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SEC Whistleblower Lawyer Blog

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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

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

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

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

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

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

As reported in the Wall Street Journal, employees of tech companies in Silicon Valley and elsewhere are increasingly coming forward to the Securities and Exchange Commission (SEC). These employees-turned-SEC whistleblowers are explaining how their companies are overpromising and underdelivering on their promises or otherwise violating the federal securities laws. In some cases, SEC whistleblowers have revealed that their companies have been making false representations about their technology. When it comes to the headline-making allegations about Theranos Inc., whistleblower employee Tyler Shultz claimed that the company was falsifying its lab tests and was not making an effective product. As important as the whistleblowing of outright fraud—that tech works when it doesn't—are, these issues aren't the only concerns the SEC wants to hear about. Frequently, companies exaggerate their technology success to inflate the companies prospects or earnings to increase its stock price or manipulate its financial records.As reported in the Wall Street Journal, employees of tech companies in Silicon Valley and elsewhere are increasingly coming forward to the Securities and Exchange Commission (SEC). These employees-turned-SEC whistleblowers are explaining how their companies are overpromising and underdelivering or otherwise violating the federal securities laws. Continue reading

In recent years, many investors have been looking for new ways to invest. One way funds have been doing that is by pooling a type of asset or debt into an investment fund. Ownership of the pool is sold as shares, with profits to be allocated between the shareholders if the pool’s assets increase in value. One such category of these pooled asset investments is “life settlement funds,” but the Securities and Exchange Commission (SEC) and others are warning that many of these funds are a scam.  In a life settlement fund, an investment company is purchasing life insurance policies from the elderly. The company pays out a lump sum to an insured person in exchange for being named the person’s beneficiary. The company collects a number of these policies into a fund, then it sells shares of the fund to investors.  In theory, the fund investors will receive the life insurance payouts when the insured people die. And whenever the eventual payout exceeds the lump sum paid, the investors expect to receive a profit.In recent years, many investors have been looking for new ways to invest. One way funds have been doing that is by pooling a type of asset or debt into an investment fund. Ownership of the pool is sold as shares, with profits to be allocated between the shareholders if the pool’s assets increase in value. One such category of these pooled asset investments is “life settlement funds,” but the Securities and Exchange Commission (SEC) and others are warning that many of these funds are a scam. Continue reading

The SEC recently announced two amendments to their Whistleblower program rules that will make coming forward a little more lucrative for interested individuals.  The first amendment to Rule 21F-3 allows the SEC to pay bounties to whistleblowers for actions brought by other federal agencies. This is particularly helpful when the action would lead to the award being paid by the other entity’s own whistleblower program.  These changes let the SEC make an award when the other agency’s program isn’t comparable to the SEC’s, or if the SEC’s award would pay $5 million or less.   For the second amendment, the SEC is allowed to reconsider the amount of an award bounty, but only for the purpose of proposing an increase. The option to reconsider an award to lower the amount has been removed.The SEC recently announced two amendments to their Whistleblower program rules that will make coming forward a little more lucrative for interested individuals.

The first amendment to Rule 21F-3 allows the SEC to pay bounties to whistleblowers for actions brought by other federal agencies. This is particularly helpful when the action would lead to the award being paid by the other entity’s own whistleblower program. Continue reading

Once again, two SEC whistleblowers will receive bounties through the SEC’s Office of the Whistleblower, following a successful enforcement action.  The first SEC whistleblower receives $13 million after voluntarily providing information that initiated the investigation. They notified SEC staff of the firm’s “abusive practices” for several years prior to the opening of the investigation.  Some of this information led to activity that would have been otherwise hard for SEC staff to uncover. The SEC also used information from the investigation in settlement proceedings with the firm’s legal counsel.  Their assistance also helped SEC staff to understand the facts of the case. This individual provided ongoing and continuing assistance including witness identification and obtaining documentation. Through the process, the whistleblower also suffered personal hardship as a result.Once again, two SEC whistleblowers will receive bounties through the SEC’s Office of the Whistleblower, following a successful enforcement action.

The first SEC whistleblower receives $13 million after voluntarily providing information that initiated the investigation. They notified SEC staff of the firm’s “abusive practices” for several years prior to the opening of the investigation. Continue reading

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