Common SEC Violations

Does the information I possess meet the criteria of the whistleblower program? This is a frequent—and excellent—question.

While our team’s decades of experience at the SEC enables us to quickly identify suspected securities fraud, it may be helpful for our prospective clients and friends to learn more about the common violations that qualify for the program.

A whistleblower may report any possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. In terms of geographic scope, the SEC violations may occur anywhere in the world. International organizations and individuals that do business in the United States may be subject to this jurisdiction based on their contacts with the country.

While the federal securities laws are both vast and complex, a handful of violations account for the lion’s share of SEC whistleblower submissions. While a more fulsome description can be found here, for illustrative purposes, some SEC violations and major SEC fraud cases include:

Corporate Disclosures & Financial Violations

In recent years, Corporate disclosures and financial violations have accounted for approximately 25% of annual whistleblower submissions. These cases often relate to false or misleading financial statements that have been made to the public or filed with the SEC in either a company’s registration statement, prospectus, or as part of any other required filings. Our whistleblower case involving Orthofix is a good example of this type of securities fraud.

Offering Fraud

Whistleblowers have cited offering fraud as the primary securities violation in approximately 15% of submissions filed in the last 4 years. These violations arise from misrepresentations and/or omissions of material fact to potential investors in a new securities offering, debt or equity.

Market Manipulation

In market manipulation, the interference with the free and fair operation of the market creates an artificial price or maintains an artificial price for a security. An infamous ‘pump and dump’ scheme involved Satyam Computers, which so overstated its financial health, its share price soared to $29 in 2008. The following year, when the fraud was exposed, the share price fell to $1.80.

Insider Trading

In an insider trading case, the buying and selling of securities is made based on material information that is not known to the public. Such a fraud brought down SAC Capital in 2010, when the firm agreed to pay $1.8 billion to settle charges that it allowed insider trading for more than a decade.

Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act prohibits the offer, payment, or promise to pay money or anything of value—i.e., a bribe—to any foreign official in an effort to win or retain business from the official’s government. While such violations only account for 4% of whistleblower submissions over the last few years, FCPA cases can generate substantial penalties. In 2008, Siemens paid $1.9 billion in monetary sanctions for bribery schemes to win business in different parts of the world.

For more information on historical SEC violations where the sanctions exceeded the Program’s $1 million threshold, please see our Sanctions Database.

Resources:

For background on securities laws, common violations, and enforcement actions, read our Securities Law Primer.

Read more about the SEC investigation process or check out our SEC Insider’s Guide.