Common SEC Securities Violations That Qualify for Whistleblower Awards

Quick Summary:
The SEC’s whistleblower program rewards individuals who report securities violations — such as fraud, insider trading, or price manipulation — with 10% to 30% of any financial sanctions exceeding $1 million. Whistleblowers can submit tips anonymously and are legally protected from workplace retaliation. Silver Law Group and the Law Firm of David R. Chase offer no-cost, confidential consultations to help potential whistleblowers navigate the process and maximize their award.

Witnessed a securities violation? Get a free, confidential consultation. Call 800.975.4345 or send a message.

If you have witnessed misconduct at a financial firm, investment fund, or publicly traded company, it may qualify as a reportable SEC violation under the Dodd-Frank whistleblower program. Qualifying whistleblowers can receive awards of 10% to 30% of sanctions collected when the SEC takes action exceeding $1 million. This page covers the most common types of securities violations that trigger SEC enforcement and what you need to know before coming forward.

In 2010, with the United States still dealing with fallout from the economic crisis of 2007-2008, Congress wanted a tighter leash on Wall Street. Out of that concern came the Securities and Exchange Commission’s whistleblower program. With the 2020 Dodd-Frank Act, Congress also created a program at the SEC that creates a substantial financial reward for people who “blow the whistle” on unlawful behavior in the securities industry.

Based on whistleblower programs that have worked elsewhere in federal law for decades, the SEC whistleblower program is set up to incentivize insiders to disclose wrongdoing. It does this through a combination of protecting their anonymity and offering a financial reward. If the information leads to financial sanctions of at least $1 million against the wrongdoer, the whistleblower can be awarded 10% to 30% of that amount. That’s a minimum of $100,000 for doing a public service—protecting investors who might otherwise be defrauded.

1. Insider Trading Definition: trading on material non-public information. Common examples: executive trades ahead of earnings announcements, M&A activity.

   Insider trading is the practice of buying or selling a public company’s stock using non-public material information known to “insiders. The SEC defines “material” information as some that would substantially influence an investor’s decision to buy or sell a security and is a breach of duty of trust or confidence.

   A company with good or bad news that leads to increases or decreases in revenue is information that’s useful to an investor. Mergers and acquisitions, product recalls or failures, or other company problems that can impact company revenue once announced.

   Giving “insider tips” to friends, family members and others about unannounced company news leads to an unfair market advantage is also a crime that the SEC takes seriously. Trading on insider information undermines the market for the investing public. The SEC investigates insider trading to protect retail investors and maintain the integrity of the market.

   Someone who knows about or uncovers insider trading and reports it to the SEC may be eligible for a whistleblower award after reporting the activity.

2. Accounting Fraud Definition: misrepresentation of financial statements. Common examples: revenue inflation, concealed liabilities, earnings manipulation.

   Accounting Fraud is any type of alteration that leads to misrepresentation of financial statements to defraud investors. Falsifying financial statements may hide a company’s financial problems or show artificially inflated profitability. This deceiving of investors, lenders and investigators leads to severe consequences for the company and the individual involved, both legal and economic.

   Earnings manipulation, concealed liabilities, and inflation of revenue are just some of the ways a company may commit accounting fraud. Improper asset valuation and disclosures, liability and expense manipulation are also fraudulent tactics. There may be only one individual involved, or several, depending on the size of the company. It may also be used alongside another type of securities violation.

   Because accounting fraud has a direct impact on the company’s valuation, it is also misleading to investors who may rely on this information when making decisions. Detecting accounting fraud can be complicated. While auditors most often find evidence, sometimes lower-level employees discover fraudulent activity.

   Someone with knowledge of accounting fraud can report this information to the SEC and may be eligible to receive a whistleblower bonus. These can be complex cases and expertise is frequently required to demonstrate the fraud, intentional misconduct and why the SEC should investigate and ultimately file charges.

3. Ponzi and Pyramid Schemes Definition: using new investor funds to pay earlier investors. Reference the SEC's active enforcement record.

   Ponzi and Pyramid Schemes are two frauds that look like “something new and different” but end up with the same MO: schemers must continue bringing in new “investors” to pay the previous “investors” dividends and sometimes interest. Along the way, many Ponzi and pyramid scheme operators frequently use funds for their own interests instead of investing. When there are no more investors and the money stops coming in, the scheme collapses. Investors are usually left with nothing at the end.

   The SEC is particularly interested in these schemes because they can harm so many investors. Many operate inconspicuously to avoid detection and can continue for many years before they collapse. Ponzi schemes frequently involve claims of substantial profits from stock or crypto investing, real estate or other illiquid investments.

4. Market Manipulation and Spoofing Definition: artificial inflation or depression of security prices through deceptive trading activity.

