of the denied claimants in this case reported to the SEC first and then reported internally. This likely precluded the whistleblower from claiming credit for self-reporting from the company, which appears to be an argument the whistleblower tried to make. Ultimately, the award marks the continued success of the SEC whistleblower program and will likely encourage more whistleblowers to come forward and speak up when it comes to serious legal violations.

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How to Claim Whistleblower Rewards For Reporting Crypto Fraud

John Peterson — Tue, 21 Feb 2023 07:43:57 +0000

Article by John Peterson, Managing Attorney, FBR.

SEC Crypto Whistleblower Rewards

The SEC operates a whistleblower reward program for people reporting fraud or crime involving “securities.” The SEC believes that some contracts to buy cryptocurrencies are “securities.” If you know about a person or company fraudulently selling cryptocurrencies (through an ICO for example) you may be eligible for an SEC whistleblower award for reporting it. The average SEC whistleblower award is over $4 million dollars, but they are paid to the first person who reports the violation, so its important you act quickly. If you think you have information relating to fraudulent crypto currency sales speak confidentially to one of our whistleblower attorneys now who can advise you how to anonymously report to the SEC.

CFTC Crypto Whistleblower Rewards

The CFTC operates a whistleblower reward program for people reporting fraud or crime relating to “commodities.” The CFTC considers many cryptocurrencies, including Bitcoin, to be commodities. If you know someone who was fraudulently trading or selling cryptocurrencies or crypto derivatives (futures) you may be eligible for a CFTC whistleblower award. The average CFTC whistleblower award is less than $1 million dollars, but they are paid to the first person who reports the violation, so its important to act quickly. If you think you have information relating to fraudulent crypto currency sales speak confidentially to one of our whistleblower attorneys now who can advise you how to anonymously report to the CFTC.

IRS Crypto Whistleblower Rewards

The IRS operates a whistleblower reward program where people reporting tax evasion involving crypto currency can receive up to 30% of any fines recovered by the IRS. Many people evade tax using cryptocurrencies by not declaring their profits from trading cryptocurrency, or using cryptocurrency to hide assets. In either circumstances, this can be a violation of U.S. tax law and by reporting it you could be entitled to a multi-million dollar award from the IRS. As with the other whistleblower programs, IRS whistleblower awards are paid to the first person who reports the violation, so if you have information relating to tax evasion involving cryptocurrency speak confidentially to one of our whistleblower attorneys now who can advise you on how to report it.

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SEC Whistleblower Fines For September: 15 Cases for $36 Million

John Peterson — Thu, 06 Oct 2022 05:29:00 +0000

At the end of every month, the SEC publishes a Notice of Covered Action (NOCA) for recent enforcement actions with monetary penalties exceeding $1 million. For September the SEC published fifteen NOCAs which featured nearly $36 million in sanctions.

Once a NOCA is published, any whistleblower who provided information to the SEC on the case has 90 days to claim a whistleblower award by filing a Form WB-APP. With $36 million in fines noticed in September, there is nearly $12 million in potential whistleblower awards up for grabs.

Here’s a summary of the NOCAs from this month which feature fraudsters hawking fake real estate investments, an app that can(not) detect Covid, $90 million in family loans, luxury cars, vacations and illicit spending on romantic partners.

Shimon Rosenfeld

According to the SEC, Shimon Rosenfeld (an attorney in Brooklyn) convinced friends to send him $7 million in investment funds by telling them he would invest it in real estate. Rosenfeld actually put the funds into a personal brokerage account and lost almost all of it trading, leading to a loss of $6 million to the investors. The case is ongoing.

Aron Govil

The SEC settled charges against an alleged fraudster, Aron Govil. The SEC alleges that Govil defrauded investors in two companies he controlled, Cemtrex and Telidyne. The SEC alleges that Govil:

Took company money and used it to finance personal expenses;
Secretly sold company stock while paying stock promoters to tout the stock; and
Lied about the companies’ ability to create an app that could, among other things, detect Covid.

