Posts Tagged ‘Securities and Commodities Fraud’

New York Attorney General Sues Credit Suisse For Residential Mortgage-Backed Securities Fraud

January 2, 2013

On November 20, 2012, the New York Attorney General, Eric Schneiderman, along with the Residential Mortgage-Backed Securities (RMBS) Working Group filed a Martin Act complaint against Credit Suisse Securities LLC.  The complaint accuses Credit Suisse of deceiving investors about the quality of the mortgage loans which were part of the RMBS the company was selling.

Fraud and a general lack of oversight in the RMBS industry was a huge factor in the recent financial market crash.  RMBS are pools of mortgages deposited into trusts and then sold as securities to investors.  According to the allegations, Credit Suisse told its investors that it carefully evaluated the mortgages-backed securities and that it regularly monitored them to ensure their quality, but it allegedly did neither.  The complaint further accuses Credit Suisse of not evaluating the loans, and actively ignoring any defects that it happened to uncover.  Additionally, Credit Suisse was accused of loaning to borrowers who were incredibly likely to default on their loans.  When people defaulted on their loans, Credit Suisse’s investors lost at least $11.2 billion.

This case against Credit Suisse is one of many that have been filed and pursued against large financial institutions related to fraud in connection with the sale of RMBS in the wake of the recent financial crisis.  The attorneys at Tycko & Zavareei encourage the RMBS Working Group to continue to investigate and prosecute these types of cases and to bring to justice the individuals and institutions whose misconduct contributed to bringing the Nation’s financial system to its knees.

Please keep checking our website for more updates on the progression of this case and to learn more about fraud in connection with RMBS, as well as other types of fraud involving our financial institutions, and what you can do to help fight it.


SEC Announces First Whistleblower Award Under Dodd-Frank Program

August 22, 2012

Yesterday, only one year after the United State Securities and Exchange Commission (SEC) whistleblower program was established, the SEC announced its first award under the new program.  The unidentified whistleblower will receive nearly $50,000 as his or her reward for helping the SEC stop a multi-million dollar fraud scheme.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new program designed to incentivize whistleblowers to disclose securities fraud, and other violations of securities laws, to the SEC.  The Dodd-Frank Act also protects those whistleblowers from retaliation by their employers.

Some common examples of securities fraud are market manipulation, fraudulent accounting practices that misrepresent corporate assets or liabilities, insider trading, falsification of financial information in annual reports and other similar disclosures, fraud by brokers or investment advisors, and Ponzi schemes.  In addition, the Dodd-Frank whistleblower provisions also cover violations of the Foreign Corrupt Practices Act, the law that prohibits businesses from bribing foreign government officials.

Under the SEC’s whistleblower program, individuals can provide information relating to a violation of the securities laws directly to the SEC.  If the information provided leads to a successful judicial or administrative action by the SEC, then the SEC will award the whistleblower between 10 to 30% of the total amount of monetary sanctions collected.  The recent $50,000 award was for 30% of the recoveries—the highest possible award amount.

While the details of the underlying SEC action, including the defendants in the case and the specific allegations brought against them, have not yet been made public, the SEC stated that the court ordered more than $1 million in sanctions, $150,000 of which have already been collected.  Additionally, the SEC indicated that the court is considering issuing a final judgment against other defendants in the same matter.  Thus, the whistleblower in this case may well receive additional amounts, above and beyond the $50,000 already awarded.

Because of the enhanced anti-retaliation protections in the Dodd-Frank Act, the SEC has not revealed any information about this whistleblower’s identity or the information he or she provided that lead to the investigation.  But for the whistleblower to receive such a high percentage of the recoveries, we do know that the information provided must have been extremely valuable to the SEC’s investigation.

Interestingly, the SEC did not approve the claim of a second individual seeking an award on the matter because the information that second whistleblower provided did not contribute significantly to the ultimate enforcement action.  This highlights the important to speed in these cases.  A potential whistleblower can lose his or her right to an award if he or she delays too long in making a whistleblower claim with the SEC.

The attorneys at Tycko & Zavareei LLP are encouraged by the progress the SEC whistleblower program has made.  Without doubts, whistleblowers can provide very valuable help to the SEC in combating securities fraud and violations of the Foreign Corrupt Practices Act.  With the SEC receiving multiple tips every day, we anticipate many more similar announcements in the future.

