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  • Firm settles with FINRA on AML compliance violations

    Securities

    On April 12, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), fining a New York-based member firm for allegedly failing to implement a reasonable anti-money laundering (AML) program for transactions involving low-priced securities. The firm also allegedly failed to establish a due diligence program for monitoring and investigating “potentially suspicious transactions.” According to FINRA, the firm and its principal failed to, among other things, (i) take reasonable steps to establish and implement an AML program tailored to the firm’s new business line (and particularly the deposit and liquidation of microcap stocks), resulting in the firm’s failure to identify or investigate potentially suspicious transactions; and (ii) provide meaningful guidance regarding how the principal was to identify or review red flags specific to the customer account business. In addition, FINRA allegedly found that the principal “repeatedly” permitted deposits and re-sales of microcap securities despite missing documentation. As a result, the firm and its principal violated FINRA Rules 3310(a) (Anti-Money Laundering Compliance Program), 3110(a) (Supervision) and 2010 (Standards of Commercial Honor and Principles of Trade).

    Securities Anti-Money Laundering FINRA Enforcement Financial Crimes Of Interest to Non-US Persons

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  • SEC awards approximately $2.5 million to whistleblower

    Securities

    On April 9, the SEC announced an approximately $2.5 million whistleblower award in connection with a successful enforcement action. According to the redacted order, the whistleblower supplied information that led to charges related to a breach of fiduciary duties owed to investors, provided significant ongoing assistance to enforcement staff, and reported the information internally to the company.

    The SEC has now paid approximately $762 million to 148 individuals since the inception of the whistleblower program in 2012.

    Securities Securities Exchange Act Whistleblower Enforcement

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  • FINRA fines broker-dealer for alleged supervision failures

    Securities

    On April 5, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), with a New York-based broker-dealer subsidiary of a global financial services company to resolve allegations that it failed to monitor employees’ outside brokerage accounts for “potentially deceptive trading practices.” Among other things, FINRA alleged that the firm’s failure to maintain a supervisory system to ensure employees disclosed their outside brokerage accounts precluded the personal account trading team from accurately monitoring account activity for compliance with the firm’s trading restrictions. FINRA further indicated that “[w]hile the firm ultimately was able to review the relevant trading activity, the inability to do so earlier led to the firm’s failure to timely monitor trading in these accounts.” The firm neither admitted nor denied the findings set forth in the AWC letter but agreed to pay a $345,000 fine.

    Securities FINRA Enforcement Settlement

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  • SEC awards more than $500,000 to whistleblower under “safe harbor” provision

    Securities

    On March 29, the SEC announced a more than $500,000 whistleblower award in connection with an enforcement action. According to the redacted order, the whistleblower raised concerns about alleged securities violations internally, which prompted an investigation by the company. The company then reported the information to an outside agency, which in turn made a referral to Commission staff, thus prompting the opening of the SEC’s investigation. The SEC noted that the whistleblower also provided helpful documents and met with Commission staff, allowing the SEC and another agency to quickly file actions and shut down the ongoing fraudulent scheme. Additionally, the SEC explained that because the whistleblower also submitted a tip to the SEC within 120 days of reporting the violations internally to the company, the whistleblower satisfied the SEC’s whistleblower rule’s “safe harbor” provision, thereby allowing the SEC to treat the whistleblower’s information “as though it had been made on the date that the [whistleblower] provided that same information to his/her employer[].”

    The SEC has now paid approximately $760 million to 145 individuals since the inception of the whistleblower program in 2012. The Commission noted that, with this award, it has now “awarded 40 individuals this fiscal year, surpassing last year’s record of 39 individual awards,” and has “awarded whistleblowers nearly $200 million in the first half of FY21 alone.”

    Securities Enforcement Whistleblower SEC Investigations

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  • Digital asset company to pay $6.5 million to settle CFTC allegations

    Securities

    On March 19, the CFTC announced a $6.5 million settlement with a California-based digital asset company to resolve allegations of false, misleading, or inaccurate reporting concerning its digital asset transactions that violated the Commodity Exchange Act or CFTC regulations. According to the CFTC, from January 2015 to September 2018, the company allegedly operated at least two trading programs that generated orders that, at times, matched each other. The CFTC claimed, among other things, that the transactional information provided on the company’s website and given to reporting services resulted “in a perceived volume and level of liquidity of digital assets. . .that was false, misleading or inaccurate.” Additionally, the CFTC alleged that the company was vicariously liable for a former employee’s use of “a manipulative or deceptive device” to intentionally place buy and sell orders that matched each other, creating a misleading appearance of interest in certain cryptocurrencies. The company did not admit or deny the CFTC’s findings and agreed to pay a $6.5 million civil penalty.

    Securities CFTC Enforcement Virtual Currency Commodity Exchange Act Cryptocurrency

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  • SEC issues more than $6.5 million in whistleblower awards

    Securities

    On March 9, the SEC announced an approximately $1.5 million whistleblower award in connection with a successful enforcement action. According to the redacted order, the whistleblower provided information that led to the opening of the investigation, and assisted enforcement staff by providing multiple written submissions and identifying potential witnesses. The whistleblower also met with enforcement staff multiple times to explain information.