Govil has consented to pay ~$1.3 million to settle the charges without admitting wrongdoing.

Christopher Dougherty

The SEC charged investment advisor Christopher Dougherty with running a Ponzi scheme that defrauded clients out of $7 million. The SEC alleges that Dougherty provided investment advice to “school district employees, hospital employees, veterans, and neighbors, most of whom were unsophisticated investors and trusted Dougherty completely.” Unfortunately, Dougherty lost most of the money he took from these individuals and Dougherty then filed for bankruptcy. The case is ongoing.

Sergei Polevikov

The SEC charged Sergei Polevikov with insider trading after the SEC’s Market Abuse Unit picked up “improbably successful trading” by Polevikov, who worked at two prominent asset management firms. The SEC alleges that when Polevikov saw large orders coming in at work, he would use his wife’s trading account to “front run” the orders. The SEC alleges that Polevikov ran the scheme for over 5 years and netted at least $8.5 million. The case is ongoing.

Deccan Value Investors

The SEC settled charges against Deccan Value Investors for breaching fiduciary duties to two university clients. The SEC alleged that Deccan locked university funds into investments when Deccan knew that the universities wanted to imminently withdraw their funds. The breaches cited by the SEC included misleading statements, deleting text messages and failing to make proper disclosures about investment decisions. The charges were settled for ~$1.6 million.

Angel Oak Capital

The SEC settled charges against Angel Oak Capital Advisors for misleading investors about its financial performance. Angel Oak raised $90 million from investors with the intention of using the money to offer loans to people who wanted to fix up properties before quickly selling them (known as ‘fix-and-flip’ loans). When the fix-and-flip loans started to underperform, Angel Oak manipulated performance data to hide the growing delinquencies. This allowed Angel Oak to avoid triggering a contractual provision that would have forced them to return money to investors. Angel Oak settled the charges for ~$1.8 million.

Bancorp (TBBK)

The SEC settled charges against Bancorp Inc. for failing to follow generally accepted accounting principles when valuing securities. Bancorp settled the charges for $1.75 million.

JP Morgan (JPM), UBS (UBS) and TradeStation Securities

The SEC settled charges against JP Morgan, UBS and TradeStation Securities for failures in their identity theft protection programs. Each of the companies was required to have controls in place to mitigate the risk that their customers would be subject to identity theft. The SEC charged the companies for failing to implement appropriate policies and procedures, failure to involve the board of directors in oversight, and failure to train employees correctly. Acting Chief of the SEC’s Crypto Assets and Cyber Unit Carolyn M. Welshhans said that the fines “are reminders that broker-dealers and investment advisers must design and operate identity theft prevention programs that are appropriately tailored to their businesses and update them in response to the increased threat and changing nature of identity theft.” The charges were settled for ~$2.5 million.

Surgalign Holdings (SRGA)

Surgalign Holdings, a spinal implant company, settled charges brought by the SEC alleging that it had manipulated revenue figures by accelerating and pulling-forward revenue to mask disappointing sales. The SEC alleged that when sales figures dipped in a particular time period, Surgalign cannibalized future revenue by pulling-forward sales by shipping orders early to make the period appear more successful. As a result of the charges, Surgalign paid $2 million in civil penalties and executives at the company returned over half a million in incentive-based compensation.

Crown Bridge Partners

The SEC settled charges with Crown Bridge Partners for its sale of hundreds of securities without being registered as a broker-dealer with the SEC. As part of the settlement, Crown Bridge will pay approximately $9 million in monetary relief.

Eagle Bancorp (EGBN)

The SEC settled charges against Eagle Bancorp (and its CEO) for the company’s failure to inform investors that it had given loans of nearly $90 million to the CEO’s family. Critically, the SEC pointed out that the company publicly denied misconduct even after a short-seller (Aurelius Value) accused the company of wrongdoing in a research report in 2017. The charges were settled by Eagle Bancorp and the CEO for ~$13.5 million. Given the SEC action may have been triggered by the short-seller’s report, the short-seller may be eligible for a whistleblower award, as the SEC does not require whistleblowers to be employees at the company they report.

