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Archive for the ‘SEC Whistleblower Program’ Category

SEC Whistleblower Program Issues First Award

Friday, September 7th, 2012

With the August 21, 2012 announcement of the first award payment resulting from the whistleblower program created under Dodd-Frank, the Securities and Exchange Commission finally put weeks of speculation to rest.  Although, at $50,000, the award was small in comparison to those made under the False Claims Act, the award actually amounts to 30% of the total amount the government has collected, thus far, as a result of the informant’s information—the maximum allowed under the statute.  The importance of this first payment is not to be understated given that the SEC program is still in its infancy.  Indeed, the fact that the maximum percentage was awarded suggests the value placed on the information brought to the SEC by the informant, and reaffirms the effectiveness of the program.  While the informant has elected to remain anonymous, the SEC did state that it denied an award payment to a second informant in the case stating that the information provided did not significantly advance the investigation.

The full extent of the impact that this announcement will have on the SEC Whistleblower Program has yet to be seen, however it is undeniable that it should serve to encourage more individuals with valuable information to step forward.  Indeed, in the SEC’s press release, the Director of the SEC’s Division of Enforcement, Robert Khuzami, confirmed the value of both the informant and the information he brought forth stating “This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract. Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”

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Payment of First SEC Whistleblower Award Imminent

Friday, June 8th, 2012

Ever since it was born out of the passage of the Dodd-Frank financial reform bill in 2010, all eyes have been on the success or failure of the SEC’s Whistleblower Program.  Since the program officially went into effect in August 2011, the SEC reports that they have been continually receiving high quality tips at an impressive pace of roughly seven per day.  As a result, the fact that, according to insiders, the first payment of an award appears to be imminent, there is a veritable spotlight on the Commission and the award determination process.

In responding to the rumors of a pending award, Sean McKessey, Chief of the SEC Whistleblower Office, has continued to express his enthusiasm for the program and the importance of actually making that first payment.  In an article published on Huffington Post, McKessey stated “I view [the program] as already having been a very significant success, but I understand that people want to see the deliverable.  And the deliverable, in our view, is paying people for good information…[t]he more the better, obviously.”  Further,

As we await official confirmation of the first award payment, the SEC is reminding people that the amount of the award to those who come forward remains subjective, and that the sanctions ultimately imposed against a company must exceed $1 million before they are even eligible for an award.  Specifically, at a conference earlier this week, Jane Norberg, deputy chief for the SEC’s Whistleblower Office, told attendees that although there is “no hard and fast formula [in making an award determination] at this point…it is in the SEC’s sole discretion as to how much of an award there is – whether it is 10% or 30% or somewhere in between.”

In an era where the importance of corporate accountability is reaching new heights, the first award from the SEC will undoubtedly send a strong signal.  “I think it will be an affirmation that this will not just be a paper program, that we’re not just going out and making speeches,” McKessey said.

Source: The Huffington Post 

http://www.huffingtonpost.com/2012/05/31/sec-whistleblower-reward-payout_n_1560044.html?ref=tw

 

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Justice Department Expands Efforts to Uncover Mortgage Fraud

Wednesday, May 30th, 2012

On Thursday, May 24, 2012, the Justice Department’s Residential Mortgage-Backed Securities (RMBS) Working Group announced new resources in the ongoing efforts to investigate and uncover mortgage fraud and abuse that helped precipitate the 2008 financial crisis. These efforts include the launch of a new whistleblower website to report fraudulent activities in the mortgage-backed securities market. The Working Group wants to hear from people “who worked in the RMBS market who acted responsibly but who also may have witnessed greed and misconduct that crossed the legal line and created havoc for investors, homeowners and our economy.” These market participants include loan originators, sponsors, underwriters, trustees, and others.

The RMBS working group was established by Attorney General Eric Holder in January and has been dedicated to initiating, organizing and advancing new and existing investigations by federal and state authorities into fraud and abuse in the RMBS market. The RMBS Working Group is a collaborative effort focused on investigating potential false or misleading statements, deception or other misconduct by market participants in the creation, packaging and sale of mortgage-backed securities.

While the Justice Department said the group’s efforts are law enforcement sensitive and, as a result, must remain confidential, generally it continues to: identify specific RMBS offerings for priority investigation through the use of various forensic tools including risk-based analytics; analyze pending private RMBS litigation throughout the country for evidentiary connections to existing law enforcement investigations; and convene operational meetings among investigators, attorneys, analysts and RMBS market experts and insiders.

