Congress passed the Dodd-Frank Act on July 21, 2010, in response to the SEC’s failure to identify several Ponzi schemes and other securities fraud that had bilked investors out of billions of dollars and adversely affected the U.S. economy. The Act included provisions to protect whistleblowers who report securities law violations to the Securities and Exchange Commission (SEC) and provided incentives for SEC whistleblowers to come forward.
The SEC whistleblower program created by Dodd-Frank has been a resounding success, receiving thousands of tips and reports of alleged securities fraud and other serious matters since its inception. Tips from whistleblowers have led to enforcement actions that so far have yielded more than $2.5 billion in financial remedies, most of which has gone to harmed investors. Whistleblowers have also reaped benefits: In September of 2021, the SEC reported it had issued more than $1 billion in awards (or bounties) for information or assistance in SEC investigations and enforcement actions.
While the SEC receives complaints and reports from several sources, including outsiders who have no relation to the entity in question, the agency recognizes that the most credible and actionable tips come from insiders—especially those with direct knowledge of the violations who can provide hard evidence.
If you work for a securities trading company or any company that reports to the SEC, the following information will help you understand what constitutes an SEC violation, how to report it, and what it takes to qualify for a potentially substantial reward.
Types Of Securities Violations
Securities violations can take many forms. Some of the most common include:
- Market manipulation. According to figures from the SEC, market manipulation is the most common type of allegation. The violation involves spreading false or misleading information about a company or engaging in practices to inflate the company’s securities. Market manipulation artificially affects supply and demand to make a stock price rise or fall dramatically or make a security more appealing to investors.
- Fraudulent offerings. The next most common allegation involves suspected fraud. Fraudulent brokers can trick investors in different ways, including providing false information, not disclosing key information, or offering bad investment advice. Ponzi schemes, pyramid schemes, and hedge-fund fraud are among the most common forms of fraudulent offerings. The SEC has recently increased its focus on fraud in the private markets through the sale of illiquid or alternative investments.
- Initial coin offering (ICO) scams. The inception of cryptocurrency has created dozens of new tokens and coins and provided an attractive market for investors. However, many scammers have bilked investors out of billions, and the industry is still recovering from a major crash starting in 2022.
Other securities violations include insider trading, unregistered offerings, and foreign corruption, among others.
What Is An Considered An Insider Whistleblower And When You Can Get an Award
A whistleblower is usually considered an insider when they’re an employee of the company suspected of the violation. To qualify for an incentive, whistleblowers must provide the information voluntarily instead of responding to an SEC request, and the SEC must not already know of the violation. Insider whistleblowers do not have to submit the information themselves, however, and many turn to expert advisors for help putting together a qualifying complaint.
For example, to receive an incentive, a whistleblower tip must result in an enforcement action that leads to more than $1 million in sanctions. In most cases, informants receive 10% to 30% of the sanctions as an award. The amounts can be significantly higher depending on the significance of the information provided, the seriousness of the violations, and other factors.
In April of 2023, the SEC announced it had awarded more than $12 million to two insider whistleblowers who assisted in enforcement actions against registered broker-dealers suspected of wrongdoing. The first whistleblower provided detailed insider information that would have otherwise been “difficult to detect,” and the second was a former employee who corroborated the first whistleblower’s testimony. In October 2020, the SEC awarded more than $114 million to another insider whistleblower.
Our SEC Whistleblower Attorneys Help Insiders, Whistleblowers, And File Their Complaints With The SEC
If you’re an insider with information on fraud, manipulation, or other wrongdoing at your workplace, you likely have questions and concerns about reporting it. The Silver Law Group and the Law Firm of David Chase have created a strategic alliance to represent SEC whistleblowers like you. With years of experience representing SEC whistleblowers, and an SEC Enforcement lawyer on our team, we have an in-depth understanding of the SEC Whistleblower Program. Because we know what the SEC is looking for, we can help you submit a tip that is more likely to result in a successful covered action.