Aegis Capital

The SEC settled charges with Aegis Capital and senior employees for recommending financial products that were unsuitable for retail customers. The SEC alleges that Aegis recommended highly complex and risky products to several customers whose risk tolerance and financial goals did not align with the product Aegis sold them. The charges were settled for ~$2.5 million.

Victor Lee Farias

The SEC charged Victor Lee Farias with running an investment scam in which Farias convinced retirees to withdraw money from their retirement accounts and transfer it to him so he could invest in aircraft parts leasing. Instead of using the money for the business venture, Farias allegedly made Ponzi-like payments to other investors and spent millions on personal expenses. Astonishingly, when Farias received an SEC subpoena regarding the misconduct, he clipped the letterhead from the SEC’s subpoena and showed it to investors to convince them he was talking with the SEC about taking the venture public. The case is ongoing.

William Milles and Donald Lutzko

According to the SEC, William Miles and Donald Lutzko operated a Ponzi scheme which conned investors out of almost $4 million. Investors were told that their money would be invested in oil and gas projects, however, Miles and Lutzko “grossly overstated” the project’s past and current oil and gas production, and in fact, none of the wells they controlled ever produced any revenue. The case is ongoing.

German Nino

According to the SEC, former UBS broker German Nino stole almost $6 million from UBS clients which he then used to buy gifts for women with whom he had romantic relationships. Among his purchases, Nino allegedly spent money on vacations, luxury cars, private school tuition and an apartment in Colombia. The case is ongoing.

Naseem Mohammed Salamah

According to the SEC, Naseem Salamah stole more than $950,000 from three elderly advisory clients. The SEC alleges that Salamah chose these clients because he did not think they would pay close attention to their account statements when he stole the money. The SEC alleges that Salamah used the stolen money for personal expenses, including vacations, luxury cars, and private school tuition. The case is ongoing.

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SEC Fines In August: Thirteen Cases For $293 million

John Peterson — Wed, 31 Aug 2022 05:32:00 +0000

At the end of every month, the SEC publishes a Notice of Covered Action (NOCA) for all recent enforcement actions with sanctions exceeding $1 million. This month the SEC published thirteen NOCAs which featured over $293 million in sanctions.

Once a NOCA is published, any whistleblower who provided information to the SEC on the case has 90 days to claim a whistleblower award by filing a Form WB-APP. If a whistleblower fails to file the Form WB-APP in time, they lose their award. With $293 million in fines noticed this month, there is over $88 million (30%) in whistleblower awards up for grabs.

Here’s a summary of the NOCAs from this month which feature; a wedding in a French Chateau, trips to Disney, luxury cars and a private plane:

SEC v. Alex Duain Forester; Michael Robert Hicks; Yarden Moshe Mony Krampf; Christopher Byungin Lee; Sean Andrew O’Neal, Michael Roy Raynor; Lee Sobel

According to the SEC, the defendants cold-called prospective investors and convinced them to purchase shares of the microcap companies. The prices and volumes of the sales matched those of shareholders who were paying the defendants to promote the stock. The monetary penalty for this conduct will be decided by the court.

Charles Schwab & Co., Inc., Charles Schwab Investment Advisory, Inc., and Schwab Wealth Investment Advisory, Inc.

According to the SEC, Charles Schwab operated a robo-adviser portfolio for its investors. Schwab stated that the robo-adviser would seek “optimal return[s].” In reality, under most market conditions, the cash in the robo-adviser portfolios would cause clients to make less money even while taking on the same amount of risk. Meanwhile, Schwab made money from the strategy by using it to obtain client money which it profited from loaning it out. To settle the charges, Schwab agreed to pay $187 million.