Associate Attorney General Tony West said that “although the working group … [has] done a tremendous amount of investigative work already – including having issued more than 25 civil subpoenas – we know that hearing from insiders is particularly valuable.” Substantial financial rewards may be available to whistleblowers who provide specific information if that information leads to a monetary recovery by the government.

If you have knowledge of mortgage fraud and would like to discuss the possibility of a whistleblower award, please contact our whistleblower attorneys today. Kenney & McCafferty will consult with you about your case, including your ability to remain anonymous in filing for an award, without obligation. All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.

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SEC Disputes Story That It Blew Whistleblower’s Identity

Sunday, May 6th, 2012

In a recent article entitled “Source’s Cover Blown by the SEC,” the Wall Street Journal claimed that the SEC “inadvertently revealed the identity of a whistleblower.”  The alleged disclosure occurred during the SEC’s investigation of Pipeline Trading Systems LLC.  According to the article, an SEC lawyer “showed an executive who was being questioned a notebook from the whistleblower filled with jottings about trades, calls and meetings.”  From that notebook, the executive claims he recognized the handwriting as that of Peter Earle, who happened to be the whistleblower who prompted the SEC’s investigation.

In a scathing response to the Journal’s story, the SEC disputes the allegations against it.  In stark contrast to the story told by the Journal, the SEC asserted that it “in no way exposed Peter Earle as a whistleblower.”  In fact, the Commission claims that the use of the notebook was neither “inadvertent” nor a “breach.”  Instead, it was a “deliberate decision,” discussed by an SEC lawyer and his supervisor prior to the deposition in which the notebook was exhibited.

Going further, the SEC strongly disagrees with the allegation that the use of the notebooks in no way comprised Mr. Earle’s identity.  According to the SEC, “it was widely known…that, after the termination of his employment in 2009, Mr. Earle had approached the SEC – a fact volunteered by witnesses and acknowledged by Mr. Earle long before the exhibition of his notebooks in November 2010.”  Yet, despite this knowledge, the SEC maintains that, throughout the investigation, the Commission treated his status as a cooperating witness as confidential.  There was “nothing about the notes…or about the SEC’s use of them as exhibits…that revealed anything about whether Mr. Earle or others were cooperating in the SEC’s investigation.”

If you have knowledge of Securities Fraud and would like to discuss the possibility of a whistleblower award under the SEC whistleblower program, please contact our whistleblower attorneys today.  Kenney & McCafferty will consult with you about your case, including your ability to remain anonymous in filing for an award, without obligation.  All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.

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CFTC Accuses Royal Bank of Canada of Massive Trading Scheme

Tuesday, April 3rd, 2012

On Monday, the Commodity Futures Trading Commission (“CFTC”) filed civil charges against Royal Bank of Canada (“RBC”), accusing the bank of engaging in hundreds of millions of dollars in illegal stock future trades to gain Canadian tax credits.

“Today’s action should make clear that the CFTC will not hesitate to bring charges against even the most sophisticated market participants who unlawfully exploit the futures markets for their own gain,” said David Meister, Director of the CFTC’s Division of Enforcement.

The complaint, filed in the Southern District of New York, alleges that from at least June 2007 to May 2010, RBC conducted a massive wash sale scheme in connection with exchange-traded stock futures contracts.  According to the CFTC, a small group of senior RBC employees allegedly created and managed a trading strategy whereby they improperly coordinated trades to allow subsidiaries of the bank to buy and sell stock futures without taking a position in the market, thereby eliminating, or washing, the risk of a loss.

Wash trades, the simultaneous and offsetting purchase and sale of futures contracts, are banned under U.S. futures law.

The lawsuit claims that the bank bought and sold stocks in U.S. and Canadian companies, and then took opposing positions on futures written on those same stocks.  Specifically, RBC “allegedly non-competitively traded hundreds of millions of dollars’ worth of narrow based stock index future and single stock futures contracts with two of its subsidiaries,” and then executed block trades on OneChicago LLC, an electronic futures exchange.

According to the complaint, those trades were not negotiated at arm’s length, as required by law.  Federal regulations allow futures trades between companies and subsidiaries only if they are conducted on an arm’s length basis.  In its complaint, the CFTC alleges that the trades were designed and controlled by senior RBC personnel acting on behalf of RBC’s behalf.

The goal of the scheme was to “realize lucrative Canadian tax benefits from holding certain public companies’ securities in its Canadian and offshore trading accounts,” while limiting market exposure.

