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

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

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

The SEC announced another whistleblower bounty that paid nearly $3.5 million to four individuals.  Jointly, three whistleblowers provided information to the SEC that led to the staff opening an investigation. The investigation led to a successful enforcement action by the SEC. Additionally, that information and investigation led to another agency opening its own investigation, culminating in a separate enforcement action.  The fourth whistleblower used publicly available information to offer additional insights to the SEC. This information and analysis showed additional allegations to the staff that furthered the investigation. However, this whistleblower was “an outsider not affiliated with the Company.”  The individual’s analysis from public information was highly detailed and took considerable time and effort to research and collate, such as changes in the company’s stock pricing. The report submitted to the SEC took approximately seven weeks to complete.The SEC announced another whistleblower bounty that paid nearly $3.5 million to four individuals.

Jointly, three whistleblowers provided information to the SEC that led to the staff opening an investigation. The investigation led to a successful enforcement action by the SEC. Additionally, that information and investigation led to another agency opening its own investigation, culminating in a separate enforcement action. Continue reading

The SEC has announced its latest whistleblower bounty of $6 million to five individuals in two groups for one single covered action.  The first group, known as “Claimant 1” in the order, provided crucial documents to the SEC that led to requests for additional documentation. These documents were the crux of the SEC’s case. The individuals continued to provide documentation and information to help SEC staff to understand the company’s business practices.  The second group was called “Claimant 2” in the order. These individuals provided firsthand accounts of the ongoing wrongdoing to the SEC, since they were familiar with the business processes and systems of the defendant in question. “Claimant 2” also sat for interviews, offered continued assistance, and gave on-the-record testimonies in the case.  All five individuals also provided ongoing assistance to the SEC throughout the investigation.The SEC has announced its latest whistleblower bounty of $6 million to five individuals in two groups for one single covered action.

The first group, known as “Claimant 1” in the order, provided crucial documents to the SEC that led to requests for additional documentation. These documents were the crux of the SEC’s case. The individuals continued to provide documentation and information to help SEC staff to understand the company’s business practices. Continue reading

The Commodities Futures Trading Commission (CFTC) recently awarded a bounty of $10 million to a whistleblower who offered original information voluntarily. The information led to the opening of an investigation and a subsequent successful enforcement action. According to the order, the individual provided the information properly via a Form TCR that involved information previously unknown to the CFTC, and in violation of the Commodity Exchange Act (CEA.) The whistleblower was under no obligation to provide this information, and provided it at the outset of the investigation, when the CFTC was unaware of the ongoing conduct.The Commodities Futures Trading Commission (CFTC) recently awarded a bounty of $10 million to a whistleblower who offered original information voluntarily. The information led to the opening of an investigation and a subsequent successful enforcement action.

According to the order, the individual provided the information properly via a Form TCR that involved information previously unknown to the CFTC, and in violation of the Commodity Exchange Act (CEA.) The whistleblower was under no obligation to provide this information, and provided it at the outset of the investigation, when the CFTC was unaware of the ongoing conduct. Continue reading

The Commodity Futures Trading Commission (CFTC) has awarded a $625,000 bounty to four whistleblowers who provided information and assistance in an investigation.  A total of nine claimants submitted award applications for this enforcement action. Of that number, only four received awards. Claimants 2, 3, 4, and 6 received bounties from the civil monetary penalties levied against the two defendants involved in the enforcement action. Claimant 4 offered the highest level of assistance and cooperation and received the largest portion of the bounty. All four offered substantial assistance that included providing names and other information which supported the Commission's action against the defendants.  The Claims Review Staff (CRS) decided to deny award applications of claimants 1, 5, 7, 8, and 9. These claimants failed to meet the program’s requirements. Specifically, CRS found that Claimant 1’s wasn't voluntary, because it was provided after they received multiple requests including a subpoena from CFTC staff.  After receiving the preliminary determination, Claimant 1 requested the records supporting that determination. CFTC Whistleblower staff provided the material shortly thereafter. Claimant 1 then submitted a letter contesting the preliminary determination. Because this claimant could not offer any new information to support their position, and nothing in the record indicated the voluntary submission of information, the request was again denied. This claimant provided the information only after multiple requests from CFTC. Therefore, the claimant was not eligible to receive an award in this case.The Commodity Futures Trading Commission (CFTC) has awarded a $625,000 bounty to four whistleblowers who provided information and assistance in an investigation.

A total of nine claimants submitted award applications for this enforcement action. Of that number, only four received awards. Claimants 2, 3, 4, and 6 received bounties from the civil monetary penalties levied against the two defendants involved in the enforcement action. Claimant 4 offered the highest level of assistance and cooperation and received the largest portion of the bounty. All four offered substantial assistance that included providing names and other information which supported the Commission’s action against the defendants. Continue reading

The SEC has awarded $3M to three different whistleblowers for assisting with three distinct covered actions in three separate orders.  1. In the first order, the Claims Review Staff (CRS) awarded a bounty of $1.5 million to an individual who provided original information and voluntarily gave assistance to SEC staff that led to a successful covered action.  2. In the second order, CRS awarded a $1 million bounty to an individual who also voluntarily offered original information that led the SEC to a successful covered enforcement action. In this case, the whistleblower also assisted SEC staff, including multiple interviews.  3. The third order saw a bounty of $400,000 to a whistleblower who first reported their concerns internally, leading to a ceasing of the wrongful activity. The individual subsequently reported the information to the SEC, leading to the opening of an investigation. Over the course of the investigation, the whistleblower met with SEC Enforcement staff, offering additional information and continued assistance. Ultimately, the charges in the covered enforcement action would “bear a close nexus” to the whistleblower’s stated allegations.The SEC has awarded $3M to three different whistleblowers for assisting with three distinct covered actions in three separate orders.

1. In the first order, the Claims Review Staff (CRS) awarded a bounty of $1.5 million to an individual who provided original information and voluntarily gave assistance to SEC staff that led to a successful covered action. Continue reading

Compared to the decades of experience investors have with the S&P and NASDAQ, everyone's a comparative rookie when it comes to cryptocurrency. And crypto's appeal often comes from the idea that crypto exists outside of traditional banking. However, overlooked in that idea is the reality that—not unlike traditional banking and other investment platforms—many crypto services charge users expensive fees for these crypto transactions. And these fees can get very steep, very quickly.  However, our experienced securities attorneys understand how the federal securities laws apply to cryptocurrency.  All that's true, assuming that those platforms and third-party vendors are properly disclosing and administering those fees.  But that's not always the case: In 2020, Robinhood paid $65 million in fines to settle claims that it failed to disclose commission fees and failed to get the best possible terms for when executing customers' orders.  So let's discuss some elements that already can influence crypto fees.Compared to the decades of experience investors have with the S&P and NASDAQ, everyone’s a comparative rookie when it comes to cryptocurrency. And crypto’s appeal often comes from the idea that crypto exists outside of traditional banking. However, overlooked in that idea is the reality that—not unlike traditional banking and other investment platforms—many crypto services charge users expensive fees for these crypto transactions. And these fees can get very steep, very quickly.  However, our experienced securities attorneys understand how the federal securities laws apply to cryptocurrency. Continue reading

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