   Market manipulation is when a company attempts to control its trading activity with deceptive tactics to make its books look better than they are. Their purpose is to mislead investors or impact prices to their and/or the company’s benefit by either artificially inflating or deflating their security prices through trading activity.

   Spoofing is a type of manipulation in which a company uses an algorithm to place large and very visible counterfeit order to show market activity. This creates the illusion of panic or sudden market demand to move the price up or down. Once accomplished, the company places an order from the other side of the market to profit from the price change. The original counterfeit order is quickly cancelled once the price shifts in the preferred direction.

   While both practices are highly illegal, they are also notoriously difficult to prove. Whistleblowers who see these practices firsthand are the best way for the SEC to uncover and investigate them. Successful enforcement actions can lead to whistleblower awards for those who submit information and assist the SEC’s staff.

5. Cryptocurrency Securities Violations Definition: unregistered crypto asset offerings and fraudulent digital asset schemes. High growth area for SEC enforcement.

   Cryptocurrency’s online-only nature makes it both attractive to and dangerous for investors, especially those who are not tech-savvy. Like any security, crypto asset offerings are required to be registered with the SEC to be traded. But fraudulent digital asset schemes and unregistered cryptocurrency asset offerings abound. They’re not easy to uncover, leaving investors wondering what they’re buying.

   Cryptocurrency securities violations are regulatory infractions where digital asset transactions fall under the jurisdiction of federal securities laws but bypass mandatory SEC registration or disclosure rules. Many are sold via social media and other digital platforms but are nothing more than Ponzi schemes or other frauds.

   The SEC has increased its focus on cryptocurrency activity that harms investors while providing clarity surrounding crypto activity. This includes frauds and scams, particularly those on social media, bogus trading platforms, misappropriation of funds, market manipulation like “wash trading” and other blatantly deceptive practices.

   The upsurge of cryptocurrency investment fraud and other securities violations is a very high growth area for SEC enforcement. Whistleblowers who report securities violations and fraudulent activity may be eligible for an award following a successful enforcement action.

6. Foreign Corrupt Practices Act (FCPA) Violations Definition: bribery of foreign government officials by U.S. companies or those listed on U.S. exchanges.

   The Foreign Corrupt Practices Act (FCPA) prohibits US companies and individuals from offering or giving bribes in any form to any foreign official to obtain or retain business, directly or indirectly. Company officers as well as managers, employees, and stockholders acting on behalf of a company listed on any U. S. Exchange are included.

   Companies that are publicly traded on an exchange must also keep current and accurate financial records along with an adequate system of internal accounting controls. Misleading or vague transaction descriptions are strictly prohibited, such as ambiguously described transactions such as “marketing expenses” or “consulting fees” used to hide illegal payments to individuals in other countries. Payments to third-party intermediaries, offshore accounts or other third-parties for bribery are also prohibited.

   Both the SEC and DOJ enforce the FCPA, and frequently use whistleblower assistance. Whistleblowers who witness this activity can provide valuable assistance to SEC and other agencies that might not otherwise uncover anything. Assistance that leads to recovery can also mean an award for those who offer information to the SEC.

7. False or Misleading SEC Filings Definition: material misstatements or omissions in 10-K, 10-Q, proxy filings, or prospectuses.

   All securities sold in the US must be registered with the SEC, and supply documents for registration. Public companies are required to file regular disclosure documentation to the SEC These documents must be accurate and complete for the SEC as well as investors, who will use them to make investment decisions.

   Intentional material mistakes or omissions are usually found in a company’s prospectus, proxy filings (Schedule 14-A), annual reports (10-K) and quarterly reports. (10Q). Whistleblowers usually uncover irregularities if they have access to detailed internal records.

   The SEC enforces these rules using anti-fraud provisions such as Rule 10b-5 under the Securities Exchange Act of 1934. Intentional omissions and misrepresentations can open up a company to litigation and enforcement actions. A whistleblower who alerts the SEC to false or misleading SEC filings may be eligible for a whistleblower award if they submit original information.

8. Fraudulent Private Placements Definition: misrepresentation of unregistered securities offerings to investors. Already has a dedicated page — link to it internally.

   Fraudulent Private Placements are unregistered securities offerings that are not traded on a stock exchange. They are generally illiquid because there is no secondary market and may include other indicators of illegitimacy. Private placements are frerquently sold by brokers, who like selling them because of higher commissions. They are intended for accredited investors who have specific income criteria.

   Private placements are often used by startups and small companies to raise capital without the complex IPO, making them exclusive. Investors must be ready to hold these investments long term, and they include a higher degree of risk. This exclusivity is also how fraudulent private placements are sold. They don’t have to be registered with the SEC, so there is more limited SEC oversight.

