Articles Posted in Whistleblower law


The enforcement Chief of the Commodities Futures Trading Commission which oversees the $50 trillion futures market, Aitan Gielman, says flatly that there is a massive amount of fraud in the marketplace including front-running, insider trading and Ponzi schemes that the oversight agency is not pursuing  because Congress has starved the agency of resources. As a result, investors and taxpayers are being cheated because the markets are being manipulated. All the while the wrongdoers are making hundreds of millions off the back of the average person. Front-running, also known as forward trading happens when a trader takes advantage of market movements and trades on his or his company’s assets based on advanced knowledge of a pending order. For example, this is the case when a trader learns of a large client order and uses his own or his company’s account before the client’s order is executed. Front running is happening in stocks, index funds, foreign exchange markets, securities, commodities and front runners are now using high speed computer programs to trade ahead of the clients.  Where the front runner uses information not available to the public, the practice is clearly illegal. Little is being done to stop it.

The infrequent cases result in large payments but no significant incarceration. In January 2018, SBC Holdings paid $101 million to settle criminal charges that the bank engaged in “front-running” on foreign exchange to defraud two clients in 2010-2011, according to court documents.The bank will pay a $63 million criminal penalty and $38 million in disgorgement and restitution to settle the charges under a deferred prosecution agreement in which HSBC accepts responsibility for its employees’ actions, the documents said. Under the agreement, HSBC will forgo any criminal charges in the case as long as the bank adheres to the terms of the settlement.HSBC had been charged in U.S. District Court in New York with two counts of wire fraud in connection with the alleged scheme. HSBC FX traders misused confidential information from clients to execute British pound FX transactions on two occasions in 2010 and 2011, with the bank taking in a combined $46 million in profits on the two transactions to the traders’ and HSBC’s benefit, according to court documents.

The settlement payment is the latest by HSBC over foreign-exchange trading issues. In October, the bank was fined $175 million by the Federal Reserve Board for failing to detect its FX traders’ misuse of client information. In November 2014, HSBC paid $275 million to the Commodity Futures Trading Commission and $341 million to the U.K. Financial Conduct Authority to settle charges that it manipulated FX benchmark rates.

Ford Motor Co has agreed to pay $299.1 million in settlement for the faulty Takata air bag inflators. The settlement relates to nearly six million vehicles which were affected by the faulty air bags. The settlement covers several forms of economic damages linked to the inflators, including claims that vehicles were inaccurately represented to be safe, buyers had overpaid for cars with defective or substandard air bags and faced out of pocket costs to deal with recalls. Six automakers have previously agreed to similar settlements worth over $1.2 billion combined, including: Honda Motor Co ; Toyota Motor Corp ; Nissan Motor Co ; Mazda Motor Corp ; Subaru Corp  and BMW AG . At least 23 deaths worldwide are linked to the rupturing of faulty Takata air bag inflators. The issue has sparked the largest auto industry safety recall in history, involving about 100 million inflators among 19 major automakers. More than 290 injuries worldwide are also linked to Takata inflators that can explode, unleashing metal shrapnel inside cars and trucks.

To date, 21 deaths have been reported in Honda vehicles and two in Ford vehicles. The settlement also covers out-of-pocket costs, including lost wages and child care costs, Ford owners may face, or already incurred, to get vehicles repaired. Under the settlement, Ford will also provide free rental or loaner vehicles to owners of recalled vehicles who are awaiting repairs when parts are not available. Nearly 30 million U.S. vehicles remain unrepaired in the recall.

Takata last year pleaded guilty to a felony charge of wire fraud to resolve a U.S. Justice Department investigation and agreed to a $1 billion settlement.

The whistleblower which I featured in yesterday’s blog who was awarded $30 million by the Commodities Futures Trading Commission for blowing the whistle on JPMorgan Chase, will also receive an additional $48 million from the Securities and Exchange Commission. That means he will receive $78 million!  His name is Edward Siedle and he is  a former lawyer for the Securities and Exchange Commission, now turned forensic investigator, who alerted the SEC to the bank’s wrongdoing. Prior to this, Mr. Siedle, investigated  pension funds for overcharging beneficiaries, alerted regulators of a mutual fund scam being run by JPMorgan Chase in 2011, The Post has learned.

The larger part of his whistleblower award comes from  a $267 million settlement between JPMorgan and the SEC, which investigated the bank for steering high-net-worth clients toward its own investment funds that could cost more than those managed by rivals. The CFTC joined the investigation because some of the JPM investment products involved commodities. The bank agreed to pay $100 million to settle the CFTC probe. Siedle said he has filed about two whistleblower suits a year since the program started, and has no immediate plans for the award.

