Articles Posted in SEC whistleblowers

The Securities and Exchange Commission’s latest reward of  $50 million to two whistleblowers is an indicator that the program is successfully unveiling major frauds and more are anticipated. The $50 million awards relate to an SEC investigation stemming from whistleblower info which resulted in J.P. Morgan wealth management subsidiaries paying $267 million and admitting wrongdoing to settle charges that they failed to disclose conflicts of interest to clients.

An SEC investigation found that the firm’s investment advisory business J.P. Morgan Securities LLC (JPMS) and nationally chartered bank JPMorgan Chase Bank N.A. (JPMCB) preferred to invest clients in the firm’s own proprietary investment products without properly disclosing this preference.  This preference impacted two fundamental aspects of money management – asset allocation and the selection of fund managers – and deprived JPMorgan’s clients of information they needed to make fully informed investment decisions.

One whistleblower received an award of $37 million and the other received an award of $13 million.  The $37 million award is the Commission’s third-highest award to date after the $50 million award made in March 2018 to joint whistleblowers and more than $39 million award announced in September 2018.  One of the whistleblowers was represented by Attorney Jordan Thomas of the firm Labaton Sucharow

SEC Pump-and-Dump Scheme The Securities and Exchange Commission has charged ten individuals, named as “microcap fraudsters” in the SEC press release, for numerous market manipulation schemes that lead to the group profiting over $27 million in unlawful stock sales. The classic “pump and dump” scheme went on for years and involved well-known figures in the cryptocurrency and biotech field.

The Microcap Fraudsters

Of the ten individuals charged in this complex and manipulative scheme, three names stand out from the group. At the forefront of the microcap fraud is Barry Honig, who once served as one of the largest shareholders of the cryptocurrency company, Riot Blockchain. According to the SEC, Honig was the primary leader of the market manipulation scheme, bringing together the group of those charged and strategizing their elaborate fraudulent activities.


J.P. Morgan Chase will pay $5.3 million to settle charges that it violated various U.S. sanctions programs. The charges were connected to its failures in screening processes says the U.S. Treasury Department .This concerns 87 net-settlement transactions between January 2008 and February 2012 which amount to more than $1 billion.

This resolves potential civil liability for 87 apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR); the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); and the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR).

Information concerning the civil penalties process is discussed in OFAC regulations governing the various sanctions programs and in 31 CFR part 501. On November 9, 2009, OFAC published as Appendix A to part 501 Economic Sanctions Enforcement Guidelines. See 74 Fed. Reg. 57,593 (Nov. 9, 2009). The Economic Sanctions Enforcement Guidelines, as well as recent final civil penalties and enforcement information, can be found on OFAC’s Web site at ENTITIES – 31 CFR 501.805(d)(1)(i) JPMorgan Chase Bank, N.A. Settles Potential Civil Liability for Apparent Violations of Multiple Sanctions Programs: JPMorgan Chase Bank, N.A. (JPMC) has agreed to remit $5,263,171 to settle its potential civil liability for apparent violations involving the processing of 87 net settlement payments with a total value of $1,022,408,149, of which approximately $1,500,000 (0.14%) appears to have been attributable to interests of sanctions-targeted parties, and which therefore appear to have violated one or more of the following sanctions programs administered by OFAC: the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR); the bank was apparently aware that it processed net settlement transactions on behalf of the two member organizations on a weekly basis, and, given the bank’s involvement in reconciling the organizations’ billings against each other, JPMC staff members had actual knowledge of the individual members, including OFAC-sanctioned entities, involved in each transaction; ·

JPMC’s activity conveyed economic benefit to several entities subject to OFAC sanctions and harmed the integrity of a number of OFAC sanctions programs; and JPMC is a large and commercially sophisticated financial institution. OFAC considered the following to be mitigating factors: · no JPMC managers or supervisors appear to have been aware of the conduct or transactions that led to the apparent violations; · the total harm caused to OFAC sanctions programs was significantly less than the total value of the transactions because the transactions represented net settlements between numerous parties, of which the sanctioned entities were only a few; · JPMC cooperated with OFAC’s investigation of the apparent violations, including by entering into a retroactive tolling agreement (and multiple extensions thereof) to toll the statute of limitations; · JPMC has taken the following steps as part of a risk-based sanctions compliance program to prevent similar apparent violations in the future: o Between February 2012 and the termination of JPMC’s relationship with its U.S. entity client, JPMC screened all net settlement participants in order to prevent sanctioned entities from utilizing the net settlement process; o JPMC has increased its compliance staff; o JPMC has implemented new sanctions-screening software; and 3 o JPMC has enhanced employee training and has previously used these apparent violations as a case study for training purposes. This enforcement action highlights the risks associated with a U.S. person failing to take adequate steps to ensure that transactions that it processes are compliant with U.S. economic sanctions laws — particularly in instances in which a U.S. person has actual knowledge or reason to know, prior to the transaction being effected, of an SDN’s past, present, or future interest in such a transaction. Separately, JPMorgan Chase & Co. Receives a Finding of Violation Regarding Violations of the Foreign Narcotics Kingpin and Syrian Sanctions Regulations: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued a Finding of Violation to JPMorgan Chase & Co. (“JPMC”) for violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 (FNKSR), and the Syrian Sanctions Regulations, 31 C.F.R. part 542 (SSR).