   Unsolicited offerings from cold calls, vague explanations about the placement, incomplete Private Placement Memorandum (PPM) documents, and claims of consistent and “guaranteed high returns” are just some of the cautionary signs of a fraudulent private placement. Other warnings include unregistered brokers representing the investment, virtual-only offices, aggressive sales tactics, such as asking you not to discuss the placement with others including legal counsel, and unverifiable backgrounds of the issuer’s managers.

   Because private placements don’t have the meticulous public disclosures of traditional IPOs, they can easily be used for fraudulent activity. The SEC targets private placement funds and offerings since they are except from standard regulatory review. Individuals who have insider knowledge of fraudulent activity can contact the SEC (anonymously with legal counsel) and submit this information. A successful investigation and enforcement action can lead to possible whistleblower award for the informant.

If you want to be part of the SEC whistleblower program, you must submit information you believe shows a violation of federal securities laws to the SEC’s Office of the Whistleblower, either online or by physical mail. You can do this anonymously, but if you do, you must have an SEC whistleblower attorney available to act as a go-between. The SEC says it will protect your identity as much as possible, but it may need to disclose information in some circumstances, such as in court.

After receiving a tip, the SEC reviews it and assigns it to an enforcement team for investigation, or sends it to the team on an existing investigation. These investigations are confidential and the agency will not comment on them to the public. If you’re not working with an enforcement team, you may still watch for the SEC to post Notices of Covered Action showing that the investigation is final. If you believe you provided information that led to one of these postings, you must submit a form claiming the award within 90 days. The amount of the award depends on how important the information you provided was, as well as anything you did to help or hinder the investigation.

Not sure if what you witnessed qualifies?
Our attorneys have handled many SEC whistleblower cases. Call us confidentially at 800.975.4345.

Whistleblowers who bring insider information to the SEC are protected from retaliation—firing or anything that hurts you at work and is related to your whistleblowing. If this happens to you, the SEC may bring an action against your company. You may also be able to sue in federal court—with the help of an SEC whistleblower lawyer—or file a complaint with the Department of Labor.

Yes, an individual can report a securities violation to the SEC anonymously. However, an attorney must represent an anonymous whistleblower who wishes to remain eligible for a potential award.

The attorney submits the Tip, Complaint or Referral, commonly called Form TCR, on the whistleblower’s behalf through the SEC’s online portal or through a hard-copy submission. The attorney must also complete the required certification. At the time of the submission, the whistleblower must provide the attorney with a completed Form TCR signed under penalty of perjury.

The SEC can then communicate with the whistleblower through the attorney without identifying the whistleblower in the initial submission. If the whistleblower later qualifies for an award, the whistleblower must disclose and verify their identity with the SEC before payment.

Anonymity and confidentiality are not absolute. In limited circumstances, including certain court or administrative proceedings, information could be disclosed in a manner that reveals a whistleblower’s identity. An attorney can explain these limitations, communicate with the SEC on the whistleblower’s behalf and help protect the whistleblower’s identity to the fullest extent permitted by law.

Source links:

• Information About Submitting an SEC Whistleblower Tip
• SEC Whistleblower Frequently Asked Questions

After the SEC receives a whistleblower tip, the Division of Enforcement reviews it. The Office of Market Intelligence evaluates the information and determines whether it warrants additional review, relates to an existing investigation or should be referred to an SEC regional office, specialized unit or another division.

The SEC may use a whistleblower’s information to:

• Open a new enforcement investigation
• Pursue a new line of inquiry in an existing investigation
• Conduct an examination of a regulated entity
• Review securities filings
• Refer the matter for additional regulatory or law-enforcement review

The SEC conducts investigations confidentially and generally does not confirm whether an investigation has been opened or provide regular status updates. There is no standard timeline. A matter may take months or several years, depending on its complexity and the nature of the investigation.

A whistleblower may also provide additional information after filing the initial tip. Any supplemental submission should reference the original TCR submission number so that the SEC can connect it to the correct matter.

If an SEC enforcement action results in monetary sanctions exceeding $1 million, the SEC may publish a Notice of Covered Action. Publication does not automatically produce an award. A whistleblower seeking an award must submit Form WB-APP within 90 calendar days of the notice’s posting.

Eligible whistleblowers may receive between 10% and 30% of the monetary sanctions collected in the covered action and certain related actions. The SEC determines eligibility and the award percentage based on its rules and the specific facts of the matter.

• SEC Whistleblower Frequently Asked Questions
• SEC Whistleblower Program
• SEC Notices of Covered Action

If you have witnessed a securities violation, our attorneys will review your situation in a free, confidential consultation. You pay no fee unless we win your case.

Call 800.975.4345, or Request a Consultation.