–Jeffrey A. Newman

Whistleblower Lawyer News has learned that the Commodity Futures Trading Commission (CFTC) today announced an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action. Previously, the highest award amount paid to a CFTC whistleblower was in March 2016 of more than $10 million (see CFTC Press Release 7351-16CFTC Announces Whistleblower Award of More Than $10 Million).  The award is the largest award made by the CFTC’s Whistleblower Program to date and is the fifth award made by the program. The CFTC’s Whistleblower Program was created by section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).  The CFTC pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information on violations of the CEA that leads the CFTC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.  By law, the CFTC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  Under the Dodd-Frank Act, employers may not retaliate against whistleblowers for reporting possible violations of the CEA to the CFTC.

“The Whistleblower Program has become an integral component in the agency’s enforcement arsenal,” said CFTC Chairman, J. Christopher Giancarlo.  “We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act [CEA].”

James McDonald, Director of the Division of Enforcement, stated: “Whistleblower submissions have become a significant part of our enforcement program, allowing us to pursue violations we might otherwise have been unable to detect.  That’s one reason why we’ve worked hard to expand our Whistleblower Program, including by increasing the protections afforded to whistleblowers that come forward.  I expect the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.”

Wells Fargo is prohibiting its customers from using its issued credit cards to buy cryptocurrency.   Wells Fargo joins Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., which stopped cryptocurrency purchases on their credit cards in February, citing market volatility and credit risks. Lenders have said they’re worried they’d be left on the hook if a borrower lost money on a digital currency bet and couldn’t repay. A study conducted by LendEDU last year found that  18 percent of Bitcoin investors used a credit card to buy the purchases. Of those, 22 percent couldn’t pay off their balance after buying the digital coin. Bitcoin, the largest cryptocurrency, has lost more than half its value this year, dropping to $6,736.89 at 11:17 a.m. in New York. Investors’ enthusiasm for the digital coins partly due to a string of cyber hacks and  concern over a clampdown on trading of such currencies in China

According to International Fund Researchers over $12 Trillion–almost 40 percent of all foreign direct investment globally is completely articifical and is really financial investment passing though empty corporate shells with no real activity, in order to hide the funds. The investments in empty corporate shells almost always pass through well-known tax havens. The eight major pass-through economies—the Netherlands, Luxembourg, Hong Kong SAR, the British Virgin Islands, Bermuda, the Cayman Islands, Ireland, and Singapore—host more than 85pc of the world’s investment in special purpose entities, which are often set up for tax reasons. The corporate shells employ almost nobody and create little economic activity in the host countries, compared to the usual expectation that FDI boosts economies.
The researchers also found that “citizens of some financially unstable and oil-producing countries hold a disproportionately large share of the $7 trillion personal wealth stashed in tax havens.”

They propose nations should gather more data on the financial sector, as well as adding information on global interconnections into economic statistics to better track the flow of funds.

The Food and Drug Administration (FDA) is warning consumers to avoid sunscreen pills. It has sent warning letters to four companies claiming to make diet supplements that can protect people from sun damage and reminded consumers that, “There’s no pill or capsule that can replace sunscreen. The four products — GliSODin Skin Nutrients,Napa Valley Bioscience’s sunsafe Rx, Pharmacy Direct’s Solaricareand Sunergized LLC’s Sunergetic— that it says “are putting people’s health at risk by giving consumers a false sense of security that a dietary supplement could prevent sunburn, reduce early skin aging caused by the sun, or protect from the risks of skin cancer.” The companies have been directed to reverse all violations associated with their products and review their marketing claims. The FDA is also supporting new research and regulations related to the safety and delivery of the active ingredients in conventional sunscreens since growing evidence suggests some of them may be absorbed through the skin.

Jeffrey Newman represents whistleblowers

Eric St-Cyr, a Canadian investment advisor working from his Cayman Island-based financial advisory firm, Clover Asset Management and Canadian Attorney Patrick Poulin, have been sentenced to 14 months in prison for conspiring to launder money. Now, the two men are cooperating with the Internal Revenue Service (IRS) in investigations from the information they have provided. According to reports, the two men created offshore entities designed to help their US clients evade taxes and other legal requirements. They also used them to launder purported criminal proceeds.

The case represents the IRS commitment to investigate and prosecute individuals worldwide who seek to evade U.S. taxes or who conduct illegal financial transactions, launder money or try to hide the true source of their income to evade paying taxes.

St.-Cyr lived in the Cayman Islands and worked for investment firm Clover Asset Management.  Many of its clientele work or reside in Canada, as well as Turks and Caicos, as well as the United States. St-Cyr and Poulin solicited US citizens to use their services to hide assets from the US government, including the IRS. According to reports, Poulin established an offshore corporation called Zero Exposure Inc. and served as a nominal board member. He transferred about $200,000 that he and St. Cyr believed were the proceeds of bank fraud but was actually part of a sting operation. The investment firm represented that it would neither disclosure the investments or any investment gains to the government, nor would it provide monthly statements or other investment statements to the clients. When the investments were sent back to the US the investment firm charged clients fees to launder the proceeds.

