Lawyers Representing SEC Whistleblowers
Under the SEC Whistleblower Program, whistleblowers may receive a reward if they provide the SEC with original information about violations of securities laws, including engaging in brokerage activity and charging fees without registering as a broker-dealer.
Since the enactment of the SEC Whistleblower Program, the agency has paid well over $100 million in awards to whistleblowers. For more information about whistleblower rewards and bounties, contact the SEC whistleblower lawyers at Zuckerman Law at 202-262-8959.
When Must a Broker Register?
Under Section 15 of the Securities Exchange Act of 1934, most “brokers” and “dealers” must register with the SEC. A “broker” is defined broadly as “any person (individual or entity) engaged in the business of effecting transactions in securities for the account of others.” A “dealer” is defined as “any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.”
On the SEC’s Broker-Dealer page, it notes that “[s]ometimes you can easily tell if someone is a broker or dealer. For example, a person who executes transactions for others on a securities exchange clearly is a broker. And a firm that advertises publicly it makes a market in securities is obviously a dealer. Other situations can be less clear.”
If an individual or entity is a broker or dealer, it must be properly registered before it provides brokerage services and receives compensation in return.
SEC Enforcement Action Against Private Equity Fund
On June 1, 2016, the SEC announced that a private equity fund advisory firm, Blackstreet Capital Management, and its owner have agreed to pay more than $3.1 million to settle charges that they engaged in brokerage activity and charged fees without registering as a broker-dealer. According to the SEC’s order, Blackstreet fully disclosed to its funds and investors that it would provide brokerage services in exchange for a fee, yet the firm failed to comply with the registration requirements to operate as a broker-dealer.
In addition, the SEC investigation revealed that the owners engaged in conflicted transactions and inadequately disclosed fees and expenses. Notably, the SEC has recently made violations by investment advisers and companies an enforcement priority.
SEC Enforcement Action Against Offshore Broker-Dealers
On April 18, 2013, the SEC charged Gibraltar Global Securities, Inc. a Bahamas-based broker-dealer, $25 million for unlawfully operating as a broker-dealer in the United States. According to the SEC’s complaint, the Bahamas-based broker-dealer clearly targeted and solicited U.S. customers though its website by:
- Offering “offshore” brokerage services with commissions comparable to those on the “mainland.”
- Stating that “[u]sing a Gibraltar offshore brokerage account will enable you to trade on most stock exchanges in the world at a cost equivalent to that incurred using mainland brokers, without paying taxes on the profits.”
- Promising prospective customers an “extra layer of confidentiality” to protect assets from “government seizures or frivolous divorce settlements.”
- Showing price-volume graphs solely for U.S. markets.
- Only charging fees in U.S. dollars – with no provision for currency exchange.
Using these marketing tactics, the Bahamas-based broker-dealer was able to sell approximately $100 million of low-priced microcap securities on behalf of U.S. customers, charging them commissions of between 2-3%.
SEC Whistleblower Bounty Program
Under the SEC Whistleblower Program, whistleblowers may be eligible for monetary awards when they voluntarily provide the SEC with original information about violations of federal securities laws that leads the SEC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.
SEC Whistleblower Bounties
Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected. On September 22, 2014, a whistleblower was awarded more than $30 million for providing key information that led to a successful enforcement action.
The SEC Whistleblower Program also protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Furthermore, the Dodd-Frank Act protects whistleblowers from retaliation by their employers for reporting violations of securities laws.