Blowing the Whistle About Fraud in The Finance Sector

In spite of a legal framework that vows to encourage transparency, securities and commodities trading fraud are rampant in the U.S. In order to deter fraudsters and protect investors, the Securities and Exchange Commission and the Commodity Futures Trading Commission have both established whistleblower programs.

In the wake of the 2008 crisis, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act enhancing the CFTC’s “regulatory authority to oversee the more than $400 trillion swaps market,” and allowing the SEC to exert more control over financial products and corporate governance and disclosure, improving consumer protections and transparency.

Dodd-Frank also gave rise to the above-mentioned whistleblower programs. The 2010 Act established that the CFTC would pay an award to eligible whistleblowers “who voluntarily provide the Commission with original information about a violation of the CEA that leads to the successful enforcement of a covered judicial or administrative action, or a related action.” On the other hand, retaliation against tipsters who provide information about potential violations is strictly forbidden.

Since the program’s inception, the CFTC has already issued awards to whistleblowers in the amount of $90 million. The SEC, on the other hand, has paid tipsters in excess of $385 million.

Under CFTC rules, the agency may authorize whistleblower awards when tips have ‘‘led to successful enforcement’’ due to their “high quality, reliability, and specificity,” in connection with “the Commission’s ability to successfully complete its investigation, and to either obtain a settlement or prevail in a litigated proceeding.”

Both the SEC and the CFTC offer a number of protections to would-be whistleblowers. For Newport Beach’s prime whistleblower attorney David Kani, SEC and CFTC awards have been essential in keeping wrongdoers at bay in the financial sector. “Without a financial incentive, whistleblowers wouldn’t be coming forward.

Blowing the whistle is a massive commitment. It often involves having to switch careers and being ostracized at work,” Kani explains. “This is one of the reasons why it is important to have an experienced attorney on your side if you plan to expose fraud. When our clients decide to embark on this journey, we advise them about everything under the sun, from career choices to how to maintain confidentiality. And we dedicate an arsenal of resources to ensure they get an award that can help them move on with their lives.”

Kani, whose firm Hochfelsen & Kani has successfully represented whistleblowers across the state of California, identifies a number of aspects when it comes to successful tipsters. “Whistleblowers who receive awards usually report ongoing or very recent fraud. They mention individuals who participated in the wrongdoing, and they have documents to back up their claims.

Alternatively, they may have pointed officials in the right direction to find such documents. Finally, nearly half of all successful whistleblowers are employed by the alleged wrongdoer.” Kani believes there are workarounds to obtaining awards, even in the most complicated cases.

“We know which cases have the highest chances of receiving an award, often at first glance. But our job is to investigate and unearth evidence that may have not been so obvious. Usually, after our investigation, a whistleblower’s odds of success can change dramatically.”


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