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In a recent press release, the US Securities & Exchange Commission (SEC) announced the award of more than $6M in bounties in two separate orders. Both orders involve providing information to the SEC for two covered actions. In the first order, the whistleblower was described as an “outside professional” who was the target of a product solicitation. Believing the product to be misrepresented, the individual contacted SEC staff to notify them of the activity. SEC staff opened an investigation, and the individual offered original information and continual assistance that led to a successful enforcement action. The Claims Review Staff (CRS) awarded this whistleblower “more than $3 million.” In the second order, CRS awarded “over $3 million” after the individual voluntarily provided original information that produced another successful enforcement action. The whistleblower in this order was an insider who first filed an internal report, and then submitted detailed information to the SEC. The SEC subsequently initiated an investigation into the allegations. This whistleblower met with staff, offered additional information, and identified relevant and important witnesses and documents throughout the investigation.In a recent press release, the US Securities & Exchange Commission (SEC) announced the award of more than $6M in bounties in two separate orders. Both orders involve providing information to the SEC for two covered actions.

In the first order, the whistleblower was described as an “outside professional” who was the target of a product solicitation. Believing the product to be misrepresented, the individual contacted SEC staff to notify them of the activity. SEC staff opened an investigation, and the individual offered original information and continual assistance that led to a successful enforcement action. The Claims Review Staff (CRS) awarded this whistleblower “more than $3 million.” Continue reading

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Corporate regulations are nothing new. After the stock market crashed in 1929, plunging the U.S. into the Great Depression, federal regulation of corporate disclosures began. With the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, Congress attempted to make public companies more transparent about their financial transactions. Now, companies must make a wide range of financial disclosures to protect potential investors. Federal regulations require that publicly held companies disclose all relevant financial information that may influence an investor's decision, which encompasses a broad swath of information. If a publicly held company fails to make required filings or disclosures or makes misleading or false statements in these filings, it may violate corporate disclosure rules. The most common violations of these disclosure rules are related to a company's earnings or income. If a company intentionally includes false or inflated information on its financial statements, it may be guilty of financial fraud.Corporate regulations are nothing new. After the stock market crashed in 1929, plunging the U.S. into the Great Depression, federal regulation of corporate disclosures began. With the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, Congress attempted to make public companies more transparent about their financial transactions. Now, companies must make a wide range of financial disclosures to protect potential investors. Continue reading

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As Special Purpose Acquisition Companies (SPACs) have become increasingly popular were being featured in the news, in recent months, there have been high-profile cases of fraud that have been equally noteworthy. And looking at a few of these is useful for those becoming SPAC whistleblowers—to understand the legal issues some SPACs are facing…. In the Matter of Nikola Corp: In Nikola, the Securities and Exchange Commission (SEC) alleged that Nikola, an electric trucking company, had falsified reports that it had successfully achieved technological milestones to increase share prices in its SPAC. It also misled investors about its production capability, truck orders, and financial outlook. Nikola agreed to settle the case by paying $125 million in fines.   SEC v Akazoo: In this 2021 case, the SEC charged that defendant company Akazoo raised more than $50 million in a SPAC, claiming it was going to merge with a music streaming service that had millions of subscribers and income. However, it had no paying users and little revenue beyond the amount it had raised from investors. A hedge fund published a report concluding that Akazoo was a complete scam—with an SEC investigation confirmed. SEC and Akazoo reached a settlement, where it disgorged $38.8 million to settle the investors' claims.As Special Purpose Acquisition Companies (SPACs) have become increasingly popular were being featured in the news, in recent months, there have been high-profile cases of fraud that have been equally noteworthy. And looking at a few of these is useful for those becoming SPAC whistleblowers—to understand the legal issues some SPACs are facing…. Continue reading

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Some investors are increasingly opting to put their money in Special Purpose Acquisition Companies (SPACs) rather than Initial Public Offerings (IPOs). But some of the very same reasons why SPACs are comparatively more attractive may also be reasons why SPAC investors are more vulnerable to losses—and even outright fraud. Let's explore a few of these differences to see why that's the case. Less Regulation SPACs are faster and cheaper to execute than IPOs because they are less regulated than IPOs. But that also means that SPAC sponsors have fewer requirements to disclose conflicts of interest. They aren't required to warn investors about the risks of their investment, such as those that come from dilution—when other investors come into to reduce the value of their stake Faster Timelines IPOs can take 12-18 months. By contrast, SPACs may take only 4-6 months from creation to its acquisition of a target company. The shorter timeframe means independent analysts have less time to evaluate a SPAC's claims. Unscrupulous SPAC sponsors can take advantage of that by distributing exaggerated forward-looking statements and hiding other issues of concern.Some investors are increasingly opting to put their money in Special Purpose Acquisition Companies (SPACs) rather than Initial Public Offerings (IPOs). But some of the very same reasons why SPACs are comparatively more attractive may also be reasons why SPAC investors are more vulnerable to losses—and even outright fraud. Let’s explore a few of these differences to see why that’s the case. Continue reading

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While Special Purpose Acquisition Companies (SPACs) SPACs—shell companies created for the sole purpose of funding the future acquisition of another company—have existed since the 1990s, interest (and investing) in them took off during the pandemic. But the rise of SPAC popularity means that hedge funds and others have been entering the SPAC market, while a number of SPACs are under investigation. That has led the Securities and Exchange Commission (SEC) to propose new rules relating to SPACs. The proposed rules set out requirements that SPACs would need to comply with to avoid registering as an investment company covered by the Investment Company Act. For example, a non-registered SPAC could only have cash and specified securities as assets. Also, once the SPAC had acquired a target company, the SPAC would need to switch to operating the target's business rather than continue as an investment entity.   Many of the proposed rules relate to disclosure requirements. If adopted, the SPACs will need to provide more information relating to SPAC sponsors, conflicts of interest, and dilution. They'd also need to provide disclosures relating to "de-SPAC transactions," i.e., the SPAC merger with an acquired company and these transactions' fairness to their investors. Most SPACs would also no longer be protected from liability when making forward-looking statements, such as projections, in filings.While Special Purpose Acquisition Companies (SPACs) SPACs—shell companies created for the sole purpose of funding the future acquisition of another company—have existed since the 1990s, interest (and investing) in them took off during the pandemic. But the rise of SPAC popularity means that hedge funds and others have been entering the SPAC market, while a number of SPACs are under investigation. That has led the Securities and Exchange Commission (SEC) to propose new rules relating to SPACs. Continue reading

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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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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.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

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As volatile as the market is these days, clients still should not lose sight of the value of their investment advisor. And understanding their value proposition goes beyond if an advisor gives them sound financial recommendations. It also means that advisors should be charging clients fair rates for their services. Unfortunately, for too many advisors, that just isn't the case. They may overcharge clients through fee manipulation, lack of disclosure or excessive trading. So let's discuss some red flags that may indicate if your firm is overcharging clients. Overcharging Or Undisclosed Fees In a "Risk Alert" published by the Securities and Exchange Commission (SEC), the SEC warned that some advisers were overbilling fees. Some did so included switching the metrics for valuing the assets in a client's account to a different method than was in the client's advisory agreement. For example, under the agreement, the advisor should charge based on a client's average daily balance, but, instead, they charge fees based on the market value of the assets at the end of the billing cycle.As volatile as the market is these days, clients still should not lose sight of the value of their investment advisor. And understanding their value proposition goes beyond if an advisor gives them sound financial recommendations. It also means that advisors should be charging clients fair rates for their services. 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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