Between August 4, 2011 and April 29, 2014, JPMC processed 85 transactions totaling $46,127.04 and maintained eight accounts on behalf of six customers who were contemporaneously identified on the List of Specially Designated Nationals and Blocked Persons (“SDN List”). From approximately 2007 to October 2013, JPMC used a vendor screening system that failed to identify these six customers as potential matches to the SDN List. The system’s screening logic capabilities failed to identify customer names with hyphens, initials, or additional middle or last names as potential matches to similar or identical names on the SDN List. Despite strong similarities between the accountholder’s names, addresses, and dates of birth in JPMC account documentation and on the SDN List, JPMC maintained accounts for, and/or processed transactions on behalf of, these six customers. JPMC identified weaknesses in the screening tool’s capabilities as early as September 2010 and implemented a series of enhancements during the period 2010 to 2012. In 2013, JPMC transitioned to a new screening system. In November 2013, JPMC re-screened 188 million clients’ records through the new system, identified the transactions and accounts described above, and reported the violations to OFAC. The determination to issue a Finding of Violation to JPMC reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. A Finding of Violation is appropriate given that JPMC facilitated and/or processed 85 transactions totaling $46,127.04, and maintained eight accounts on behalf of six customers on the SDN List; JPMC engaged in a pattern of conduct over a two-year period where the apparent violations stemmed from the same screening issue; although JPMC identified this screening issue and implemented multiple screening enhancements, it took over three years to fully address a known deficiency in the vendor-provided screening system; JPMC did not appear to have implemented adequate compensating controls to address the risk these screening deficiencies posed to the bank’s operation of existing accounts or opening of new accounts; and JPMC is a large, sophisticated financial institution. OFAC also considered that no JPMC personnel, including managers or supervisors, appear to have had actual knowledge of the conduct that led to the violations; JPMC has not received a penalty notice or Finding of Violation from OFAC relating to substantially similar violations in the five years preceding the date of the conduct giving rise to the violations; and JPMC cooperated with OFAC’s investigation, including by providing the initial disclosure of these violations, and executing a statute of limitations tolling agreement and an extension to the agreement. 3 This enforcement action highlights the importance of financial institutions remediating known compliance program deficiencies in an expedient manner, and when that is not possible, the importance of implementing compensating controls to mitigate risk until a comprehensive solution can be deployed. For more information

Separately, OFAC has issued a Finding of Violation to JPMC regarding violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 (FNKSR), and the Syrian Sanctions Regulations, 31 C.F.R. part 542.  Specifically, OFAC determined that between August 4, 2011 and April 29, 2014, JPMC processed 85 transactions totaling $46,127.04 and maintained eight accounts on behalf of six customers who were contemporaneously identified on the SDN List.  OFAC determined that JPMC voluntarily disclosed the violations, and that the violations constitute a non-egregious case.

Before 2012, JPMorgan didn’t appear to have had a process to evaluate members independently of the foreign entity despite receiving red-flag notifications on at least three occasions.

The Securities and Exchange Commission is awarding $39 million to one whistleblower and $15 million to another whose critical information and continued assistance helped the agency bring an important enforcement action.  The $39 million award is the second-largest award in the history of the SEC’s whistleblower program.

“Whistleblowers serve as invaluable sources of information, and can propel an investigation forward by helping us overcome obstacles and delays in investigation,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “These substantial awards send a strong message about the SEC’s commitment to whistleblowers and the value they bring to the agency’s mission.”

The SEC has awarded more than $320 million to 57 individuals since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

The Securities and Exchange Commission today announced that Goldman, Sachs & Co. has agreed to pay $15 million to settle charges that its securities lending practices violated federal regulations.

