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What is SEC Fraud?

What is SEC Fraud?


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Securities fraud  (SEC Fraud) is a practice where investors are induced into making purchases or sales decisions on the basis of false information. Securities fraud, also known as stock or investment fraud, typically results in the loss of finances and is in violation of United States securities laws. Usually, security fraud takes place within the stock and commodity markets.

Securities fraud can include false statements on the financial reports of public companies as well as outright theft from investors. The term covers a wide range of actions, including insider training, ponzi schemes and front running.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.  As a result of the financial reform, the Act created whistleblower programs for both the SEC and the CFTC.

Whistleblower Rewards

New Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) whistleblower programs may provide for substantial rewards.
The new SEC whistleblower program, titled “Securities Whistleblower Incentives and Protection” is much broader than a predecessor SEC whistleblower program, which only provided awards for violations of insider trading. Now whistleblowers who report ANY securities law violations will receive a reward if the SEC and any other government authorities recover more than $1 million based on that information.

Likewise, the new CFTC whistleblower program, titled “Commodity Whistleblower Incentives and Protection” will provide whistleblowers with a reward if the SEC and any other government authorities recover more than $1 million based on that information of violations of the Commodity Exchange Act to the SEC.

The SEC and CFTC will adopt regulations about their respective whistleblower programs. However, below are several relevant aspects of the new whistleblower programs as provided in the Ac:

10 percent to 30 percent of the monies the SEC and other government authorities collect based on the whistleblower’s information if more than $1 million is collected. The percentage of the reward is up to the discretion of the Commission taking into consideration the following:

  • The significance of the information provided;
  • The assistance provided by the whistleblower and the whistleblower’s attorney;
  • The programmatic interest of the Commission in deterring violations of the securities law; and,

Additional relevant factors the Commission may establish by rule or regulation.