Reporting cases of securities and commodities fraud, or violations of the FCPA, can be a complicated process.  But working with an experienced attorney can make the process faster, easier and more likely to succeed. For assistance with reporting securities fraud or FCPA violations to the SEC, contact the law firm of Tycko & Zavareei LLP for a free, confidential consultation.


May 29, 2012

The Obama administration has created a task force charged with investigating fraud in connection with the packaging and sale of residential mortgage backed securities (RMBS).  Dubbed the Residential Mortgage-Backed Securities Working Group, the task force is a collaborative effort between the Securities and Exchange Commission, the Department of Justice, and many United States Attorneys’ Offices that was formed in response to the wrongful behavior in the RMBS market that contributed to the financial collapse of 2008.  The task force is actively seeking and investigating information from corporate insiders with knowledge of misconduct relating to loan origination, underwriting, and sponsorship of RMBS.

The Government has many tools at its disposal to combat and punish mortgage fraud, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Financial Institutions Anti-Fraud Enforcement Act, and the False Claims Act.  All three of these provisions allow whistleblowers to receive substantial awards if the Government receives a monetary recovery based on information provided by the whistleblower.

The lawyers at Tycko & Zavareei LLP specialize in representing whistleblowers under the Dodd-Frank, False Claims, and Financial Institutions Anti-Fraud Enforcement acts.  If you believe that you have information regarding fraud in connection with residential mortgage-backed securities, please contact us at or 202-973-0900.

SEC Issues First Annual Report On Dodd-Frank Whistleblower Program

November 17, 2011

The U.S. Securities and Exchange Commission (SEC) has just issued its Annual Report on the Dodd-Frank Whistleblower Program, for Fiscal Year 2011.  Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was passed in 2010, the SEC is required to issue an annual report on its activities under the new securities whistleblower provisions.  This is the first such report.

The SEC’s Office of the Whistleblower was established earlier this year, and the SEC’s regulations concerning whistleblower claims went into effect on August 12, 2011.  Accordingly, the 2011 Annual Report is based upon only a short time-frame.  Indeed, because the SEC’s fiscal year ended on September 30, 2011, the Annual Report includes data on only seven weeks of activity.

But even those seven weeks of activity are very revealing.  In those seven weeks, the Office of the Whistleblower received 334 whistleblower tips.  By my calculation, that means the Office was receiving an average of 9 ½ tips per day.  I suspect that a lot of whistleblowers, and their attorneys, were waiting for the August 12 to roll around before submitting their tips, and that the Office received an initial wave of tips in the first week or two after August 12.  So, this number is probably a bit inflated, if you look at it as a prediction of the “tips per day” rate on a going-forward basis.  My own highly unscientific hunch, based on this data, is that the SEC Office of the Whistleblower is probably now getting an average of around 7 to 8 tips per day.  Projected out over a full year, this means that the SEC will be receiving approximately 2,000 whistleblower tips per year through the Office of Whistleblower.

The Annual Report breaks down the 334 whistleblower tips into categories.  Here’s that breakdown:

Manipulation (using fraud to manipulate the price of securities) – 16.2%

Offering fraud (fraud in connection with IPO or other offering statements) – 15.6%

Trading and pricing fraud – 5.1%

Insider trading – 7.5%

Fraud in corporate disclosures and financial statements – 15.3%

Foreign Corrupt Practices Act violations – 3.9%

Fraud in connection with municipal securities and public pensions – 2.7%

Unregistered offerings – 5.4%

Market events – 3.3%

Other, or no category – 25.2%

The SEC has not yet made any whistleblower awards, which is not surprising given that the award program is still in its infancy.  But the good news is that the SEC is sitting on an enormous war chest of award money.  The Annual Report states that the fund that is set aside to pay whistleblower rewards currently has more than $452 million.

