The United States Securities and Exchange Commission (SEC) is a federal government agency that is responsible for the regulation of securities markets. Their goals include maintaining fair markets, facilitating capital formation, and protecting investors from investment fraud.
The SEC is also home to the Whistleblower program which allows them to obtain information about potential securities violations across the world. Continue reading to learn more about the purpose of the SEC.
Protecting Investors From Fraud
The most important goal of the SEC is to protect investors from fraud. There are numerous ways that investors can be taken advantage of. Some of the most often seen types of investment fraud include:
- Insider trading – This occurs when a broker or someone else working in the financial industry makes a trade based on confidential information they obtained. Insider trading is tricky because it can be legal if the trader made the decision to trade without considering the information that hadn’t been made available to the public. Reporting suspected insider trading can only help protect investor funds.
- Embezzlement – Embezzlement happens with alarming frequency. When you entrust your funds to another who then takes ownership of your money without your permission, you’ve been a victim of embezzlement. A good example could be an investor who hires a financial advisor who in turn makes small deposits from the investor’s account and into their own over time, effectively stealing from their client.
- Pyramid schemes – In a pyramid scheme, investors are presented an investment opportunity that doesn’t exist. The program runner requires investors to recruit new investors and then pays higher-tiered investors with the funds from lower-tiered investors. This is a scheme because not only does the investment opportunity not exist, but these pyramids always fail when the fraudster either can’t keep up in repaying investors, or fails to get investors to recruit new investors.
- Short selling – Short selling occurs when a trader secures the right to borrow stock and sells the stock when the price is expected to drop. This allows the trader to pocket the price difference. It becomes illegal if the trader made the decision to trade through confidential information or did not have permission to borrow the stock they traded.
These are just a few of the different kinds of investment scams that investors need to be wary of. Since there are so many ways that investors can be scammed, the SEC relies on whistleblowers who expose these securities violations so that they can begin investigating corporations and individuals who engage in fraudulent activity.
Home Of The Whistleblower Program
The SEC’s whistleblower program was designed to allow would-be whistleblowers to provide tips and information to the SEC. If the whistleblower meets specific requirements as laid out in the Dodd-Frank Act, they’ll be able to collect an award for taking the risk of blowing the whistle on securities violations.
These criteria include coming forward on a voluntary basis, and the tip given being original. In addition, the SEC will need to be able to take enforceable action against the individual or company being investigated whether that be by imposing sanctions or shutting down the business altogether.
For the whistleblower to earn an award, the SEC will also need to be able to recover sanctions of more than $1,000,000, of which the whistleblower will be entitled to between 10% and 30% depending on how valuable their information was to the success of the SEC’s investigation.
Despite the potential for substantial awards, many whistleblowers are afraid to come forward when they come into information about fraud due to the fear of retaliation. The Dodd-Frank and Sarbanes-Oxley Act contain provisions that protect whistleblowers from being harassed, demoted, made to endure a hostile work environment, or terminated for becoming a whistleblower.
If the company you work for retaliates against you, your attorney will bring a wrongful termination claim against them, and the SEC will also impose sanctions to punish them for violating the Dodd-Frank and SOX Acts.
Submit Your Tips By Working With An SEC Whistleblower Lawyer
Now that you have an idea about what the SEC’s purpose is, if you become aware of possible securities violations or other fraudulent activity that could put investors at risk, you can report your tips to the SEC and potential become an award winning whistleblower.
Consult with an SEC whistleblower law firm before you do so that you have the option of remaining anonymous when you report, and have a skilled attorney by your side who can help you prepare for the whistleblowing process.