Whistleblowers are one of the most important parts of detecting and stopping Ponzi schemes. They are the “first line of defense” against these and other types of financial fraud. These individuals frequently uncover fraudulent activity that might otherwise go unnoticed. They also provide valuable information to the US Securities and Exchange Commission (SEC) and other regulatory agencies.
A 2007 study by PriceWaterhouseCoopers found that whistleblowers can be more effective than professional auditors in detecting Ponzi schemes, fraud, and other misconduct. Whistleblowers found and exposed 43% of Ponzi and other schemes at private corporations, while professional auditors only found 19%. Their insider knowledge and insights are essential for not only protecting investors but maintaining the integrity of our financial markets.
Becoming A Ponzi Scheme WhistleblowerWhile anyone can become a whistleblower, it is frequently the employees and other insiders at companies that are engaged in a Ponzi scheme. Famous whistleblowers like Sherron Watkins of Enron, who notified CEO Kenneth Lay of the company’s improper and incorrect accounting, are frequently the people who know and understand wrongdoing. But even employees who are not vice presidents like Ms. Watkins may discover that the company is committing fraud.
This doesn’t mean that you must be an employee to report a company’s misconduct or fraud. Investors may have access to information that alerts the SEC to a Ponzi scheme or other wrongful activity. In some cases, even members of the public who have specialized knowledge of the securities industry may become whistleblowers.
The Ponzi SchemeCreated by Charles Ponzi in the 1920s, a Ponzi scheme is characterized by dividends paid from new investor funds rather than profits or income. The most famous Ponzi scheme in recent years was the infamous Bernie Madoff case, in which billions of investor funds were lost over decades before it collapsed.
Whenever an investment purports to have features like high, guaranteed returns, no risk, and other “too good to be true” attributes, investors should always be cautious. Unfortunately, many investors are lured in with these attributes and hand over money before investigating the investment first.
Ponzi schemes can come in many forms, but the basic characteristics of most include:
Other characteristics include:
Unfortunately, many of these Ponzi schemes are discovered only when they collapse, or they are ready to, leaving investors without their funds. Investors may be so interested in the incredible promised returns that they ignore the red flags.
SEC WhistleblowersThe success of the SEC’s own Whistleblower Program is a testament to how important whistleblowers are in finding and stopping Ponzi schemes. Since its 2011 inception, the SEC's Whistleblower program has received over 33,000 tips from people in over 130 countries. This has led to significant enforcement actions that have recovered billions of dollars for defrauded investors.
The program encourages individuals with knowledge of Ponzi schemes and other wrongdoing to come forward with financial incentives and legal protections. This helps the SEC quickly identify and halt fraudulent schemes. This proactive approach helps to stop Ponzi schemes and is a powerful deterrent against future financial crimes.
How Long Does an SEC Whistleblower Claim Last?A successful SEC enforcement action from a whistleblower tip that leads to a financial award can take at least two to four years, depending on the circumstances. The award application process can take additional time after the case is completed.
The first step is to ensure that when you submit your information to the SEC, it's original information that they do not yet have. This also means that you should submit your information as soon as possible. Someone else may have the same information as you and may submit it first. Unless you can provide additional information that the SEC needs, you may not be eligible for any award. The SEC also considers timeliness when awarding money to a whistleblower.
Your information must also clearly explain the issues and details that indicate a Ponzi scheme. Because the SEC has somewhat limited resources, they cannot pursue every tip they receive. To get noticed, you must ensure that your information is credible, and original, and gives them what they need to begin. A Ponzi scheme whistleblower attorney can help you explain your information so that the SEC will be more likely to decide to pursue it.
Should the SEC proceed with your tip to an investigation, the subsequent enforcement action must yield fines and sanctions over $1 million before you become eligible. However, it isn't that simple, nor is it automatic.
After the SEC publishes the action on its Notices of Covered Action page, a whistleblower has 90 days to apply for an award. The application is reviewed by the SEC's Claims Review Staff designated by the Director of the Division of Enforcement, who will determine if the whistleblower is eligible. Should they decide to award, the whistleblower may receive between 10% and 30% of the collected monetary sanctions from the enforcement action.
If the SEC declines to make an award, a whistleblower can appeal the decision. If the appeal is successful, the SEC will pay the award once the process is completed.
Retaining Experienced SEC Whistleblower AttorneysSEC whistleblowers help everyone by notifying the SEC of conduct that harms the investing public, while also earning financial compensation for themselves. Hiring experienced SEC counsel may greatly increase the probability that the SEC will initiate an investigation based on your information. If you wish to remain anonymous, you must be represented by an attorney, who will submit everything on your behalf.
Silver Law Group and the Law Firm of David R. Chase jointly have experienced SEC whistleblower lawyers, including a former SEC Enforcement attorney on the team, so you will always have guidance throughout the process. Our SEC whistleblower attorneys can help you if you have information regarding securities or investment fraud, violations of federal securities laws, false filings, market manipulation, or other misconduct. You must provide timely, credible, and original information or analysis to be eligible.
Contact us through our online form or at (800) 975-4345 for a consultation. Our attorneys work on a contingency fee basis. This means that it costs you nothing to hire us, and we collect our fees only if you receive an SEC bounty. Because we get paid when you do, we have the incentive to help you collect the maximum award available.