What does all of this mean for someone thinking about blowing the whistle on either a securities law violation, or a Foreign Corrupt Practices Act violation?  Two things come to mind.  First, the Office of Whistleblower will be processing a very large volume of whistleblower tips, and making your tip “rise to the top” will be crucial in assuring that the SEC aggressively pursues an investigation of your tip.  So, the way in which your tip is presented will make a huge difference.  If you want to get the SEC’s attention, your information needs to be presented to the Office of Whistleblower on a silver platter:  well organized, well thought-out, and persuasively explained.

Second, if you can get over that first hurdle, and if the SEC opens a real investigation into your tip, then the awards should be quite substantial.  The SEC has the funds to pay big awards, and will be under significant political pressure to do so in the near future to justify the whistleblower program.

If you have information about a securities law violation, or a violation of the Foreign Corrupt Practices Act, you should consider consulting a whistleblower attorney who can help you make the best possible presentation to the SEC Office of the Whistleblower, and who know how to protect your interests as the whistleblower.  The lawyers at Tycko & Zavareei LLP, based in Washington, D.C., are well positioned to provide this type of assistance, and offer no-fee, no-commitment initial consultations.


August 15, 2011

On August 12, 2011, the Securities and Exchange Commission’s (“SEC”) new Office Of The Whistlebower officially opened its doors and launched its website.  The official opening coincided with the effective date for the final rules implementing the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  The Dodd-Frank Act created a whistleblower program that requires the SEC to pay an award to whistleblowers that “voluntarily” provide “original” information about violations of federal securities laws that result in monetary sanctions exceeding $1,000,000. The whistleblower is entitled to between 10% and 30% of the total amount of money collected by the SEC. The Dodd-Frank Act also prohibits employers from retaliating against employees for reporting securities violations to the SEC.

The Office of the Whistleblower is responsible for administering the whistleblower program. In order to qualify for an award, whistleblowers must submit information regarding possible securities law violations to the Office of the Whistleblower by completing a Form TCR signed under penalty of perjury. The form may be submitted online via the Office of the Whistleblower’s website, facsimile, or regular mail. In addition, in order to protect whistleblowers from retaliation, the Dodd-Frank Act allows a whistleblower to anonymously submit information to the Office of the Whistleblower, as long as the whistleblower is represented by an attorney who submits the information on the whistleblower’s behalf. The SEC and any other government agencies assisting the SEC with its investigation must keep the information provided by the whistleblower confidential until the SEC is required to disclose the information in connection with a public proceeding initiated by the SEC.

In order to qualify for an award, the information submitted by the whistleblower must be “original,” which the final rules define as information derived from the whistleblower’s own independent knowledge that is not publicly available, unless the whistleblower was the original source of the publicly available information. But a whistleblower may still qualify for an award for submitting his or her own independent analysis of possible securities violations, even though that analysis is based on publicly available information. The information provided by the whistleblower also must be “voluntarily” submitted to the Office of the Whistleblower, meaning that it must be provided by an individual who does not have a contractual or other duty to provide the information to the SEC and is not being provided pursuant to a court order or request from the Government.

The nature and form of possible violations of securities law can vary widely. Common examples securities fraud schemes may, however, include:

  • Market manipulation of securities prices or volumes
  • Misstatements or omissions of fact about a company (including in statements submitted to the SEC)
  • Offering fraudulent or unregistered securities
  • Corporate mismanagement resulting in breach of fiduciary duties to shareholders
  • Fraudulent accounting practices to misrepresent corporate assets
  • Insider trading
  • Abusive short selling practices
  • Backdating stock options
  • Ponzi, pyramid, or other high-yield investment schemes

In addition, the new SEC whistleblower program creates an avenue for whistleblowers to report violations of the Foreign Corrupt Practices Act, which prohibits bribery or improper payments to foreign officials in order to obtain or retain business, or to direct business to a certain person.

The final rules also set forth the criteria that the SEC will consider in determining the percentage award the whistleblower will receive within the 10-30% range. The SEC will consider the following four factors in determining whether to increase the award: 1) the significance of the information provided by the whistleblower, 2) the degree of assistance provided by the whistleblower, 3) law enforcement’s interest in making the whistleblower award, and 4) participation by the whistleblower in his/her employer’s internal compliance systems. On the other hand, the SEC will look to the following three criteria in determining whether to decrease a whistleblower’s award: 1) culpability of the whistleblower, 2) unreasonable reporting delay by the whistleblower, and 3) the whistleblower’s interference with his/her employer’s internal compliance and reporting systems.