The United States has intervened in five lawsuits against Insys Therapeutics Inc., alleging violations of the False Claims Act in marketing of Subsys, an opioid painkiller manufactured and sold by Insys.  Subsys is a sublingual spray form of fentanyl, a powerful, but highly addictive, opioid painkiller.  In 2012, Subsys was approved by the Food and Drug Administration for the treatment of persistent breakthrough pain in adult cancer patients who are already receiving, and tolerant to, around-the-clock opioid therapy. The United States alleges that Insys paid kickbacks to induce physicians and nurse practitioners to prescribe Subsys for their patients.  Many of these kickbacks took the form of speaker program payments for speeches to physicians that were, in fact, shams; jobs for the prescribers’ relatives and friends; and lavish meals and entertainment.  The United States also alleges that Insys improperly encouraged physicians to prescribe Subsys for patients who did not have cancer, and that Insys employees lied to insurers about patients’ diagnoses in order to obtain reimbursement for Subsys prescriptions that had been written for Medicare and TRICARE beneficiaries.

The qui tam provisions of the False Claims Act allow whistleblowers to file lawsuits on behalf of the United States when they believe that a party has submitted false claims for government funds, and to receive a share of any recovery.  The United States has the right to intervene and take over responsibility for litigating these cases.  Here, the United States has intervened in five separate lawsuits that have been consolidated together in the Central District of California.  They are: United States, et al., ex rel. Guzman v. Insys Therapeutics, Inc., et al., 13-cv-5861; United States ex rel. Andersson v. Insys Therapeutics, Inc., 14-cv-9179; United States ex rel. John Doe and ABC, LLC v. Insys Therapeutics, Inc., et al., 14-cv-3488; United States ex rel. Erickson and Lueken v. Insys Therapeutics, Inc., 16-cv-2956; and United States ex rel. Jane Doe, et al. v. Insys Therapeutics, et al., 16-cv-7937.

Jeffrey Newman represents whistleblowers

Panasonic Avionics Corporation has agreed to pay a $137.4 million criminal penalty to settle charges arising out of a scheme to retain consultants for improper purposes and conceal payments to third-party sales agents, in violation of the accounting provisions of the Foreign Corrupt Practices Act (FCPA). The company, based in Lake Forest, California, designs and distributes in-flight entertainment systems and global communications services for airlines and airplane manufacturers.  According to court documents, PAC knowingly and willfully caused Panasonic to falsify its books and records with respect to its retention of consultants for improper purposes.  The consultants, which did little or no actual consulting work for PAC, were retained through a third-party service provider and were paid for out of a budget over which a senior PAC executive had complete control and discretion, without meaningful oversight by anyone at PAC or Panasonic.  One such individual was offered the consulting position by PAC at the time that he was employed by a state-owned airline and involved in negotiating a lucrative contract amendment on behalf of the airline with PAC.  According to court documents, that consultant was subsequently paid $875,000 by PAC over a six-year period and PAC earned over $92 million in profits from portions of the contract over which the consultant had some involvement or influence while employed with the airline.  PAC admitted that it mischaracterized these payments as “consultant payments” on its general ledger, which it knew caused Panasonic to incorrectly designate those payments as “selling and general administrative expenses” on Panasonic’s books, records, and accounts.

PAC also admitted that employees in its Asia region concealed PAC’s use of certain sales agents, which did not pass the Company’s internal diligence requirements.  According to admissions and court documents, PAC formally terminated its relationship with these sales agents, as required by its compliance policies, but PAC employees then secretly continued to use the agents by having them rehired as sub-agents of another company, which had passed PAC’s due diligence checks.  Through this process, PAC employees hid more than $7 million in payments to at least 13 sub-agents.By mischaracterizing the payments made to consultants and sales agents and providing false or incomplete representations and Sarbanes-Oxley subcertifications to Panasonic about PAC’s financials and financial controls, PAC caused Panasonic to falsify its books, records, and accounts in violation of the FCPA.PAC entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed today in the U.S. District Court for the District of Columbia, charging the company with one count of knowingly and willfully causing the falsification of the books, records, and accounts of its parent company Panasonic.  As part of the DPA, PAC will pay a total criminal penalty of $137,403,812.  PAC also agreed to continue to cooperate with the department’s investigation, enhance its compliance program, implement rigorous internal controls and retain an independent corporate compliance monitor for at least two years.

In a related proceeding, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Panasonic, whereby the company agreed to pay approximately $143 million in disgorgement to the SEC, including prejudgment interest.  Thus, the combined total amount of U.S. criminal and regulatory penalties to be paid by Panasonic and PAC is over $280 million.