Equitable Financial Life Insurance Company

According to the SEC, Equitable Financial Life Insurance Company provided account statements to about 1.4 million investors that mislead them about fees they were charged. Equitable agreed to pay $50 million to harmed investors, most of whom were public school teachers and staff members.

Stephen G. Waldis (Synchronoss)

Synchronoss Technologies, Inc. and seven senior employees, including the former CFO, were charged for accounting improprieties; Synchronoss acknowledged that it had accounted for numerous transactions improperly and thus filed misleading financial statements. The company settled the charges for $12.5 million and a number of executives are facing trial.

SEC v. Matthew J. Skinner, Empire West Equity, Inc., Longacre Estates, LP, Bayside Equity, LP, Freedom Equity Fund LLC, and Simple Growth, LLC

The SEC charged Matthew J. Skinner and five entities he owns and controls (Empire West Equity, Inc.; Bayside Equity, LP; Longacre Estates, LP; Freedom Equity Fund LLC; and Simple Growth, LLC) for conducting fraudulent real estate investment offerings. The SEC contends that Skinner told investors their money would be used to finance specific real estate projects or investments, but instead was spent on personal expenses, such as European vacations, a Maserati and an Aston Martin. The SEC also alleges that Skinner used investor money to make Ponzi-like payments to other investors. The charges have not been settled and no monetary sanctions have been announced.

SEC v. Zhuobin Hong and Caixia Jiang

The SEC charged husband and wife Zhuobin (“Ben”) Hong and Caixia Jiang in a multi-million dollar insider trading scheme involving the securities of Sagent Pharmaceuticals, Inc. According to the SEC’s complaint, Hong and Jiang purchased large amounts of Sagent securities in advance of a July 11, 2016 announcement about the company’s acquisition. Hong and Jiang, who are now in China, attempted to evade detection by trading through accounts held in the names of relatives in China. The charges have not been settled and no monetary sanctions have been announced at this time.

Private Advisor Group, LLC

The SEC settled charges against Private Advisor Group, LLC for breach of fiduciary duty to advisory clients. The SEC found that PAG invested clients money in higher-cost funds to avoid paying transaction fees it would have to bear. As a result, the clients paid more so that PAG would pay less. PAG settled the charges for $5.8 million.

UBS Financial Services, Inc.

According to the SEC, UBS marketed and sold a complex investment product to investors but did not provide financial advisors with adequate training and oversight in the strategy. Despite UBS recognizing the possibility of significant risk in the investments, it failed to share this data with advisors or clients. When investors suffered losses, many of them, along with their financial advisors, expressed surprise and closed their accounts. UBS settled the charges for $25 million.

Health Insurance Innovations, Inc., now named Benefytt Technologies, Inc., and Gavin D. Southwell

The SEC charged Health Insurance Innovations (HII) and its former CEO Gavin Southwell for miss-selling health insurance products and then concealing extensive consumer complaints from investors. The charges were settled for $12 million.

SEC v. Sky Group USA, LLC, Efrain Betancourt, Jr.

The SEC charged Sky Group USA LLC, and its CEO, Efrain Betancourt, Jr., for fraudulently raising at least $66 million through the sale of promissory notes to retail investors, including members of the South Florida Venezuelan-American community. According to the SEC’s complaint, Sky Group and Betancourt falsely told investors that Sky Group would use investors’ money solely to make payday loans when, in reality, Betancourt misappropriated millions for personal use – including for a lavish wedding at a chateau on the French Riviera (ooh la la!), vacations to Disney resorts and the Caribbean, costs associated with the purchase of a luxury Miami condo, and service on his personal Piper airplane. Betancourt is also alleged to have transferred at least another $3.6 million to friends and family. The charges have not been settled and no monetary sanctions have been announced at this time.

