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People often believe that audits can help root out fraud in cases and that an audit is a magic wand bestowing financial stability upon a company. But an audit is simply an independent examination of a company's financial statements to ensure that its financial records are a fair and accurate assessment of its transactions. An audit is ultimately only as good as the information given to the auditors. Of course, an auditor's responsibilities do include providing reasonable assurance that a company's financial statements are free from material misrepresentations due to error or fraud. Auditors aren't infallible and can miss problems without outside information. But an audit is a good first step toward identifying red flags in a company's financial statements. People often believe that audits can help root out fraud in cases and that an audit is a magic wand bestowing financial stability upon a company. But an audit is simply an independent examination of a company’s financial statements to ensure that its financial records are a fair and accurate assessment of its transactions. An audit is ultimately only as good as the information given to the auditors. Continue reading

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What does a fraudulent CEO do when he discovers a whistleblower in his company? In the case of NS8’s founder and CEO Adam Rogas, he impeded the employee’s access to company systems, raided his personal electronic accounts, prevented the employee from contacting the SEC and fired them once discovering that they were reporting the fraud. From at least 2018 through mid-2020, Rogas falsified bank statements to show investors that NS8 was earning much more than it really was. The altered bank statements showed that the company was earning millions in customer revenue and had tens of millions in on-hand assets. The company had much less in both revenue and assets than the falsified bank statements showed.  Rogas used these falsified bank statements to raise $149 million after presenting the documents to two NS8 securities offerings in 2019 and 2020. From this fundraising, Rogas collected $17.5 million of investor funds for himself.What does a fraudulent CEO do when he discovers a whistleblower in his company? In the case of NS8’s founder and CEO Adam Rogas, he impeded the employee’s access to company systems, raided his personal electronic accounts, prevented the employee from contacting the SEC and fired them once discovering that they were reporting the fraud. Continue reading

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In a recent press release, the SEC announced that it had awarded a $20 million bounty to a whistleblower who provided credible and useful information, which helped the Enforcement Division complete an enforcement action much quicker. Through offering additional information and continuing to assist staff, the SEC’s enforcement action was ultimately successful. The SEC whistleblower offered information voluntarily, offering substantial information and ongoing assistance that resulted in the success of the enforcement action. The whistleblower was involved in the wrongdoing for only a short period of time, and was acting at the direction of a supervisor. According to the SEC whistleblower order, the SEC took into consideration these facts when issuing the award. In a recent press release, the SEC announced that it had awarded a $20 million bounty to a whistleblower who provided credible and useful information, which helped the Enforcement Division complete an enforcement action much quicker. Through offering additional information and continuing to assist staff, the SEC’s enforcement action was ultimately successful. Continue reading

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

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

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

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

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

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

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

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

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