Whistleblowers

SEC Probes Wells Fargo Over Allegations of Violations Involving Whistleblower Protections and Investor Disclosures

Published on: November 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is investigating whether Wells Fargo (WFC) violated whistleblower protections, in the wake of allegations of aggressive and illegal sales tactics, and misled investors over these allegations. The probe comes after Senators Jeff Merkeley (D-Ore), Elizabeth Warren (D-Mass), and Robert Menendez (D-NJ) sent the Commission a letter asking the regulator to examine whether the bank misled investigators over cross-selling claims.

In the letter, the US senators asked the SEC to look into whether Wells Fargo violated Sarbanes-Oxley’s internal control provisions and whistleblower protection laws by firing employees who attempted to report alleged misconduct involving fake accounts. The three senators also asked the Commission to look at whether the bank failed to properly disclose bogus accounts while marketing high figures related to the creation of accounts.

Wells Fargo recently came under fire for setting up some two million bogus accounts. It settled the case, which was brought by California prosecutors and federal regulators—including the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau— for $185M in penalties and $5M in customer restitution. Questions have since arisen over why the bank did not notify investors about these cross-selling allegations until it settled with regulators, even though Ex-CEO John Stumpf admitted that he knew about the problems going as far back as 2013.

SEC Cases: Och-Ziff Hedge Fund Settles FCPA Violation Charges for $413M, Employee is Accused of Insider Trading Prior to Drug Announcement, and Company Pays Fine After Firing Whistleblower

Published on: October 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

NY Hedge Fund to Pay $413M to Settle Civil and Criminal Charges Over FCPA Violations

Och-Ziff Capital Management Group has settled both criminal and civil charges accusing the New York hedge fund of paying bribes to obtain business in Africa. This is the first hedge fund to face punishment over violating the Foreign Corrupt Practices Act.

As part of its settlement with the SEC, Och-Ziff will pay almost $200M to the Commission. Meantime, the hedge fund’s CEO, Daniel S. Och, will pay the regulator almost $2.2M to resolve charges accusing him of causing certain violations. CFO Joel M. Frank also agreed to settle the SEC the charges against him and will pay a penalty.

SEC Accuses Peruvian Traders of Insider Trading, Charges Anheuser Busch InBev with Whistleblower Protection and FCPA Rule Violations, and Orders an Oil Services Company to Pay $140M Over Accounting Fraud Allegations

Published on: September 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Claims Peruvian Attorneys and Broker-Dealer Manager Used Accounts to Insider Trade

The U.S. Securities and Exchange Commission has filed charges against three people in Peru, accusing them of insider trading prior to the merging two mining companies. The regulator wants penalties, disgorgement, and interest.

According to the Commission, HudBay Minerals Inc. employee Nino Coppero del Valle told fellow lawyer and friend Julio Antonio Castro Roca about a tender offer the mining company had turned in to acquire shares in August Resource Corp., which is located in Arizona. Hudbay is based in Canada.

Castro then allegedly traded using this materially nonpublic information via a brokerage account that was held by a shell company in the British Virgin Islands. He is accused of doing this so that the trades couldn’t be traced back to the two of them. They purportedly made over $112,000 in illicit profits.

SEC Awards Whistleblower $4M

Published on: September 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.

In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs.

Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips.

Tax Whistleblowers Are Entitled to Award When There Are Civil Forfeitures and Criminal Fines, Rules Court

Published on: August 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Tax Court has ruled that tax whistleblowers are entitled to a reward when criminal fines and penalties are collected. The ruling in this particular case found that two whistleblowers had a right to receive a $17.7M reward in the wake of the $54M in civil forfeitures and criminal fines that resulted.

The Internal Revenue Service had argued that the fines and forfeitures were not under the realm of the IRS Whistleblower Program. The IRS and the U.S. Treasury Department had been seeking to approve a rule that would not award whistleblowers if the violation they reported ends up being criminally prosecuted. The rule would allow tax whistleblowers to be reward only for resulting administrative or civil penalties.

The IRS had previously decided that “collected proceeds” in a tax whistleblower case was only limited to taxes paid under Title 26. This decreased the incentive for whistleblowers to come forward and inform on criminal tax activities and illegal offshore accounts. Now, however, the Tax Court has said that “collected proceeds” in a tax whistleblower case includes not only Title 26 taxes but also civil forfeitures and criminal penalties.

In other whistleblower news, the U.S. Securities and Exchange Commission has imposed a $340K penalty against Health Net Inc. for using severance agreements that obligated outgoing employees to waive their right to receive monetary rewards under the regulator’s whistleblower program. The SEC said that the requirement is illegal and violates federal securities laws.

Securities Headlines: SEC Announces $17M Whistleblower Lawsuit, Delta Employees File 401(K) Lawsuit Against Fidelity, Blackstone President Says Hedge Funds Could See 25% Asset Loss, and Deutsche Bank is Fined $6M By FINRA

Published on: June 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Issues Its Second Largest Whistleblower Award
U.S. Securities and Exchange Commission has awarded the ex-employee of a company more than $17M for a whistleblower tip that helped move the regulator’s probe forward, ultimately resulting in a successful enforcement action against that company. This is the second largest award that the regulator has issued since it started its whistleblower program in 2011.

To date, the program has awarded over $85M to 32 whistleblowers. The largest SEC whistleblower award so far has been $30M and it was issued in 2014. In the last five months alone, five whistleblowers have been awarded over $26M.

Under the SEC whistleblower program, whistleblowers may be entitled to receive a monetary award if the information they’ve voluntarily given the regulator is original and helpful, resulting in an enforcement action, and the monetary sanction arrived at is greater than $1M. In such cases the whistleblower may be entitled to 10-30% of the funds collected. The payments come out of an investor protection fund paid for by monetary sanction payments issued to the SEC for securities law violations.

