SEC Whistleblower Reporting for Ponzi Schemes

An important source of protection against Ponzi schemes is the participation of Whistleblowers, who collaborate with the Securities and Exchange Commission (SEC), which is responsible for prosecuting these cases. We work with whistleblowers who need to know how to report a Ponzi scheme to the SEC. We also work with Ponzi scheme victims to recover their losses.

A “Ponzi” scheme is an investment scam in which funds from new investors are used to prop up the returns of existing investors. Organizers of Ponzi schemes often solicit new investors by promising to invest funds in securities that produce high returns with little or no risk. Sometimes the fraudsters divert money for their own personal use. These bad actors can cause investors even to lose their life savings. The most notorious such fraudster was Bernie Madoff, who recently died in prison, where he was serving a life sentence for stealing from trusted investors in amounts estimated to be sixty-five billion dollars.

A Ponzi scheme is similar to a pyramid scheme. Both use new money to fund the early investors or entrants. Both need a continuous flow of new money to survive. Eventually, when incoming money stops, the scheme unravels.

There are various red flags of fraud. They include:

• Unusually high investment returns with little or no risk.
• Consistent investment returns despite market volatility.
• Investments that are not registered with the SEC.
• Unlicensed sellers.
• Highly complex strategies.
• No minimum qualifications for investors.
• Inadequate or non-existent risk disclosure and written documentation.
• Difficulty receiving payments.
• Schemes that are spread through members of a groups that share an affinity such as national, ethnic, or religious affiliation.

Ponzi schemes 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 Ponzi schemes. The whistleblower path, however, is complex and challenging. It requires experienced counsel who can provide strategic advice, support, and a watchful eye as the case proceeds through the 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 (Commodity Trading Futures Commission); 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.