The SEC has publicly announced that it has a fund of $450 million set aside for the express purpose of paying rewards to whistleblowers under these rules. Hopefully, the SEC will use that fund to properly incentive whistleblowing by making timely and substantial rewards. How the SEC handles whistleblower tips over the next year or two will likely set the tone for the future of the program.

Hewlett Packard Reaches Agreement In Principle To Pay $50 Million To Settle False Claims Act Lawsuit

August 4, 2010

On August 2, 2010, Hewlett Packard (HP) announced that it had reached an agreement in principle with the U.S. Department of Justice to pay the Government $50 million to settle a lawsuit brought under the False Claims Act.  The lawsuit alleged that HP was involved in a scheme with Sun Microsystems, Inc. and Accenture PLC to pay illegal kickbacks in order to obtain Government contracts.  The qui tam lawsuit was filed by two whistleblowers that were former Accenture employees.

HP is also currently under investigation by the Department of Justice and the Securities Exchange Commission for potential violations of the Foreign Corrupt Practices Act due to alleged bribes paid by HP executives to officials in the Russian government.

Insider Trading Whistleblowers Receive $1 Million Reward From SEC

July 27, 2010

Two whistleblowers recently received a $1 million reward from the Securities Exchange Commission (SEC) for providing information in connection with an insider trading case against the hedge fund Pequot Capital and its CEO Arthur Samberg.  The reward was part of a $28 million settlement to resolve allegations by the SEC that Mr. Samberg traded on inside information about an upcoming earnings report from Microsoft provided by a former Microsoft employee who is in the process of being hired by Pequot.  The hedge fund allegedly received $14.8 million in illegal profits from trading on the inside information.

Wall Street Reform Passes Congress, Increases Whistleblower Protections And Rewards

July 16, 2010

On July 15, 2010, Congress gave final approval of the Restoring American Financial Stability Act (H.R. 4173).  President Obama is expected to sign the bill into law next week.  The aim of the bill is to transform financial regulation in light of the 2008 financial crisis.

The bill contains a number of whistleblower provisions designed to increase accountability and transparency in the financial system.  It encourages individuals to expose fraudulent activities in the financial services sectors.  It also contains a number of protections for whistleblowers from retaliation by their employers.  The following are the highlights of the main provisions of the bill related to whistleblowing.

Whistleblowing to the Securities and Exchange Commission

Section 922 of the act amends the Securities Exchange Act of 1934 by inserting a provision entitled “Securities Whistleblower Incentives and Protection.”  Under this provision, SEC will be required to pay a reward to individuals who provide original information to the SEC which results in monetary sanctions exceeding $1 million.  The amount of the award will be 10-30 % of the total amount of monetary sanctions.  The determination of the amount of the award will be made at the discretion of the Commission.  The award may be appealed to the appropriate Court of Appeals in the United States within 30 days after the Commission issues its determination.

No award shall be made to a whistleblower, however, who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower provided information or to any whistleblower who gains this information through the performance of an audit of financial statements required under the securities laws.  Employees of the Department of Justice, an appropriate regulatory agency, the Public Company Accounting Oversight Board or a law enforcement organization shall not be eligible for an award either.

Section 922 also protects whistleblowers from retaliation by employers.  A whistleblower who is discharged or faces other discrimination by his or her employer may bring an action for relief under this section.  Relief shall include reinstatement with the same seniority status, twice the amount of back pay otherwise owed to the individual and compensation for litigation costs.

Whistleblower Protection for Financial Services Employees

Title X of the act contains a whistleblower provision that covers a broad range of employees in the financial services who suffer retaliation from their employers for disclosing unlawful conduct or refusing to participate in unlawful conduct related to the offering of a consumer financial product or service.  The scope of the coverage is quite broad in that the section applies to organizations that extend credit or service or broker loans, provide real estate and financial advisory services, or provide consumer report information in connection with any decision regarding the offering or provision of a consumer financial product or service.

