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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

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

In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court's ruling clarifies pension fund providers' duties to their customers.  Hughes v. Northwestern University  In Hughes v. Northwestern University, the plaintiffs alleged that defendant Northwestern failed to meet the fiduciary duties required under the Employee Retirement Income Security Act of 1974 (ERISA) because it offered excessively expensive investment options and charged extreme recordkeeping fees. The Court of Appeals had held that, because the clients could ultimately pick a plan from a range of plans offered, Northwestern had fulfilled its responsibilities to them.  However, the Supreme Court disagreed. Instead, the Court held that Northwestern's fiduciary duties required that it regularly analyze the value of the plans it offered. If the provider found plans that were less beneficial to their clients, the answer was not just to include more plans, but also to stop offering the less valuable plans. Accordingly, the fact that customers could exercise judgment in their plan selection did not alleviate Northwestern of its responsibility to make its own judgment calls.In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court’s ruling clarifies pension fund providers’ duties to their customers. Continue reading

In a previous post, we began to address some general ways in which a financial advisor can overcharge investment clients. But it's worth a bit more focus on one specific type of investment: margin accounts. Some advisors contractually steer customers into margin accounts as the default investment. But margin accounts are inherently riskier investments, and investors with these accounts are more vulnerable to being overcharged by their advisors.  The Basics of Margin Accounts  As the Securities and Exchange Commission (SEC) explains, in a margin account, clients pay part of the price for stock while a broker loans you the rest of the money to purchase securities. If the stock goes up, then clients can make a large return, but if the stock drops, they can lose a larger percentage of their investment than if they'd paid cash—even losing their entire investment. On top of that loss, they have to pay the relevant fees and the interest on the margin loan—even though the clients have lost all of the money the advisor has loaned them.  Why Margin Accounts Can Lead To Large Losses  By the very nature of the margin account, trades are made quickly and frequently—and advisors can make big changes to the client's investments entirely on their own. For example, if the advisor makes a "margin call," an advisor can sell a client's securities to pay for the loan without giving the client any notice of the sale or allowing any input on which securities the advisor will sell.In a previous post, we began to address some general ways in which a financial advisor can overcharge investment clients. But it’s worth a bit more focus on one specific type of investment: margin accounts. Some advisors contractually steer customers into margin accounts as the default investment. But margin accounts are inherently riskier investments, and investors with these accounts are more vulnerable to being overcharged by their advisors. Continue reading

What should you do if you’ve encountered defense contractor fraud and you want to stop it? Practically speaking, start by getting qualified legal representation as soon as possible. You need legal protection, to understand the best ways to insulate yourself from retaliation or other negative results, and, importantly, to make sure you aren’t somehow held liable for the fraud. (Or, if you already have been involved, what you can do to minimize your liability.) Beyond that, there are other possibilities to consider.  Does This Relate To Classified Work?  The law does not automatically protect those who reveal classified material as whistleblowers. Therefore, before filing any complaint, consider whether any material relating to your complaint is classified. If so, you’ll need to follow special procedures to qualify for whistleblower protections.  File A “Qui Tam” Complaint  If you’ve uncovered a defense contractor’s large-scale fraud, consider filing a False Claims Act “qui tam” lawsuit in federal court. When you file the claim, the lawsuit is filed under seal for 60 days. This means that the government has 60 days to review your allegations and decide if they want to prosecute your case. If they do not, you may continue to litigate it on your own. If you prevail, you’re entitled to an award of 30% of the government’s proceeds.   What should you do if you’ve encountered defense contractor fraud and you want to stop it? Practically speaking, start by getting qualified legal representation as soon as possible. You need legal protection, to understand the best ways to insulate yourself from retaliation or other negative results, and, importantly, to make sure you aren’t somehow held liable for the fraud. (Or, if you already have been involved, what you can do to minimize your liability.) Beyond that, there are other possibilities to consider. Continue reading

When it comes to legal terminology, there’s one term that is frequently discussed but little understood: Arbitration. Let’s discuss what arbitration is and how it can impact your whistleblowing claim. Arbitration is a sort of private mini-trial to litigate disputes between two or more parties. Rather than going to court for a lawsuit, disputing parties present facts and arguments before a private judge, known as an arbitrator, that the parties have hired to hear their case. The arbitrator makes a decision on the case, just as a judge in a court would do, and the parties must follow the arbitrator’s decision. For example, FINRA arbitration operates the largest dispute resolution program for investor claims against stockbrokers to resolve disputes for claims including claims for unsuitable investments, breach of fiduciary duty, and Ponzi schemes. Since it is a faster, less formal, and cheaper process than court litigation, many companies now require you to agree to “mandatory arbitration” as part of any contract. When mandatory arbitration is in place, with few exceptions, you cannot file a suit against the other side. Instead, you must go to arbitration.When it comes to legal terminology, there’s one term that is frequently discussed but little understood: Arbitration. Let’s discuss what arbitration is and how it can impact your whistleblower claim.

Arbitration is a sort of private mini-trial to litigate disputes between two or more parties. Rather than going to court for a lawsuit, disputing parties present facts and arguments before a private judge, known as an arbitrator, that the parties have hired to hear their case. The arbitrator makes a decision on the case, just as a judge in a court would do, and the parties must follow the arbitrator’s decision. Continue reading

The U.S. Congress has established whistleblower programs with monetary awards to incentivize individuals to report possible violations of the federal securities laws to the Securities & Exchange Commission and the Commodities Futures Trading Commission. The information reported to these agencies can be past, ongoing, or future fraudulent activities. They include:  Ponzi or Pyramid schemes or High-Yield Investment Programs Theft or misappropriation of funds or securities Manipulation of a security's price or volume Front running, in which a trader is aware of pending customer orders for a security and buys or sells unfairly. Accounting fraud, in which accountants fail to identify false information made by clients regarding their financial status Pump-and-dump schemes and stock manipulation, including false statements regarding a public company's financial reports and lying to corporate auditors Mutual fund fraud, which entails deceptive acts that disadvantage investors Bribery to obtain or retain business, including with foreign officials Insider trading Fraudulent or unregistered securities offerings Abusive naked short selling Fraudulent conduct associated with municipal securities transactions or public pension plans Initial Coin Offerings and Cryptocurrencies The U.S. Congress has established whistleblower programs with monetary awards to incentivize individuals to report possible violations of the federal securities laws to the Securities & Exchange Commission and the Commodities Futures Trading Commission. The information reported to these agencies can be past, ongoing, or future fraudulent activities. They include: Continue reading

Whistleblowers help maintain the integrity and fairness of U.S. financial markets. They are a vital watchdog and play an essential role in the securities markets.  The whistleblower process can be vigorous and draining and comes with risk. Once a whistleblower decides to take a moral stand on what is right, they must carefully prepare for the process and possible consequences.  A whistleblowing complaint might trigger an employment agreement provision that could jeopardize the job of a whistleblower, even out of retaliation. While laws exist to protect whistleblowers who are wrongfully fired, ensuing lawsuits and getting re-established in the workplace can take their toll. There is also the possibility of getting blackballed because of the whistleblower association.  Even if not fired, a whistleblower might suffer fear of termination and reprisal. They might get shunned and emotionally ostracized and find themselves in a hostile working environment. Stress and anxiety are often a natural part of the process.Whistleblowers help maintain the integrity and fairness of U.S. financial markets. They are a vital watchdog and play an essential role in the securities markets.

The whistleblower process can be vigorous and draining and comes with risk. Once a whistleblower decides to take a moral stand on what is right, they must carefully prepare for the process and possible consequences. Continue reading

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