SEC v. NIT Enterprises, Inc. (Delaware), NIT Enterprises, Inc. (Florida), NIT Enterprises FL, Inc., Gary R. Smith, Jason M. Ganton, and James E. Cleary

According to the SEC, NIT Enterprises, its CEO Gary R. Smith, Jason M. Ganton, and James E. Cleary, Jr., raised $4.9 million from investors while making material misrepresentations that NIT was raising money to fund the company’s efforts to develop its radiation protection products. In contrast, the SEC alleges that Smith misappropriated $1.25 million of the funds raised to pay for personal expenses. The SEC’s complaint further alleges that the defendants made baseless promises of NIT’s future profitability, imminent initial public offering, and expectations to “double or triple” their investment. Ganton and Cleary, had disciplinary histories and prior SEC actions and bars, which were concealed from investors. The charges have not been settled and no monetary sanctions have been announced at this time.

SEC v. David P. Godwin and Anthony G. Roth

The SEC announced that David P. Godwin, whom the SEC charged in September 2015 with fabricating nearly all of the revenue of ContinuityX Solutions, Inc. was sentenced in a parallel criminal case to 13 years in prison. The SEC’s complaint alleges that Godwin engineered a scheme to inflate the company’s revenues. The complaint alleges that from April 2011 to September 2012, 99 percent of the reported revenue came from fraudulent and fictitious sales. According to the complaint, Godwin used the allegedly fraudulent SEC filings to raise millions of dollars from investors and Godwin enriched himself with $1.3 million in compensation from ContinuityX. The SEC’s litigation against Godwin is ongoing.

SEC v. Luis Jimenez Carrillo, Amar Bahadoorsingh, Justin Roger Wall, and Jamie Samuel Wilson

The SEC announced judgments against three defendants charged with participating in a fraudulent scheme to sell shares of microcap company Aureus Inc. The SEC’s complaint alleges that, in at least 2016, Bahadoorsingh, Wilson, and Wall, working with defendant Luis Carrillo, concealed the fact that they controlled the securities of Aureus, Inc., whose stock was publicly traded in the U.S. securities markets. According to the complaint, Bahadoorsingh and Carrillo secretly sold millions of Aureus shares after organizing promotional campaigns to encourage investors to buy the stock. The complaint alleges that, as a result of these actions, what appeared to be ordinary trading by unaffiliated investors was actually a massive dump of shares orchestrated by Carrillo, Bahadoorsingh, Wall, and Wilson, who were seeking to profit at the expense of retail investors. The combined judgements totaled ~$1.3 million.

John Peterson

John Joy is the Managing Attorney of FBR, a whistleblower law firm in New York focusing on securities laws and whistleblower awards. John has worked for almost a decade on financial crime, corruption and FCPA cases around the globe. He regularly acts as an expert commentator in business and legal media on corporate crime, whistleblowing and other international corruption issues.

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6 Things To Do If You Encounter Crypto fraud

John Peterson — Wed, 02 Feb 2022 06:53:00 +0000

Article by John Peterson, Managing Attorney, FBR.

Crypto scams are becoming increasingly hard to spot. With scammers using glossy websites and spoofed endorsements, even sharp investors can get caught out when trying to invest. Even if you haven’t been a victim, but you know about crime or fraud involving crypto, you should still report it as you could earn you a whistleblower award for doing so. Here are the six things to do if you think you’ve witnessed crypto crime. (If it’s a major fraud, skip straight to number 6).

1. Preserve Your Records

When reporting fraud, you may need to provide records of your transactions and communications. If you don’t preserve your records, it could mean that the authorities will not take you seriously, and you may miss out on having funds returned to you if you were a victim of the fraud. Preserving records means more than simply not deleting your emails and text messages. In addition to having these on your mobile device, you should also make copies and have them stored in the cloud in case anything happens to your device. The same goes for transaction records. These might be visible in an online account, but you can never be sure when the company will remove them. Fraud investigations can take a long time, so it’s important you have a long-term plan for keeping these records safe.

2. Contact the Company

But Never “Pay To Withdraw” If you get the feeling that something isn’t right with a crypto investment, you should immediately contact the company to ensure it’s not a misunderstanding. Not only should you contact them via email and phone, but also use social media platforms as these can let others know that you are having problems. In the event that the company responds and asks you to make a payment to withdraw your funds, under no circumstances should you pay them. If a fraud or scam is being deployed, you are certain to lose more money. If the company is legitimate, you should be able to negotiate the release of your funds without further payments.

