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Securities Law Whistleblower and Violations

When an individual discovers evidence of securities law violations, he or she can report these as a whistleblower and receive a compensation award for those contributions.

Whistleblowers play an important role in notifying the authorities about possible instances of fraud. The Securities and Exchange Commission operates their own whistleblower program with distinct violations that could qualify a whistleblower for potential award if their information leads to the recovery of compensation due to the government.

Understanding SEC Whistleblower Actions

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, making this a major overhaul of the nation’s financial regulatory system. An incentive program was established as part of this federal securities law whistleblower program that protects any person who wants to blow the whistle on companies or individuals who violate securities laws and the Foreign Corrupt Practices Act.

Whistleblowers who provide information that the SEC uses to further enforcement actions could be entitled to recover a whistleblower reward of between 10% and 30% of the total money collected by the SEC.

The key aspect of these claims is that the whistleblower has to provide original information that leads to the recovery of monitory sanctions in excess of $1 million. Monetary sanctions include disgorgement, penalties, and interest.

Understanding Material Violations

One aspect of a whistleblower case that can increase the chances of a pursued case is to have evidence of a material violation in the case. You must be able to show, as as a whistleblower, that you have evidence of a material violation of federal securities law.

The SEC has limited resources and receives thousands of tips about potential illegal activities under its jurisdiction, but they only pursue certain tips. If you’re not yet sure about the evidence you have regarding the possible violation, talking with an attorney about your concerns can give you a better idea about any possible issues.

Material violations should include tips about specific and credible details regarding a legal violation and the sooner these are reported, the greater the chance that the whistleblower’s tip is original and important to the case. The longer a person waits, the bigger the chance that someone else reports the information and is therefore entitled to compensation as a whistleblower.

The analysis to determine whether or not a person is eligible as a whistleblower is complex. This evaluation depends on the tip providers relation to the company in question and how the information was obtained.

Employer Retaliation Protection

Whistleblowers are not only entitled to a reward for their involvement in such a claim but they can also become protected from employer retaliation. A number of different provisions were created to protect whistleblowers from harassing or retaliatory actions by their employers.

Employers are prohibited from demoting, discharging, harassing, threatening, suspending or discriminating against those whistleblowers who have taken action to blow the whistle about fraud. This can trigger a separate civil lawsuit in federal court against the employer in question.

The SEC Whistleblower Statute and Its Statute of Limitations

The statute of limitations refers to the maximum time after an event that legal proceedings can be initiated based on that event. The provisions for the statute of limitations under the Dodd-Frank Act have been dramatically expanded based on the amendments of Congress in 2010.

An action has to be filed within 6 years after the alleged violation date or within 3 years of the date that facts material to the right of action should have been known or are known by the employee for SEC fraud whistleblowers. Furthermore, any SEC whistleblower case cannot be filed any longer than 10 years after the date of the violation in question. The SEC can reduce a whistleblower’s award if they find that there was an unreasonable delay between the discovery of the information and the reporting of the tips.

Violations of Federal Securities Laws

Any violation of the securities laws at the national level could qualify a person for an SEC whistleblower award. There is a great deal of discretion afforded to the SEC with regards to its jurisdiction over private and public entities.

The most common whistleblower tips include allegations of:

  • Auditor independence rules violations
  • Hedge fund fraud
  • Insider trading
  • Accounting fraud
  • Crypto currency fraud
  • Improper revenue recognition
  • Ponzi schemes
  • Manipulation of a securities volume or price
  • EB-5 investment fraud
  • Foreign bribery
  • Misleading or incomplete disclosures in cybersecurity

A whistleblower who has this inside information should consider consulting with an experienced and dedicated whistleblower lawyer to discover their options and to better understand the next steps in filing an SEC whistleblower claim.

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