Financial fraud is any act that causes people to purchase or sell a stock based on false or misleading information, or who violate securities laws. Whistleblowers may report many different types of securities fraud, from outright embezzlement to sophisticated stock market manipulation infringing the rules created to protect investors and the general public.

As a whistleblower, your rights are protected. Contact Whistleblowers International at or by submitting an online contact form to learn more.

Financial and securities fraud directly harms investors and companies in the public and private sectors by manipulating stock prices. Today, it is estimated that malicious schemes cost the markets between $10‐40 billion annually. Those who illegally manipulate, buy, and sell prices affect the 200 million individuals who trusted their savings in this type of investment, and directly or indirectly rely on them through their pension funds and retirement accounts.

SEC PROTECTIONS FOR WHISTLEBLOWERS 

As the responsibility held by unscrupulous corporations in the 2008 market crisis became more widely known, public and government officials called for increased regulations and policing of Wall Street. In response, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. This Act introduced comprehensive regulatory changes and consumer protection tools aimed at uncovering fraudulent schemes before they cause substantial economic damage.

One of the Act’s primary objectives was to detect potential fraudulent behaviors by incentivizing individuals to report illegal activity through whistleblowing. The Act created the Securities and Exchange Commission (SEC) Whistleblower Office, which granted protection, full anonymity, and large monetary rewards to all relators that help the Government bring these criminals to justice.

Today, the SEC Whistleblower Office remains a program that protects and grants anonymity and rewards to those who come forward to expose financial and security frauds.

SECURITIES FRAUD UNDER THE SEC WHISTLEBLOWER PROGRAM

To date, banks and other financial institutions continue to operate with little effective government oversight. The U.S. government has increasingly relied on whistleblowers to help detect and prosecute fraud, and it has created several programs and legislation to ensure they would be handsomely rewarded. With the current legislation, an attorney can be hired to file a SEC claim anonymously and, if the case is successful, receive a monetary award based on the money recovered by the authorities. The percentage ranges from 10 to 30 percent of the monies collected based on the information provided (so it may reach up to several millions of dollars), with a minimum payment of $100,000.

Learn more about the SEC Whistleblower Program here.

TYPES OF FRAUD COVERED BY THE SEC

There are several types of SEC fraud that can be recovered under the DFA, IRS Whistleblower Statute, and False Claims Act. Typically, only employees are in a position to identify an ongoing scheme (insiders); however, anyone with credible information can report it, including third ­parties who uncover illegal activities through independent investigation. Some examples of these unlawful practices include:

Corporate disclosure fraud & false financial statements
Filing false or misleading financial statements usually involves engaging in accounting practices that create the appearance of increased earnings and revenue. Another common scam includes forging business transactions that generally have no practical purpose other than to manipulate revenues, expenses, earnings and/or losses.

Insider trading
Insider trading occurs when individuals with nonpublic information use their knowledge to profit on possible stock fluctuations as soon as the information is disclosed. For example, an insider who knows of an impending product recall may short sell the company’s stock right before the announcement. Information can also be illegally sold to a third‐party.

Market manipulation
Market manipulation is the interference with the free and fair operation of the market by engaging in transactions that create or maintain an artificial price. Hedge funds represent an especially vulnerable target. “Churning” happens when a trader places multiple buy and sell orders simultaneously to create the appearance of increased activity and to drive up a stock price.

Violating accounting standards
Companies must keep accurate accounting books and records. Improperly characterizing the nature of expenses, legitimate or otherwise, is a violation of the securities laws.

Offering fraud
Offering fraud occurs when an individual or group of stakeholders lie to potential investors in a new company by inflating its value. An example of this would be a new medical testing company that fails to disclose that one of its blood tests is not effective for its intended purpose.

Money laundering
Money laundering includes all those operations that aim to obscure the source, identity, or destination of the funds during any financial transaction.

Disclosure fraud
Failing to disclose material info, or misrepresenting facts and substance of disclosure like risks and similar underlying loans. 

Other common types of fraud include: 

• Manipulating performance data
• Secret markup for transition
• Hidden fees
• Conflict of interest
• Investor fraud