Whistleblower Reporting for Securities Disclosure Fraud

An important source of protection against securities disclosure fraud is the participation of whistleblowers, who collaborate with the Securities and Exchange Commission (SEC), which is responsible for prosecuting these cases.

In order to raise capital in the public securities markets, companies are required to provide investors with information about all the relevant risks relating to the company and the securities themselves. Companies cannot make false or misleading statements, and they cannot omit important information that investors need to know. This disclosure process is intended to provide investors with confidence in the integrity of the financial markets.

The securities laws further require that pubic companies file their financial statements and other information with the SEC, which makes them available to the public.

Sometimes, however, companies make misleading statements or provide inadequate information for investors. Such companies can be subject to enforcement actions by the SEC and the CFTC (Commodities Futures Trading Commission).

One recent example is the case of sports apparel manufacturer Under Armour Inc. On May 3, 2021, the SEC charged Under Armour with misleading investors “as to the basis of its revenue growth and failing to disclose known uncertainties concerning its future revenue prospects.” The SEC found, for example, that the company failed to notify investors that it did not meet internal sales projections for North America. The SEC also found that the company did not tell investors that warm weather had adversely impacted sales of its higher-priced cold-weather apparel. The SEC found that the company violated the anti-fraud provisions and reporting requirements of the federal securities laws.

Under Armour paid a fine of $9 million to settle the enforcement action without admitting or denying the findings in the SEC’s order.

These disclosure cases can be a challenge to prosecute because of their complexity. As a result, the involvement of whistleblowers is essential. They provide law enforcement officials with the key information they need to successfully prosecute securities disclosure fraud. The whistleblower path, however, is complex and challenging. It requires experienced counsel to provide strategic advice, support, and a watchful eye as the case proceeds through the complicated enforcement process.

Whistleblowers need counsel to:

• determine whether they have a viable complaint and, if so, how to make an informed decision about whether to proceed;

• gather the evidence and assemble an effective package of materials to maximize success and persuade the government to become involved;

• serve as vigorous advocates to guide them through the process with minimal risk, including protection against possible retaliation and mistreatment;

• vigorously pursue a monetary reward based on the significance of the information and assistance provided to investigators (with the level of protection depending on what and how whistleblowers report);

• prepare an anonymous claim to be filed with the SEC and the CFTC; and

• protect the whistleblower’s identity to the fullest extent of the law.

Attorneys Scott Silver and David R. Chase are nationally recognized lawyers who specialize in securities and investment fraud. They have extensive experience protecting Whistleblowers and representing them in related employment matters. They have a deep understanding of SEC and CFTC matters.

Attorney Scott Silver is co-chairman of the Securities and Investment Fraud Group of the American Association of Justice. He has devoted his career to practicing law in the securities and financial services sectors. He is the author of a highly regarded primer on whistleblower issues.

Attorney David R. Chase represents clients across the spectrum of securities law. He previously served in the SEC’s Division of Enforcement as Senior Counsel. He has extensive knowledge involving SEC enforcement practices. He has also served as Special Assistant United States Attorney in the Economic Crimes Division of the US Attorney’s Office in the Southern District of Florida.

If you think you have you qualify as a Whistleblower or may need assistance with securities fraud matters, contact us at 800.975.4345. You can also reach out online.