    Earlier, on March 4, the SEC announced a more than $5 million joint award to two whistleblowers who alerted enforcement staff to misconduct occurring abroad that would otherwise “have been difficult to detect.” According to the redacted order, the whistleblowers voluntarily submitted a joint tip that led to the opening of the investigation, and continued to assist enforcement staff by providing information that directly supported certain allegations in the enforcement action. However, in the same order, the SEC affirmed denial of two other claimants’ award claims after determining that the individuals did not submit information leading to the successful enforcement of the covered action. The SEC noted, among other things, that these claimants’ tips did not cause the opening of the investigation and that the information provided related to conduct by “entirely different companies” and was not used in the covered action.

    The SEC has now paid approximately $759 million to 143 individuals since the inception of the whistleblower program in 2012. 

    Securities SEC Whistleblower Enforcement Investigations

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  • SEC issues multiple whistleblower awards

    Securities

    On March 1, the SEC announced a more than $500,000 whistleblower award in connection with a successful enforcement action. According to the redacted order, two whistleblowers provided timely tips that revealed an ongoing fraud and formed the basis for the SEC’s action, as well as a related action from another government agency. The SEC noted that both whistleblowers provided “substantial, ongoing assistance” that conserved the agencies’ time and resources. 

    Earlier on February 25, the SEC announced whistleblower awards totaling more than $1.7 million in two separate enforcement actions. According to the first redacted order, the SEC awarded a whistleblower over $900,000 for providing significant information and documents, including “a critical declaration,” that helped expedite an investigation and allowed the SEC to “shut down an ongoing. . .scheme preying on retail investors.” In the second redacted order, a whistleblower was awarded over $800,000 for providing “important evidence of false and misleading statements made to investors,” which led to the “return [of] millions of dollars to harmed investors.”

    The SEC has now paid approximately $753 million to 140 individuals since the inception of the program in 2012. 

    Securities Whistleblower Enforcement SEC

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  • SEC issues multiple whistleblower awards, including award based on DOJ agreement

    Securities

    On February 23, the SEC announced a more than $9.2 million award to a whistleblower whose information and assistance led to successful related DOJ actions. This marks the first SEC whistleblower award based on a DOJ non-prosecution agreement or deferred prosecution agreement since amendments to the SEC’s whistleblower program rules took effect last December (covered by InfoBytes here). The SEC noted that the whistleblower was previously awarded for his contributions to a successful SEC enforcement action based on the same information that supported the DOJ’s actions, which is a prerequisite in order to be eligible for a related-action award. According to the redacted order, the whistleblower provided significant, original information to the SEC about an ongoing fraud that “enabled a large amount of money to be returned to investors harmed by the fraud.” The SEC provided the information to the DOJ, noting that the whistleblower provided significant assistance by traveling at the whistleblower’s own expense to be interviewed by DOJ.

    Earlier on February 19, the SEC announced whistleblower awards totaling nearly $3 million in two separate enforcement actions. According to the first redacted order, the SEC awarded a whistleblower over $2.2 million for providing original information that significantly contributed to the investigation and resulted in the “return of millions of dollars to harmed clients.” According to the SEC, the whistleblower also “took personal and professional risks by raising concerns internally in an effort to remedy the misconduct.”

    In the second redacted order, the SEC awarded a whistleblower nearly $700,000 for alerting Commission staff to a fraudulent reporting scheme, which prompted the opening of an investigation. The SEC noted that the whistleblower voluntarily provided critical documents and information to Commission staff, helped identify key documents and witnesses, thus conserving SEC time and resources, and “internally raised concerns about the perceived conduct in an effort to remedy the violations.”

    The SEC has now paid approximately $750 million to 136 individuals since the inception of the program in 2012.

    Securities SEC Whistleblower Enforcement

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  • SEC issues nearly $600,000 whistleblower award

    Securities

    On January 14, the SEC announced a whistleblower award of nearly $600,000 in connection with a successful enforcement action. According to the redacted order, the whistleblower provided new, highly valuable information during the course of the investigation, as well as substantial assistance, including meeting with enforcement staff numerous times and providing critical investigative leads. Additionally, the SEC notes that “there is a close nexus” between the whistleblower’s information and certain charges in the covered action.

    The SEC has now paid approximately $738 million to 134 individuals since the inception of the program.

    Securities SEC Whistleblower Enforcement

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  • SEC issues whistleblower awards totaling over $1.1 million

    Securities

    On January 7, the SEC announced whistleblower awards totaling over $1.1 million in separate enforcement actions. According to the first redacted order, the SEC awarded three whistleblowers nearly $500,000 for providing information in two related enforcement actions. Information voluntarily provided by the first whistleblower—a company outsider—prompted the opening of the investigation, while the second and third whistleblowers provided significant information contributing to the success of the actions, while also assisting investigative staff.

    In the second redacted order, the SEC awarded a whistleblower nearly $600,000 for voluntarily providing information leading to a successful enforcement action, assisting Commission staff, and repeatedly reporting “concerns internally in an effort to correct the problems at the company.”

    In the third redacted order, a whistleblower was awarded more than $100,000 for providing independent analysis leading to a successful enforcement action. The whistleblower, among other things, “used information from various publicly available documents to calculate an estimate of an important metric for [the company],” and then “showed that the [c]ompany’s disclosures regarding that metric were implausible.” According to the SEC, this is the fifth individual who received an award based on independent analysis in fiscal year 2021.

    The SEC has now paid approximately $737 million to 133 individuals since the inception of the program.

    Securities Whistleblower Enforcement SEC

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