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Leaders of the Securities and Exchange Commission (SEC) recently released its 2022 priorities for its Department of Examinations (EXAMS)—the office charged with monitoring risks and protecting investors. The SEC has made a point of saying the list is just a guideline. EXAMS will still pursue other investigations not on the list. But for those who are considering becoming a whistleblower, it can help strategize your reporting. EXAMS' priorities include: Private fund management— including calculation of fees, risk management, and portfolio strategies, with an emphasis on private funds investing in Special Purpose Acquisition Companies (SPACs) where the fund adviser is also the SPAC sponsor Violations of fiduciary duties—such as broker-dealer and SEC-registered investment advisers (RIAs) failure to protect retail investors, through conflicts of interest, insufficient or inaccurate disclosures, account conversions, and rollovers Crypto and emerging technologies—including failure to meet the standards of conduct when offering, selling, and trading crypto-assets, and RIAs and broker-dealers' use of automated digital investment advice (a.k.a. "robo-advisers") to boost salesLeaders of the Securities and Exchange Commission (SEC) recently released its 2022 priorities for its Department of Examinations (EXAMS)—the office charged with monitoring risks and protecting investors. The SEC has made a point of saying the list is just a guideline. EXAMS will still pursue other investigations not on the list. But for those who are considering becoming a whistleblower, it can help strategize your reporting. Continue reading

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Most employees aren’t surprised when they’re asked to sign a non-disclosure agreement (NDA) as a condition of employment. It’s one way to warn and penalize employees about telling company secrets. But when the NDA prohibits an employee from becoming a whistleblower, the SEC steps in. From 2015 through 2019, Brinks hired between 2,000 and 3,000 new employees annually. The company required new employees to sign an NDA that prevented them from disclosing any financial or business information to third parties without written permission from the company. This included governmental agencies. The highly restrictive wording failed to give an exemption for an employee who wanted to become an SEC whistleblower and disclose wrongdoing. Employees who did violate the agreement—for any reason—were subject to $75,000 in liquidated damages, along with Brinks’ legal fees.Most employees aren’t surprised when they’re asked to sign a non-disclosure agreement (NDA) as a condition of employment. It’s one way to warn and penalize employees about telling company secrets. But when the NDA prohibits an employee from becoming a whistleblower, the SEC steps in. Continue reading

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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. 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. Elements that can influence crypto fees, markups or commissions.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 cryptocurrency services charge users expensive fees for these crypto transactions. And these fees can get very steep, very quickly. Continue reading

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

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

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

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

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

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

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

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

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

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

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