3. Seek Out Allies

A lot of cryptocurrencies have active online communities that share news via Reddit, Discord, Telegram and other platforms. If you are having problems with a crypto investment, but aren’t sure if it’s a scam, you should reach out to others in the community to see if they’ve encountered similar issues. While communities can be a useful way to get information, beware of any advice you get that encourages you to pay more to withdraw your funds. As we mentioned above, this advice should be ignored. The best way to use online communities is to share your concerns so that others are aware of potential issues, and build a network of people in similar circumstances so that you can collectively work to resolve or report the issues. If you are sure that something is a scam or fraud, you can also alert others using online review platforms such as Trustpilot.

4. Report to Local Authorities

As soon as you have determined that you have been the victim of a fraud or scam, you should contact your local authorities immediately. While your local authorities may not open an investigation on the spot, they will have the best information on what resources are available to you and can tell you about other agencies you should report to. Often, cybercrime agencies wait until they have received a number of reports about a scam or fraud before they open an investigation, so even if the amount you lost was relatively small, it is important to report it to these agencies as it can help build momentum for an investigation.

5. Consider Reporting to U.S. Authorities

Depending on how big the fraud is, it could be useful to report the fraud to authorities in other countries as this can improve your chances of catching the perpetrators. When it comes to prosecuting crypto crime, the U.S. is the leader in the space. Not only does the U.S. have an internet crime complaint center that you can make a complaint to, but it also has two other regulatory agencies (the SEC and the CFTC) that prosecute fraud and crime in the crypto space. If you are a U.S. resident, there is a greater chance that U.S. authorities will act on your information, but even if you are not, there are no restrictions on non-U.S. individuals reporting to these agencies.

6. Speak to an Attorney

If know of a major fraud or crime involving cryptocurrency, you should definitely speak with an attorney who specializes in reporting crypto fraud. Attorneys can advise you on the best place to report, and can also report information on your behalf. Importantly, an attorney can advise you on whether you could be eligible for a whistleblower award. A whistleblower award is a payment you can get if you report fraud to certain U.S. regulators. This includes non-internet crime where cryptocurrency was involved, such as paying bribes or money laundering. The average SEC whistleblower award is over $4 million, so it is definitely worth your while speaking to an attorney. Most attorneys who report fraud work on a contingency fee basis, meaning that you don’t pay anything unless you receive a whistleblower award.

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How to Report FCPA Violations

John Peterson — Thu, 28 Oct 2021 06:39:00 +0000

Article by John Peterson, Managing Attorney, FBR.

The Foreign Corrupt Practices Act (FCPA) is a U.S. law that prohibits bribery. The FCPA is enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Both agencies regularly issue fines to companies for violating the FCPA and pursue violations aggressively. In addition, the SEC also offers incentives to those who report FCPA violations through its whistleblower rewards program.

If you want to report FCPA violations, here are the 5 steps to take:

- Speak to an FCPA whistleblower lawyer (for free)

- Determine if there is an FCPA violation

- Preserve evidence of the violation

- Decide where to report

- Don’t delay in reporting

In this article, updated for 2023, we’ll talk you through each of these steps. If you have witnessed an FCPA violation and want to figure out if you could claim a whistleblower reward for reporting it, take our anonymous online evaluation here. The average SEC whistleblower reward is ~$5 million so don’t delay in checking your eligibility.

