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Whistleblower Claims: Common Types of SEC Fraud


The Securities and Exchange Commission (SEC) has its own whistleblower laws (15 U.S.C. §78u-6). Anyone who knows about a business, person, or company who is committing securities fraud can act as a “whistleblower” by reporting this illegal activity to the SEC and possibly earn an award.

SEC whistleblower actions differ from False Claims Act cases. There is no need to file a lawsuit in order to report the illegal activity. The SEC has its own office that handles whistleblower actions and reports of fraud. If the reported information leads to a fine or penalty against the offending party, the whistleblower is entitled to a portion of the penalties or fines recovered.

Types of Securities Fraud

Securities fraud can cover a lot of different illegal activity. Some of the more common types of SEC fraud include:

  • Corporate Misconduct: Enron put corporate misconduct in the news back in the early 2000s, but corporate misconduct and illegal activity is not an isolated incident.
  • Broker Misconduct: While most brokers are ethical and do right by their clients, there are some that opt to break legal and ethical obligations that can expose you to financial losses. Broker misconduct can take many forms, but some common examples include unsuitable investments or margin trading.
  • Insider Trading: One type of insider trading involves trading of a corporation’s stock by corporate insiders like directors, officers, etc. While usually legal, there are specific reporting requirements that need to be adhered to by the corporate insiders. The other type of insider trading is what is more well-known. It involves selling or purchasing stock based on information that is not public. This is typically illegal.
  • Ponzi Schemes: A Ponzi scheme involves paying profits to earlier investors with funds from subsequent investors instead of any profits received through investment activities. The most well-known Ponzi scheme was orchestrated by Bernie Madoff, the former NASDAQ chairman who caused well over $50 billion in losses.
  • Internet Fraud: With the popularity of the Internet, it should come as no surprise that many securities-related frauds are perpetrated online. “Pump-and-dump” schemes involve fraudulent or false information that is shared in spam messages, chat rooms, forums, etc., with the purpose of creating a price increase in shell companies’ stocks. When the price reaches the desired level, the offenders sell off their holdings and earn high profits before the stock falls back to its original low level.
  • Microcap Fraud: Microcap fraud involves stocks from “microcap” companies, usually defined as ones that have a market capitalization of under $250 million. Because there is little publicly-available information about these stocks (since they can include penny stocks), it is easier for fraudsters to disseminate false information. It also makes it easier for fraudsters to manipulate the stock’s price.

Retaining a Florida Whistleblower Attorney

If you believe you have knowledge of securities fraud taking place, you may have a valid SEC whistleblower action. It’s important to speak with an experienced Florida whistleblower attorney early on when you learn of the activity. A skilled Florida SEC whistleblower attorney can help ensure you have a strong case to increase your chances of receiving a portion of any recoveries the SEC obtains. Contact the team of whistleblower attorneys at Rabin Kammerer Johnson at 561-659-7878 to schedule an initial consultation.

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