Delta 401(K) Participants File Lawsuit Against Fidelity
Fidelity Investment units are now defendants in a 401(K) lawsuit filed by participants in a Delta Air Lines Inc. retirement plan. The plaintiffs want class action status.

They claim that Financial Engines, which was retained to give investment advice to the Delta Family-Care Savings Plan, is paying Fidelity a substantial chunk of the fees it receives from the 401(k) plan members. This has purportedly inflated the cost of investment advice services that are essential to the plan and is a violation of Fidelity’s fiduciary duty. They also claim that Fidelity’s management of BrokerageLink, a self-directed brokerage account, acquires share classes with high expense ratios that pay the broker dealer significant revenue-sharing payments. The plaintiffs believe Fidelity is “effectively” utilizing the assets of the plan to its benefit.

Fidelity claims the allegations are meritless.

SEC Issues More Whistleblower Awards

Published on: May 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has awarded new whistleblower awards to individuals who have come forward with original and helpful information that have allowed the government to pursue significant securities cases against offenders. By law, a whistleblower is entitled to 10-30% of money garnered when a monetary sanction obtained exceeds $1.

Last week, the SEC announced that it would award between $5M-$6M to an ex-company insider who provided information about his employer’s securities violations. The SEC said that the offenses would have been nearly impossible to identify had it not been for the tip. More specifics about the case were not provided in part to protect the whistleblower’s identity.

The award is the third highest that the Commission has issued to a whistleblower since the whistleblower program when into effect in 2011. The two larger whistleblower awards include one of over $30M in 2014 and another of more than $14M in 2013.

Hedge Fund Manger Files Whistleblower Lawsuit Blames Carlyle Group For Almost $2B of Investor Money

Published on: February 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In his whistleblower lawsuit, ex-hedge fund manager Nikhil Dhir claims that the Carlyle Group fired him for complaining that the global asset management group’s executives had allowed close to $2B of investment funds to shrink to less than $50M without notifying account administrators. The Carlyle Group disputes his accusations.

According to the complaint, Dhir was initially hired by a company called Vermillion as an energy portfolio manager for the Viridian Fund. The fund was supposed to concentrate on trading derivatives, physical commodities, and stock options in the soft commodities, metal, freight, and energy industries.

When the Carlyle Group purchased a 55% stake in Vermillion, Dhir became a Carlyle employee, while the Viridian Fund was marketed as a diversified investment fund with low volatility and the promise that no more than 30% of the portfolio ever would be allocated toward just one commodity.

The fund invested in freight position four years ago. According to Dhir, between ’12 and ’14, the percentage of the Viridian Fund that went to freight reached over 90%. Yet, said Dhir’s lawyer, the fund’s partners continued to tell investors and the portfolio manager that the position was liquid and there would be “minimal market impact” if it were to be exited.

Securities Fraud Headlines: Ne-Yo Sues Citibank, SEC Awards Whistleblower $700K, U.S. Supreme Court Takes on Insider Trading, and Morgan Stanley Must Deal with $500M CDO Case

Published on: January 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Performer Ne-Yo Files Countersuit Against Citibank Over Alleged $5.4M Securities Fraud
Singer Ne-Yo is suing Citibank (C), claiming that the financial institution should have had the proper safeguards and procedures in place that could have prevented his ex-money manager Kevin Foster from allegedly bilking him of $4.5M. The performer had filed a securities case against Foster and the latter’s employer, V. Brown & Co., in 2014.

Ne-Yo sought $8M. $4.5M of which Foster had purportedly swindled by moving funds out of the singer’s accounts to the money manager’s own accounts and the accounts of others. Ne-Yo sought $3.5M for service payments he says that he paid Foster and V. Brown between ’05 and ’13.

The performer claims that Foster forged his name on loan documents and took the money, including $1.4M from Citibank that the singer claims he never signed off on. Right before Ne-Yo sued his ex-manager, however, Citi filed its own lawsuit against him for the loan.

Now, Ne-Yo is saying that Citibank never told him of the numerous transactions made by Kevin, some of which involved his overdrawn account at the bank.

Sec Issues Over $700K Award to Whistleblower
The Securities and Exchange Commission is issuing an over $700K award to an individual who blew the whistle on a company. The information that the person provided led to a successful enforcement action. The whistleblower, an industry expert, was not employed at the company. This is the first time a company outsider has been issued this type of award since the SEC opened its whistleblower office in 2011.

Because the regulator protects the confidentiality of whistleblowers, the individual’s identity has not been revealed. SEC Enforcement Division Director Andrew Ceresney said that the agency values voluntary submissions by industry experts with ‘first-hand” information of wrongdoing committed by company insiders.”

SEC Issues Over $325K Whistleblower Award to Ex-Investment Firm Employee Who Provided Fraud Tip

Published on: November 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is awarding over $325K to an ex-investment firm employee who notified the regulator about misconduct that had been going on at his former employer. The information he provided allowed the SEC’s enforcement staff to investigate and discover the extent of the fraud.

In addition to providing specific details about the misconduct, the whistleblower identified who was involved in the fraud. However, said the Commission, if the whistleblower had come forward with the information sooner rather than waiting until after departing the investment firm, the award for exposing the fraud may have been greater.

In a statement, SEC Enforcement Division Director Andrew Ceresney spoke about how it is important for corporate insiders who are aware that there have been securities law violations to report what they know right away so that the misconduct can be stopped and investors are protected from any or further harm. He noted that the Dodd-Frank Act provides whistleblowers with substantial protections and incentives for tipping the agency about suspected wrongdoing.