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SEC Whistleblower Lawyer Blog

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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

The SEC has again given an award to a whistleblower. This time it totals $3.5 million, and comes after multiple instances of support from the individual.  The whistleblower’s contribution prompted SEC staff to investigate more possible securities violations. This made the investigation easier for the SEC staff, which saved them time and resources.  The additional information also helped with the whistleblower’s discussion of settlement. Not one, but two SEC enforcement actions were successful as a result of the whistleblower’s assistance and cooperation. The second enforcement action came from the same “nucleus of operative facts”  as the first action.The SEC has again given an award to a whistleblower. This time it totals $3.5 million, and comes after multiple instances of support from the individual.

The whistleblower’s contribution prompted SEC staff to investigate more possible securities violations. This made the investigation easier for the SEC staff, which saved them time and resources. Continue reading

Most whistleblowers are keen to keep their activity concealed and private until the information becomes public. In an unusual twist, one whistleblower decided to publish a research report online detailing the fraudulent activity of a company and that of its CEO prior to notifying the SEC of the fraud.  Within days of sharing this information online, the whistleblower then shared the same information with the SEC. The individual was persistent in reaching out to SEC staff about this information. Their continued contact led to the SEC opening an investigation that resulted in a successful enforcement action. This whistleblower was an outsider, not an employee of the company.  Without admitting or denying the findings, the Company and its CEO consented to the SEC’s order that required the Company to pay restitution as well as other remedies Ultimately, defrauded investors saw the return of millions of their dollars.Most whistleblowers are keen to keep their activity concealed and private until the information becomes public. In an unusual twist, one whistleblower decided to publish a research report online detailing the fraudulent activity of a company and that of its CEO prior to notifying the SEC of the fraud.

Within days of sharing this information online, the whistleblower then shared the same information with the SEC. The individual was persistent in reaching out to SEC staff about this information. Their continued contact led to the SEC opening an investigation that resulted in a successful enforcement action. This whistleblower was an outsider, not an employee of the company. Continue reading

As we've blogged many times, the SEC pays whistleblowers monetary awards out of funds collected from companies and individuals that violate securities law through administrative fines and other sanctions. Since 2012, when the first award was made, the SEC has awarded $1.2 billion to 245 whistleblowers.  In 2021 alone, the SEC saw an increase in whistleblower tips of 76% over 2020’s numbers. Most of these tips were related to corporate disclosure, financial statement misconduct, offering frauds, and market manipulation. The SEC issued more whistleblower awards in 2021 than in the entire previous ten years, including two of the largest bounties awarded to date. All told, the SEC awarded 108 individuals approximately $564 million in bounties in fiscal year 2021.  To ensure that whistleblowers are not only properly compensated, but given incentive, the SEC is considering two changes to the whistleblower program. This will ensure that bounties are properly awarded, and individuals’ awards aren’t unintentionally reduced due to SEC or other agency policies.As we’ve blogged many times, the SEC pays whistleblowers monetary awards out of funds collected from companies and individuals that violate securities law through administrative fines and other sanctions. Since 2012, when the first award was made, the SEC has awarded $1.2 billion to 245 whistleblowers. 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

Through three orders, the SEC issued awards to four people that totaled over $40 million.  In the first proceeding, the SEC awarded two individuals a bounty of $37 million that provided crucial evidence leading to the success of the covered action. One individual helped SEC staff understand the evidence provided, and led to additional relevant information. The continuing assistance of both gave staff more information that helped to advance the investigation. Another governmental agency was involved with this action with its own separate “covered action.” Both whistleblowers received 50% of the bounty amount. In the second proceeding, the SEC awarded one individual $1.8 million for the new information they provided that saw SEC staff open a new investigation into misconduct. The individual quickly offered an internal report, and continued to provide SEC staff with information, documentation, and other assistance throughout the investigation. Charges in the affiliated covered action were a direct result of this individual’s contributions, which caused them to suffer hardships as a result. In the third proceeding, a whistleblower received an SEC bounty of $1.5 million for information and assistance in an existing investigation that led to a successful enforcement action. As with the previous two, this individual gave continued and substantial assistance to SEC staff throughout the investigation. This whistleblower provided new information that saved staff time and resources and helped staff to understand the issues involved.Through three orders, the SEC issued awards to four people that totaled over $40 million.

  • In the first proceeding, the SEC awarded two individuals a bounty of $37 million that provided crucial evidence leading to the success of the covered action. One individual helped SEC staff understand the evidence provided, and led to additional relevant information. The continuing assistance of both gave staff more information that helped to advance the investigation. Another governmental agency was involved with this action with its own separate “covered action.” Both whistleblowers received 50% of the bounty amount.
  • In the second proceeding, the SEC awarded one individual $1.8 million for the new information they provided that saw SEC staff open a new investigation into misconduct. The individual quickly offered an internal report, and continued to provide SEC staff with information, documentation, and other assistance throughout the investigation. Charges in the affiliated covered action were a direct result of this individual’s contributions, which caused them to suffer hardships as a result.
  • In the third proceeding, a whistleblower received an SEC bounty of $1.5 million for information and assistance in an existing investigation that led to a successful enforcement action. As with the previous two, this individual gave continued and substantial assistance to SEC staff throughout the investigation. This whistleblower provided new information that saved staff time and resources and helped staff to understand the issues involved.

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The Securities and Exchange Commission has kept busy, even through the holidays. On January 10th, 2022, the SEC put out a press release announcing that three more people have received bounties after working with SEC staff to identify and discontinue wrongdoing in the financial sector.  The first whistleblower reported their concerns internally prior to notifying the SEC. This information contributed significantly to an existing investigation. The SEC was not previously aware of this misconduct. This whistleblower’s information assisted the staff in developing a well-organized and effective investigation leading to the enforcement action.  The whistleblower kept in touch with the staff throughout the investigation to help uncover the full extent of misconduct as well as identify all possible witnesses. This information as well as other assistance also helped the SEC staff to obtain evidence of wrongdoing that was occurring overseas. Without this information from the whistleblower, the activity would have been difficult to uncover. In this case, the first whistleblower received an award of $2.6 million.The Securities and Exchange Commission has kept busy, even through the holidays. On January 10th, 2022, the SEC put out a press release announcing that three more people have received bounties after working with SEC staff to identify and discontinue wrongdoing in the financial sector. Continue reading

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