The Commodity Futures Trading Commission has given its first whistleblower award in the wake of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its bounty program. The regulator awarded $240,000 to a person who voluntarily gave information that allowed the CFTC to file an enforcement action resulting in sanctions and a judgment of more than $1 million.
Under the Dodd-Frank bounty program, whistleblowers of successful claims may be entitled to 10-30% of what is recovered. Prior to this whistleblower award, the CFTC had denied 25 award claims because: the persons provided the original data prior to Dodd-Frank’s passage; they failed to submit necessary paperwork, they gave over the information because the CFTC asked for it and not voluntarily; or the information they provided did not compel the regulator to open or widen a probe or contribute much to any successful Commission matter.
According to business writer William D. Cohan in his article on Wall Street whistleblowers in FT Magazine, whistleblowing—especially on Wall Street—requires great courage. Many find that traders, bankers and executives who raise questions about securities fraud end up losing their job or find themselves the victim of some other type of retaliation.
Still, whistleblowers are important to exposing wrongdoing in the securities industry that might not be detected otherwise. With the protections to whistleblowers offered by Dodd-Frank, and the incentive of reward, this should compel more individuals to step forward in this role. It is important that a whistleblower has legal representation to ensure he/she gets these protections and the maximum award owed.
Meantime, the Utah Securities Commission is also issuing its first whistleblower award related to securities fraud. Financial adviser Lamond Syphus will get $15,000 because he reported to the state his suspicions that a prospective client, an 88-year-old widow, was a fraud victim.
According to court documents, the widow gave Richard A. Loveday, a principal of CGI Global Management, $70,000 to invest in a pool for small loans to be made to individuals and businesses. He promised she would get a 14% return, bonuses, and monthly payments. Instead, he bilked the elderly investor of $100,000 while she was recovering from a broken hip.
Loveday used the funds for his personal expenses and paid her $875/month for three months out of her own money. He then went to her home and told her that because she mentioned the investment to someone else, the state securities division shut down his business and she now needed to give him a loan. The widow gave him $25,000. He then got her to give him another $5,000. Syphus’s tip resulted in Loveday’s criminal conviction.
Syphus’s whistleblower award is the first under a Utah law that rewards individuals who give over original information leading to a successful enforcement over securities law violations. A collection of sanctions greater than $50,000 may entitle the whistleblower to up to 30% of what is collected.
The SSEK Partners Group represents institutional investor and high net worth individuals.
Utah securities commission rewards man who reported fraud of 88-year-old widow, Deseret News, May 22, 2014
CFTC Hands Out First Whistleblower Award, The Wall Street Journal, May 20, 2014
William D Cohan on Wall Street whistleblowers, FT Magazine, May 30, 2014
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