Ponzi Schemes and the SEC Whistleblower Program
Ten years have passed since the collapse of Bernard Madoff’s multibillion-dollar Ponzi scheme, which played a major role in prompting Congress to enact a whistleblower program at the Securities and Exchange Commission (“SEC” or “Commission”). Specifically, a whistleblower named Harry Markopolos had attempted to report the Ponzi scheme to the SEC for nearly a decade, however, his warnings were largely ignored. In order to avoid this misstep in the future, the Dodd-Frank Act created the SEC Whistleblower Program to incentivize future whistleblowers with specific, timely and credible information about federal securities laws violations (e.g., multibillion-dollar Ponzi schemes) to report to the SEC. Since the inception of the program in 2011, the SEC has received more than 33,300 whistleblower tips, some of which have enabled the SEC to recover more than $2 billion in financial remedies from wrongdoers. In exchange for these valuable tips, the SEC’s Office of the Whistleblower has paid more than $500 million in awards to whistleblowers to date.
SEC Whistleblower Program
Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information, including information about Ponzi schemes, that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10 to 30 percent of the total monetary sanctions collected. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC.
In its short history, the SEC Whistleblower Program has had a tremendous impact on securities enforcement and has been replicated by other domestic and foreign regulators. In fiscal 2019, the SEC received over 5,200 whistleblower tips, representing a 74% increase since fiscal 2012. The largest SEC whistleblower awards to date are:
- $50 million,
- $50 million,
- $39 million, and
- $37 million.
The uptick in received tips, paired with the sizeable awards given to whistleblowers, reflects the growth and continued success of the whistleblower program.
Whistleblowers Aid the SEC in Identifying and Halting Ponzi Schemes
According to a speech by the former Director of the SEC’s Division of Enforcement, whistleblower tips have greatly aided the SEC in identifying and halting Ponzi schemes. For the past four fiscal years, the SEC Office of the Whistleblower has consistently received a significant number of tips related to offering frauds, such as Ponzi, or Ponzi-like, schemes:
- Fiscal Year 2016: 15% of whistleblower tips
- Fiscal Year 2017: 18% of whistleblower tips
- Fiscal Year 2018: 20% of whistleblower tips
- Fiscal Year 2019: 13% of whistleblower tips
As noted in the SEC’s speech, these schemes can be difficult to detect until it is too late. As such, whistleblower tips have proven to be a valuable resource for the SEC in its efforts to combat Ponzi schemes and protect investors, especially retail investors who are often the largest class of victimized investors in these schemes.
Red Flags for Identifying Ponzi Schemes
Ponzi schemes frequently share underlying traits. When seeking to identify a potential Ponzi scheme, whistleblowers should consider the following red flags:
- Promises of high investment returns with little or no risk;
- Regular, positive returns regardless of market conditions;
- Investments that are not registered with the SEC or an appropriate state regulator;
- Unlicensed individuals or unregistered firms;
- Secretive or complex strategies for which investors cannot get complete information;
- Lack of paperwork; inaccessibility to information about an investment in writing; and
- Difficulty receiving payment; promises of “rolling over” investments and promises for higher returns in the future, on the amount rolled over.
Report a Ponzi Scheme and Earn an SEC Whistleblower Award
To report a Ponzi scheme and qualify for an award under the SEC Whistleblower Program, the SEC requires that whistleblowers or their attorneys report the tip online through the SEC’s Tip, Complaint or Referral Portal or mail/fax a Form TCR to the SEC Office of the Whistleblower. Prior to submitting a tip, whistleblowers should consult with an experienced whistleblower attorney and review the SEC whistleblower rules to, among other things, understand eligibility rules and consider the factors that can significantly increase or decrease the size of a future whistleblower award.
SEC Targets Ponzi Schemes
The recent increase in whistleblower tips related to Ponzi schemes, combined with the SEC’s focus on protecting retail investors, has led to the SEC bringing charges against several large Ponzi schemes in fiscal year 2018, including:
- A Ponzi scheme that raised more than $1.2 billion from thousands of retail investors.
- A Ponzi scheme that raised more than $345 million from over 230 investors across the U.S.
- A Ponzi scheme that raised more than $102 million from 600 U.S. investors.
- A Ponzi scheme that raised more than $85 million from at least 150 investors.
In 2019, authorities halted 60 alleged Ponzi schemes that raised more than $3 billion in investor funds.
For more information about the SEC Whistleblower Program and how to report a Ponzi scheme, download the eBook: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award. Also, click below to hear SEC whistleblower lawyer Matt Stock’s tips for SEC whistleblowers:
For more information about Ponzi schemes, see the SEC’s General Resources on Ponzi schemes.
SEC Whistleblower Attorneys
If you would like more information on reporting a violation fo the federal securities laws, contact an SEC Whistleblower Attorney at Zuckerman Law for a free, confidential consultation. Zuckerman Law is one of the nation’s leading law firms representing whistleblowers in whistleblower rewards and retaliation cases. For more information about SEC whistleblower awards, download our eBook:
Ponzi Scheme SEC Whistleblower Lawyers
How to Qualify for an SEC Whistleblower Bounty
- See our column in Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective.
- See our column in Going Concern: Sarbanes-Oxley 15 Years Later: Accountants Need to Speak Up Now More Than Ever.
- See our post in Accounting Today: Whistleblower Protections and Incentives for Auditors and Accountants.
- See our post in The Compliance and Ethics Blog: Shkreli Trial Reveals the Challenges Faced by Compliance Whistleblowers.
Are Whistleblowers Protected from Retaliation?
Click here to learn more about anti-retaliation protections for SEC whistleblowers under the Dodd-Frank Act and Sarbanes-Oxley Act.