The complaint also accuses the bank of concealing and making false statements about its scheme from OneChicago and CME Group, Inc., the entity that exercised regulatory compliance for OneChicago.  When asked to describe the trades to CME Group, the bank allegedly falsely stated that its trading activity was conducted at arm’s length, and concealed the fact that the strategy was created and managed by a group of RBC personnel.

“A fundamental purpose of the futures markets is to provide an arm’s-length mechanism for market participants to discover prices and shift risks associated with products traded in those markets,” added David Meister.  “RBC not only designed and executed a wash sale scheme that undermined that purpose, it went a step further and misled the exchange into believing that its conduct was lawful.”

The CFTC is seeking monetary sanctions and a permanent injunction against further violations of the Commodity Exchange Act and the CFTC’s regulations.

RBC has called the allegations “absurd,” and has promised to defend itself against “such baseless allegations,” said Elisa Barsotti, a spokeswoman for the bank.

To read more about the charges filed by the CFTC, see the Commission’s full press release at http://www.cftc.gov/PressRoom/PressReleases/pr6223-12.

If you have knowledge of Securities Fraud and would like to discuss the possibility of a whistleblower award under the CFTC whistleblower program, please contact our whistleblower attorneys today.  Kenney & McCafferty will consult with you about your case, without obligation.  All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.

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SEC Praises Whistleblower Tips

Wednesday, March 21st, 2012

The SEC’s new whistleblower award program is already making an impact, as many insiders are coming forward with investigative leads, hoping to cash in on the program.

The SEC whistleblower program allows individuals who present original information that leads an enforcement action resulting in monetary sanctions of over $1 million to collect an award.  The award may range from 10-30%, depending on factors such as the significance of the information.  Whistleblowers range from current insiders, former employees, and outside observers.

The SEC vets the tips through its market intelligence unit, which is comprised of nearly fifty attorneys.  Potentially good leads are then funneled to enforcement attorneys.

SEC officials have recently commented that the quality of the tips received is surprisingly high, and some have resulted in “huge cases.”

According to the Financial Times, some insiders are taking on the role of detective.  Recently, due to concerns with a deal on which he had worked, a company insider submitted a tip to the SEC.  That tip resulted in an internal investigation and an SEC inquiry, which uncovered other problematic deals by the targeted company.

“In the stock market we’ve had good intel simply because of the surveillance by self-regulatory organizations and the firms themselves,” says Thomas Sporkin, head of the SEC’s market intelligence unit.  “This program similarly provides a set of eyes and ears on the corporate side,” he said.

To read more about the SEC turning whistleblower tips into cases, see the full Financial Times article at http://www.ft.com/intl/cms/s/0/15e5a89c-6a27-11e1-b54f-00144feabdc0.html?ftcamp=published_links/rss/companies_us/feed//product#axzz1pl9KTUK8.

If you have knowledge of Securities Fraud or Corporate Fraud and would like to discuss the possibility of a whistleblower award under the SEC whistleblower program, please contact our whistleblower attorneys today. Kenney & McCafferty will consult with you about your case, without obligation. All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.

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DOJ and SEC Mortgage Investigations Overlap

Tuesday, March 6th, 2012

Reuters has reported that the eleven bank subpoenas issued in January by DOJ expand upon previous document requests by the SEC in its ongoing investigations into improprieties relating to the packaging of residential mortgage securities.

According to the Reuters report, people who have reviewed the subpoenas state that the civil subpoenas ask for documents related to every residential securities offering between 2006 and 2008, including Fannie Mae and Freddie Mac bonds.

The SEC investigation that has been ongoing appears to have been limited to private offerings and did not include Fannie Mae or Freddie Mac bonds. The DOJ subpoenas have also apparently broadened the time period beyond the initial period being investigated by the SEC.

The investigations by the DOJ and the SEC appear to be a part of an inter-agency task force the government has organized to coordinate parallel efforts on current and future investigations.  In January,  SEC enforcement director Robert Khuzami said that his agency had already reviewed 25 million pages of documents as part of ongoing investigations into residential mortgage-backed securities.

Three firms, JPMorgan Chase & Co, Goldman Sachs Group Inc, and Wells Fargo & Co, have now disclosed that they have already received Wells notices from the SEC related to the SEC residential mortgage backed securities investigations. A Wells notice alerts putative defendants that the SEC is considering bringing charges and gives them a chance to rebut the allegations.