Section 1057 of the act provides a right of action to an employee in the financial services industry who faces retaliation from her employer for disclosing information about unlawful or fraudulent conduct related to the provision of a consumer financial product or service. The following actions are protected by the bill:

· providing information to an employer, the Bureau of Consumer Financial Protection or any State, local or Federal government agency that relates to the violation of consumer financial protections laws under the act;

· testifying in a proceeding against an employer resulting from the enforcement of consumer protection laws in the act;

· helping to initiate any proceeding of consumer financial protection laws under the act;

· objecting or refusing to participate in any activity that the employee reasonably believes to be in violation of any law subject to the jurisdiction of the Bureau of Consumer Financial Protection.

A person who believes that he or she has been discharged or otherwise discriminated against by a person in violation of this law may bring a complaint with the Secretary of Labor.  The Secretary of Labor shall initiate an investigation and determine whether there is reasonable cause to believe that the complaint has merit and may also provide relief to the discharged individual.  Either party may file objections to the findings and request a hearing no later than 30 days after the notification from the Secretary of Labor.

If the Secretary of Labor does not issue a final order within 210 days after the date of filing of a complaint, or within 90 days after the receipt of a written determination, the complainant may bring an action in the appropriate district court of the United States.  Any person adversely affected or aggrieved by a final order may file a petition for review in the United States Court of Appeals of appropriate jurisdiction no later than 60 days after the order is issued.


Expansion of Whistleblower Protection in the Sarbanes-Oxley Act

Another relevant provision is Section 929(A) of the act, which broadens the scope of the whistleblower provision in the Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act.  The section amends the whistleblower provision to explicitly provide protection against retaliation to employees of a subsidiary or affiliate “whose financial information is included in the consolidated financial statements of [a publicly] traded company.”  Employees at nationally recognized statistical ratings agencies, such as Moody’s and Standard & Poor’s will now have whistleblower protection.

Amendment to the Federal False Claims Act

The act amends the provision in the Federal False Claims Act that provides relief to whistleblowers who face retaliation from their employers.  The amendment specifies a three (3) year deadline for bringing retaliatory discharge actions against employers. Previously, the False Claims Act had been silent on the limitations period for actions brought under this section.  The U.S. Supreme Court addressed the uncertainty on this issue by declaring that the most closely analogous state limitations period should apply to this section.  The bill removes all ambiguity on this issue by laying down a three year statute of limitations period for actions brought under the retaliatory provision of the False Claims Act.

In order to prevent the financial fraud and consumer exploitation that contributed to the recent financial crisis, it is essential to promote accountability in the financial system.  The Restoring American Financial Stability Act recognizes that encouraging and incentivizing whistleblowing is an important step toward achieving this goal.

SEC Whistleblower Program Moves Forward In Congress

November 10, 2009

The House Financial Services Committee recently voted 41 to 28 in favor of a bill known as the Investor Protection Act of 2009, being sponsored by Rep. Paul E. Kanjorski (D-Pa).  Kanjorski is Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.  The bill is H.R. 3817.   One part of the bill would create a whistleblower program at the Securities and Exchange Commission (SEC), similar in some respect to the IRS whistleblower program.  Under the bill, if a whistleblower provided information to the SEC that resulted in penalties of greater than $1 million, then the SEC could award the whistleblower up to 30% of the amount of the penalty.  

The bill has some good and some bad.  One of the good aspects of the bill is that it would explicitly permit anonymous whistleblowers to qualify for the reward.  In order to qualify for the award, an anonymous whistleblower would need to submit the information through an attorney, so that the SEC has a point of contact with the whistleblower.  This provision is very beneficial to whistleblowers who are trying to preserve their anonymity because of fears of losing their jobs, being blacklisted, or being harassed. 

A potentially bad aspect of the bill is that it makes whistleblower rewards discretionary with the SEC, and not subject to any judicial review.  By leaving the awards so open-ended, the bills runs the risk that the amount of the awards will be too small or too arbitrary, thereby undermining the incentive for whistleblowers to come forward with valuable information.

In any event, any sort of formal whistleblower reward program at the SEC is a huge step in the right direction for an agency that has a history of not taking whistleblowers seriously enough, as the Bernie Madoff story made clear.   We’ll keep track of this bill as it continues to work through Congress, and will post if there are any new developments.

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