November 12, 2014

Whistleblower may claim share of recent SEC recoveries

WhistleWhistleblowers may be entitled to monetary awards from the Securities and Exchange Commission (SEC).  The SEC recently posted several new Notices of Covered Action, meaning the SEC has taken an action that results in monetary sanctions exceeding $1 million. Whistleblowers who provided original information leading to these awards may be eligible to claim a share of the recovery.

The SEC Whistleblower Program, which was established in 2010 under the Dodd-Frank Act, allows for payment to individuals who provide information that lead to the SEC enforcement action.  In order to receive payment, the whistleblower’s information must be provided voluntarily, and the SEC must use that information to obtain a successful final judgment of monetary sanctions in excess of $1 million dollars.  The law is only applicable to original information provided after the date of July 21, 2010.

Individuals have 90 calendar days to apply for an award.  The Cochran Firm, D.C. provides legal representation to whistleblowers who seek an award under the SEC Whistleblower Program. If you reported financial fraud that led to an SEC enforcement action, please contact our team of whistleblower attorneys. Because short deadlines apply, we recommend getting in touch at your earliest convenience.

The following list details a selection of recently posted Notices of Covered Action, which are potentially eligible for whistleblower awards:

Dishonest Securities Trading Practices Don’t Pay Off  

Latour Trading, LLC, a high-frequency New York trading firm and registered broker-dealer, was ordered to pay $16 million as a civil money judgment to the SEC.

According to the court order, from 2010 to 2011, Latour engaged in proprietary trading and accounted for as much as 9% of the trading volume in equity securities for the entire U.S. market.  On numerous occasions, Latour ended the trading day holding very large positions, yet the company was maintaining insufficient levels of capital.  The law generally requires that broker-dealers maintain a specified minimum level of net capital, which is known as the net capital rule. High-frequency trading firms must have and maintained the required minimum net capital to support their trading volume of end-of-day and intra-day positions.

Latour violated the net capital rule by continually miscalculating the amount of net capital it had, thus failing to meet minimum by millions of dollars.  During a one year period, the firm maintained repeated net capital deficiencies that ranged from approximately $2 million to as much as $28 million.

Minneapolis-based Whitebox Advisors also misrepresented financial trading information.  The company, with total assets under management in excess of $8.4 billion, sold short securities that were the subject of certain public offerings.  On five different occasions, from January 2011 through June 2012, Whitebox sold short securities and then purchased the offered security from a broker or dealer participating in the offering, netting a profit of more than $700,000.   The practice violated 21C of the Securities Exchange Act of 1934, and Whitebox has been ordered to pay $1.2 million in costs.

BlackRock Institutional Trust Company, N.A. also committed similar misconduct – selling short on three separate instances from April 2010 through March 2011.  BlackRock garnered profits of $1.1 million as a result, and is now ordered to pay the United States Treasury $1.6 million.

Why did the SEC fine Bank of America and Wells Fargo?

Business CoachWells Fargo and Bank of America have also recently been ordered to pay civil money judgments following SEC enforcement actions. Bank of America reported its own misconduct to the SEC once the corporation realized it had committed fraudulent activity during its takeover of Merrill Lynch.  During the acquisition, Bank of America recorded financial instruments within Merrill Lynch’s portfolio at fair market value which was a $5.9 billion discount from the actual appropriate value.  Bank of America’s calculated regulatory capital did not account for this initial loss, which resulted in over four years of regulatory capital overstatements.  The company was ordered to pay a civil money penalty of $7.6 million to the SEC.

Wells Fargo also violated securities law by failing to “adequately establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic information, specifically, the material nonpublic information obtained from its customers and its advisory clients.”  In 2010 a Wells Fargo advisor received inside information regarding the securities of Burger King Holdings, Inc.  The advisor made trades based on this information, and passed the information on to his clients.  A court ordered Wells Fargo pay a civil judgment of $5 million to the Treasury Department.

Securities litigation also eligible for whistleblower awards

The SEC alleges in a 2012 complaint that defendant Thomas D. Coldicutt, Jr. and others violated the anti-fraud provisions of federal securities laws by participating in an elaborate scheme to create and sell at least 15 public shell companies.  The defendants allegedly received nearly $6 million from the conduct.

The SEC is awaiting judgment in a case originally filed during 2011 in the U.S. District Court for the Southern District of New York. Tyrone L. Gilliams and his company allegedly misappropriated $5 million from investors.  Gilliams allegedly marketed a fake offering scheme to investors through the U.S. Treasury STRIPS Trading Program.  U.S. Treasury STRIPS are fixed-income securities sold at a discount to face value and, because they mature at par value, do not offer interest payments. Gilliams promised risk-free investing by combining investor money for the safe purchase of Treasury STRIPS, but the money allegedly went toward Gilliam’s personal items and lavish lifestyle.

More ongoing cases, and the entire list of Notices of Covered Action can be accessed at the SEC’s official website.

What can I do if I recognize a violation of securities law?

The SEC Whistleblower Program was developed as a means of holding corporations and individuals who violate securities law accountable for their actions.  Whistleblowers provide the SEC with original, valuable information that can be used to stop companies and individuals from defrauding the public.

The Cochran Firm, D.C. is strategically located less than two miles from the U.S. Securities and Exchange Commission’s headquarters.  With decades of legal experience, our attorneys are focused on securing the largest possible award for the whistleblower, while also holding wrongdoers accountable.

If you are aware of violations of federal securities law, please contact us at 202-682-5800. Because important time deadlines apply to these claims, we recommend contacting our whistleblower lawyers as soon as possible.