The Wells notice indicate that the SEC’s investigation against these three banks has matured to point that SEC  charges should be forthcoming. However, the new round of broader DOJ subpoenas indicates that the government  investigations will continue and possibly expand.

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Posted in Bank Fraud, bank whistleblower, corporate fraud, FHA fraud, government fraud, mortgage fraud, SEC Whistleblower Program, Uncategorized | Comments Off

SEC WHISTLEBLOWER PROGRAM ISSUES FIRST ANNUAL REPORT

Tuesday, February 21st, 2012

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), amended the Securities Exchange Act of 1934 (the “Exchange Act”) by, among other things, adding a provision to provide for a whistleblower program under the Securities and Exchange Commission (“SEC”).  Specifically, § 21F directed the Commission to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1,000,000, and certain related successful actions.  Awards are required to be made in the amount of 10% to 30% of the monetary sanctions collected, and are to be paid from the Commission’s Investor Protection Fund (the “Fund”).  On August 12, 2011, the Final Rules implementing the processes and procedures for the whistleblower program became effective.

In November 2011, the SEC Office of the Whistleblower issued its first annual report (available here) detailing its success during a shortened fiscal year 2011.  Notably, according to the annual report, in the seven weeks after the law took effect in August, the SEC received an impressive 334 tips with market manipulation, corporate disclosures, and offering fraud standing out as the most common complaint categories.  Further, submissions came from individuals in 37 states as well as several foreign countries.

While the program is still in its infancy, the responsiveness of its agents and staff, as well as the leadership of Director Sean McKessey, suggests that it will only gain momentum in 2012.

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SEC Whistleblower Program Rules Available

Thursday, May 26th, 2011

Look for this link on the SEC's home page.

Since the Commission’s 3-2 vote  adopting the final rules yesterday, the SEC has made the document available on its website at ttp://www.sec.gov/news/press/2011/2011-116.htm

Kenney & McCafferty is carefully reviewing the document and determing how the new rules can benefit those reporting securities violations. For a free consultation about a potential claim of your own, please call K&M today.

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Posted in corporate fraud, Corporate Tax Fraud, False Claims Act, government fraud, Money Laundering Tax Fraud, SEC Whistleblower Program, Uncategorized, Whistleblower Protection | Comments Off

Corporate Attorneys and Investigators Represent the Company – Not Whistleblowers

Wednesday, May 4th, 2011

Corporate investigators and attorneys will protect the company. It's their job.

A long time corporate investigator recently shared his concern that whistleblowers look to corporate investigators and attorneys for help and protection when they blow the whistle.  Nothing could be further from the truth.  “There’s nothing I can do,” said the investigator.  “I’ve seen it over and over again.  They are going to get their heads cut off.”

The investigator said he knew that whistleblowers, no matter the merit of their report, would be skillfully and systematically terminated with a substantial paper trail to support management’s actions.

“They look to me for help,” he said.  “I work for the company.  I tell them that, but they don’t seem to understand.”

Neither did CEO Ian Norris of Morgan Crucible Company.  Morgan Crucible came under government investigation for an international price fixing conspiracy.  CEO Norris began a campaign to obstruct a grand jury investigation, and he shared details of his campaign with Morgan Crucible’s attorney.  When the government learned of Norris’s obstruction, it charged Norris with corruptly persuading, and attempting and conspiring to corruptly persuade, others with intent to influence their testimony in grand jury proceedings.  Morgan Crucible waived its attorney client privilege and granted permission for corporate counsel to testify.  Norris fought the testimony, saying the corporate attorney also represented Norris in his individual capacity and was prohibited from testifying. 

The Third Circuit disagreed, but found that communications about scope of representation were ambiguous.  Ultimately, the court ruled that Morgan Crucible, alone, held the right to waive attorney client privilege, and the attorney testified.

The attorney testified that Norris, in front of counsel, disseminated a false cover story and scripts about the price fixing and encouraged everyone, including counsel, to relay the false information to investigators.  The attorney said he did not know the information was false.

Attorneys and investigators should provide employees with explicit explanations about their role in investigating allegations of fraud within a corporation.  They often do not, for a variety of reasons.  Bottom line – employees need to take steps to protect themselves when they report corporate misconduct internally. 

For a free consult about whether you have a potential government fraud claim, call K&M today.

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Posted in Corporate Tax Fraud, Employment Tax Fraud, False Claims Act, Money Laundering Tax Fraud, Offshore Accouts Fraud, retaliation, SEC Whistleblower Program, Tax Fraud, Uncategorized, Whistleblower Protection | Comments Off

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