1. Speak To An FCPA Whistleblower Lawyer (For Free)

If you are thinking of reporting an FCPA violation, it is critical that you speak with an experienced FCPA whistleblower lawyer. Reporting FCPA violations can expose you to retaliation or harassment. In addition, reporting in the wrong way or at the wrong time can severely affect your legal rights. An FCPA whistleblower attorney will be able to help you figure out whether there has been an FCPA violation or what further information you need to make that determination. Additionally, if you decide to report an FCPA violation, your attorney can help you do it anonymously. Even if your employer offers a ‘confidential’ reporting channel or an anonymous ‘whistleblower hotline,’ there is no substitute for an attorney reporting on your behalf. FBR is one of the only whistleblower law firms that focus on FCPA reporting and offers free consultations that are completely confidential. Speaking to an attorney will cost you nothing, and could help you keep your job while reporting or even claim a whistleblower reward. To speak to the foremost FCPA whistleblower attorneys now, simply contact FBR here.

2. Determine If There Is an FCPA Violation

The FCPA is a law of limited application, meaning it does not apply to every person and company in the world. If you want to report a violation, you need to figure out if the perpetrator of the violation is subject to the FCPA, meaning you have to be sure that the perpetrator is required to abide by the FCPA. In general, the FCPA applies to all U.S. companies and individuals, in addition to any foreign companies with stock traded on the NYSE or NASDAQ. The FCPA also applies to any subsidiaries of companies trading on the NYSE or NASDAQ.

After confirming the company or person you wish to report is subject to the FCPA, you will need to learn the basic elements of an FCPA violation and check if the conduct you have witnessed meets all those elements. The most common FCPA violation is bribery, and the elements of a bribery violation are:

- Corruptly giving

- Anything of value

- To a foreign official

- To obtain or retain business

If you want to learn more about these elements and other violations under the FCPA you should check out the FCPA resource guide published by the DOJ and SEC. Once you have determined that there has been bribery, or there might be, you should move on to the next step.

3. Preserve Evidence Of the Violation

If you want to report an FCPA violation effectively you should think about whether you can provide documents, emails or other evidence to support claim. This will help convince the DOJ and SEC to investigate the FCPA violation and put an end to the misconduct. However, it is also important that you do not obtain evidence illegally, such as by accessing other people’s property or devices without their permission. When figuring out what evidence to gather, your attorney will be able to advise what it is safe to collect and what it is not. Even if your employer has made you sign an Non-Disclosure Agreement (NDA), you are always entitled to speak to your attorney about these issues without breaching the NDA.

4. Decide Where To Report First

When reporting an FCPA violation, you may be entitled to legal protection from retaliation and a whistleblower award for reporting. However, whether you receive these benefits depends on where you report the violation. For example, certain U.S. laws provide protections for individuals who report FCPA violations to federal regulators like the SEC and DOJ. However, some of those protections do not apply if the person only reports to their employer. Similarly, if you report an FCPA violation to the SEC, you could be entitled to an SEC whistleblower reward, but reporting to the DOJ and not the SEC may affect your ability to claim an award. In 2021, the SEC paid a whistleblower $28 million for reporting FCPA violations. In addition, the SEC provides legal protection against retaliation for whistleblowers who report violations. As a result, reporting to the SEC is something you should strongly consider and discuss with your attorney.

5. Don’t Delay In Reporting

Both the SEC and DOJ have specific time limits in which they can prosecute FCPA violations. For certain violations, this could be as short as 5 years, and an investigation could take 2-3 years. If you want the SEC and DOJ to investigate the violation, you need to give them as much time as possible by reporting early. If you want to claim a whistleblower award this is especially important, as if someone reports the same information you have before you, they will get the whistleblower award and you won’t. In addition, even if you qualify for a reward, the SEC can reduce a person’s award if they delayed in reporting.

About the Author

John Peterson is the Managing Attorney and founder of FBR, a law firm that focuses on representing FCPA whistleblowers. John is a New York whistleblower attorney who has worked for almost a decade on FCPA and corruption cases around the globe. Prior to founding FBR, John worked at an elite international law firm in New York and London representing clients in multi-national investigations before the DOJ, SEC, FINRA, FCA & SFO. John is one of the few whistleblower attorneys with extensive international experience working with Fortune 500 corporations who are often the subject of whistleblower complaints.

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