According to the SEC’s order instituting a settled administrative proceeding, broker-dealers such as Goldman Sachs are regularly asked by customers to locate stock for short selling.  Granting a “locate” represents that a firm has borrowed, arranged to borrow, or reasonably believes it could borrow the security to settle the short sale.  The SEC finds that Goldman Sachs violated Regulation SHO by improperly providing locates to customers where it had not performed an adequate review of the securities to be located.  Such locates were inaccurately recorded in the firm’s locate log that must reflect the basis upon which Goldman Sachs has given out locates.

“The requirement that firms locate securities before effecting short sales is an important safeguard against illegal short selling,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “Goldman Sachs failed to meet its obligations by allowing customers to engage in short selling without determining whether the securities could reasonably be borrowed at settlement.”

Several of Wall Street’s largest banks are the target of major Securities and Exchange Commission (SEC) investigations for violations of foreign bribery laws, according to the Wall Street Journal. The banks include J.P. Morgan Chase & Co. Citigroup Inc, Credit Suisse Group AG, Goldman Sachs, Morgan Stanley and UBS AG. The issues relate to whether they violated United States antibribery laws by hiring relatives of managers of state-owned companies and other connected officials. The key law at play is the Foreign Corrupt Practices Act (FCPA). Continue reading

 The Securities and Exchange Commission today announced an award of more than a million dollars to a compliance professional who provided information that assisted the SEC in an enforcement action against the whistleblower’s company.

The award involves a compliance officer who had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors.

“When investors or the market could suffer substantial financial harm, our rules permit compliance officers to receive an award for reporting misconduct to the SEC,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “This compliance officer reported misconduct after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.”

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The Securities and Exchange Commission today announced its first enforcement action against a company for using improperly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process.

The SEC charged Houston-based global technology and engineering firm KBR Inc. with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act.  KBR required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department.  Since these investigations included allegations of possible securities law violations, the SEC found that these terms violated Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC.

KBR agreed to pay a $130,000 penalty to settle the SEC’s charges and the company voluntarily amended its confidentiality statement by adding language making clear that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.

The Securities and Exchange Commission(S.E.C.) has filed charges against a number of Portugese companies operating as Winds Network for running a multi-level marketing company offering digital and mobile solutions to customers.However, Wings Network’s revenues actually came solely from selling memberships to investors, not from the sale of any products. The company relied upon the recruitment of new members, and commissions were paid to earlier investors with money received from later investors. The scheme raised at least $23.5 million from thousands of investors, including many in Brazilian and Dominican immigrant communities in Massachusetts.Several of the scheme’s promoters charged in the SEC’s complaint live in Marlborough, Mass.

According to the SEC’s complaint, the scheme was orchestrated by Wings Network officers Sergio Henrique Tanaka of São Paulo, Brazil and Davie, Fla., Carlos Luis da Silveira Barbosa of Lisbon, Portugal, and Claudio de Oliveira Pereira Campos of Lisbon, Portugal. After establishing a network of lead promoters, recruitment of new members surged through the use of social media such as Facebook and YouTube. The promoters used Facebook to publicize “business meetings” that took place at hotels and other locations in Connecticut, California, Florida, Massachusetts, Pennsylvania, Texas, Georgia, and Utah. The promoters also set up storefronts or “training centers” to lure investors into attending Wings Network presentations. For example, one promoter used a storefront in downtown Philadelphia to make presentations to prospective investors, and another promoter rented office space in Pompano Beach, Fla., and spread the word in the local Latino community to attract prospective investors to come in and hear presentations.

The SEC’s complaint alleges that the Portuguese entities and principals Tanaka, Barbosa and Campos violated antifraud provisions Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10-b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act, and that the promoter defendants violated Section 5(a) and 5(c) of the Securities Act.

A second whistleblower complaint has been filed against Dominos by a former franchisee filed a second whistleblower to the Securities and Exchange Commission against Domino’s Pizza and its executives. The newer one alleges the company mislead investors in its SEC Filing 10-K that falsely specified franchisees were not required to purchase food and supplies from the franchisor, nor was it agreed by a 100 percent unanimous vote by franchisees to increase Domino’s advertising fund.

The original September 2013 SEC complaint says Domino’s 2012 franchise disclosure document was incomplete and failed to comply with Federal Trade Commission requirements regarding Item 3, which reveals litigation history.

The former franchisee details the multiple issues in conjunction with his previous complaint. He outlines how company employees and franchisees stated in depositions in his litigation with Domino’s that franchisees are required to purchase supplies from Domino’s commissary. But Domino’s SEC Filings 10-K states it differently. It says: