Apr 6, 2018 | Whistleblower
More Than $2.2 Million Awarded to SEC Whistleblower Who Initially Reported Information to Another Federal Agency
On April 5, 2018, the Securities and Exchange Commission announced a whistleblower award of more than $2.2 million to a former company insider whose tips helped the agency open an investigation that led to an enforcement action.
The whistleblower first reported the information to another federal agency and later provided the same information to the SEC.
According to the SEC, this is the first award paid under the “safe harbor” of Exchange Act Rule 21F-4(b)(7), which provides that if a whistleblower submits information to another federal agency and submits the same information to the SEC within 120 days, then the SEC will treat the information as though it had been submitted to the SEC at the same time that it was submitted to the other agency.
The SEC’s “Order Determining Whistleblower Award Claim” stated:
Under Rule 21F-4(b)(7), if an individual submits his or her tip to another federal agency, then in considering an award application from that individual, the [SEC] will treat the information as though it had been submitted to the [SEC] directly from the individual at the same time that it was submitted to the other agency, provided that the individual submitted that same information to the [SEC] no later than 120 days after the individual first went to the other government agency. In this way, Rule 21F- 4(b)(7) operates as a 120-day safe harbor, assuring an individual who voluntarily reports misconduct to another agency first that he or she will be deemed for award purposes to have reported directly to the [SEC] at the same time that the individual reported to the other federal agency.[] Thus, the other agency’s use of the information in a referral that causes the staff to open an investigation is credited directly to the whistleblower for purposes of making an award determination, including the “led to” standard under Exchange Act Rule 21F-4(c).
Applying Rule 21F-4(b)(7) to the facts in this matter, we find that the Claimant is deemed to be have been a whistleblower who caused the opening of the investigation by providing original information to the [SEC]. The relevant facts here are clear: The Claimant voluntarily reported information to a federal agency covered by the rule, that federal agency in turn made a referral to the [SEC] based on the Claimant’s information, the Enforcement staff then promptly responded to the referral by opening the investigation that resulted in the Covered Action, and the Claimant within 120 days of reporting to the other agency (albeit after the [SEC’s] investigation was opened) provided the same information to the Commission in accordance with the procedures specified in Exchange Act Rule 21F-9. Based on the foregoing, we find that the Claimant satisfies the Rule 21F-4(b)(7) safe-harbor provision and, thus, in making an award to the Claimant for the Covered Action we have treated the Claimant’s submission to the [SEC] as though it had been made on the date that the Claimant provided that same information to the other federal agency.
(Some emphasis in original and emphasis added)
The whistleblower voluntarily reported information to a federal agency covered by the rule, which referred the matter to the SEC. The SEC then opened an investigation. Within 120 days of the initial report, the whistleblower provided the same information to the SEC and later provided substantial cooperation in the investigation. Although the SEC report came after the staff had opened its investigation, the SEC treated the submission as though it had been made when the whistleblower provided the information to the other agency.
The SEC has awarded more than $264 million to 54 whistleblowers 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, according to the SEC, 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. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.
If you voluntarily provide original, high-quality information (i.e., information derived from your independent knowledge, NOT facts derived from publicly-available information) about the possible violation of the federal securities laws that has occurred, is ongoing or is about to occur AND which leads to a successful SEC enforcement action, resulting in an order of monetary sanctions exceeding $1 million, then you MAY be eligible for an SEC whistleblower award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and related actions brought by certain other regulatory and law enforcement authorities.
Remember, information is voluntarily provided if you provide information to the SEC or another regulatory or law enforcement authority before a) the SEC requests it from you or your lawyer or b) Congress, another regulatory or enforcement agency or self-regulatory organization asks you to provide the information in connection with an investigation or certain examinations or inspections.
Can You Submit Information Anonymously to the SEC?
Yes, however, if you wish to submit information to the SEC anonymously, you MUST be represented by an attorney in connection with the anonymous information submission to be eligible for an award.
What Kind of Wrongful Conduct Is of Interest to the SEC?
Examples of the kind of conduct about which the SEC is interested include:
- Ponzi scheme, Pyramid Scheme, or a High-Yield Investment Program
- Theft or misappropriation of funds or securities
- Manipulation of a security’s price or volume
- Insider trading
- Fraudulent or unregistered securities offering
- False or misleading statements about a company (including false or misleading SEC reports or financial statements)
- Abusive naked short selling
- Bribery of, or improper payments to, foreign officials
- Fraudulent conduct associated with municipal securities transactions or public pension plans
- Other fraudulent conduct involving securities
SEC Investigations and The Federal Securities Laws
The SEC conducts investigations into possible violations of the federal securities laws. Again, the more specific, credible, and timely a whistleblower tip, the more likely it is that the tip will be forwarded to SEC investigative staff for further follow-up or investigation. For example, if the tip identifies individuals involved in the scheme, provides examples of particular fraudulent transactions, or points to non-public materials evidencing the fraud, the tip is more likely to be assigned to SEC Enforcement staff for investigation.
It is important to keep in mind that the SEC does not have jurisdiction to take action on information that is outside the scope or coverage of the federal securities laws. The SEC may, in appropriate circumstances, refer your matter to another regulatory or law enforcement agency.
Do You Have Questions or Concerns About Providing Information to the SEC About Securities Fraud?
If so, please know that Kehoe Law Firm’s legal team understands the issues associated with making the difficult decision to voluntarily come forward with information about securities fraud or other wrongdoing. Moreover, the Firm’s legal staff has extensive experience investigating and prosecuting fraud, as well as interacting with sources of information, especially brave, honest individuals who are willing to expose fraud committed against the United States government.
If you have questions or concerns about voluntarily providing information as a whistleblower to the SEC about violations of the federal securities laws, including questions about whistleblower award eligibility or the form and manner in which the information is required to be provided to the SEC, please contact Kehoe Law Firm, P.C. by completing the form above on the right or sending an e-mail to [email protected]. If you prefer to speak privately with an attorney, please contact either Michael Yarnoff, Esq., [email protected], (215) 792-6676, Ext. 804, or John Kehoe, Esq., [email protected], (215) 792-6676, Ext. 801.
For additional SEC Whistleblower Program information, please see Frequently Asked Questions, Submit a Tip, Claim an Award, Final Orders, and Section 21F of the Securities Exchange Act of 1934 (Securities Whistleblower Incentives and Protection).
Source: SEC.gov.
Apr 6, 2018 | Shareholder & Investor Protection
Three Investment Advisers Settle Charges for Breaching Fiduciary Duties and Generating Millions in Improper Fees
On April 6, 2018, the Securities and Exchange Commission announced that three investment advisers have settled charges for breaching fiduciary duties to clients and generating millions of dollars of improper fees in the process.
According to the SEC’s orders, PNC Investments LLC (“PNCI”), Securities America Advisors Inc. (“SAA”), and Geneos Wealth Management Inc. (“Geneos”) failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available. The SEC also charged Geneos for failing to identify its revised mutual fund selection disclosures as a “material change” in its 2017 disclosure brochure. The firms, collectively, will pay almost $15 million, with more than $12 million going to harmed clients.
“These disclosure failures cause real harm to clients,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. O’Riordan further stated, “We strongly encourage eligible firms to participate in the recently announced Share Class Selection Disclosure Initiative as part of an effort to stop these violations and return money to harmed investors as quickly as possible.”
The Share Class Selection Disclosure Initiative gives eligible advisers until June 12, 2018 to self-report similar misconduct and take advantage of the SEC’s Enforcement Division’s willingness to recommend more favorable settlement terms, including no civil penalties against the adviser.
The SEC’s orders also found that PNCI and Geneos failed to disclose the conflict of interest associated with compensation they received from third parties for investing clients in particular mutual funds, and that PNCI improperly charged advisory fees to client accounts for periods when there was no assigned investment advisory representative.
The SEC’s orders find that PNCI, SAA, and Geneos each violated provisions of the Investment Advisers Act of 1940, including an antifraud provision. Without admitting or denying the findings, the advisers each consented to a cease-and-desist order and a censure.
The orders require PNCI to pay $6,407,770 in disgorgement and prejudgment interest along with a $900,000 penalty.
SAA must pay $5,053,448 in disgorgement and prejudgment interest along with a $775,000 penalty.
GENEOS must pay $1,558,121 in disgorgement and prejudgment interest along with a $250,000 penalty.
Source: SEC.gov
Apr 4, 2018 | Consumer Protection, Employment & Technology Archive
Data Leak Lasted At Least Eight Months – Panera Was Warned About the Problem Last August
On April 3, 2018, Bankinfosecurity.com reported:
Panera Bread acknowledged a data leak on Monday, but says fewer than 10,000 customers were affected. The leak appears to have persisted for at least eight months, despite the company having been warned about the problem last August. And the exposed database appears to have included information on more than 7 million customers, meaning the breach could be much larger than Panera Bread claims.
Information security blogger Brian Krebs reported that the leak’s finder, security researcher Dylan Houlihan, recently alerted him to the problem. Krebs writes that after he contacted Panera Bread with an inquiry, the company briefly took its website offline, apparently to attempt to fix the problem.
The leaked data appears to include a raft of information, including names, usernames, email addresses, phone numbers and the last four digits of payment card numbers. The data, which comprises people who ordered online from the food chain, was visible in plain text.
According to Krebsonsecurity.com:
The data available in plain text from Panera’s site appeared to include records for any customer who has signed up for an account to order food online via panerabread.com. The St. Louis-based company, which has more than 2,100 retail locations in the United States and Canada, allows customers to order food online for pickup in stores or for delivery.
Source: Krebsonsecurity.com, “Panerabread.com Leaks Millions of Customer Records”
KrebsOnSecurity learned about the breach earlier today after being contacted by security researcher Dylan Houlihan, who said he initially notified Panera about customer data leaking from its Web site back on August 2, 2017.
Further, according to Bankinfosecurity.com:
. . . the researcher who discovered the problem, along with Krebs, believes – despite Panera Bread publicly reporting that the leak has been fixed – that the data was still available for some length of time afterward. Krebs tweeted later on Monday that he found API issues on other subdomains within Panera Bread’s website.
Panera Bread appeared to take its site completely . . . offline later on Monday.
Dylan Houlihan reported that
. . . [i]n August 2017, I reported a vulnerability to Panera Bread that allowed the full name, home address, email address, food/dietary preferences, username, phone number, birthday and last four digits of a saved credit card to be accessed in bulk for any user that had ever signed up for an account. This includes my own personal data! Despite an explicit acknowledgement of the issue and a promise to fix it, Panera Bread sat on the vulnerability and, as far as I can tell, did nothing about it for eight months. When Brian Krebs publicly broke the news, other news outlets emphasized the usual “We take your security very seriously, security is a top priority for us” prepared statement from Panera Bread. Worse still, the vulnerability was not fixed at all — which means the company either misrepresented its actual security posture to the media to save face or was not competent enough to determine this fact for themselves. This post establishes a canonical timeline so subsequent reporting doesn’t get confused. (Emphasis added)
The Verge reported:
Panera Bread issued a statement to Fox News this week saying it resolved a data breach that exposed the personal information of “thousands” of customer records. However, according to KrebsOnSecurity, the company was first alerted to the issue by security researcher Dylan Houlihan eight months ago but initially dismissed it as a likely scam.
. . .
KrebsOnSecurity says Houlihan contacted Panera on August 2nd, 2017, and then again to follow up a week later. A shared a message thread between Houlihan and Mike Gustavison, Panera’s director of information security, shows that Panera did eventually validate Houlihan’s findings, saying the company was working on a fix. However, as of yesterday, the website was still leaking data. Houlihan says the flaw continued to exist, and he “check[ed] on it every month or so because I was pissed.”
KrebsOnSecurity spoke with Panera’s chief information officer John Meister yesterday and the company briefly took the website offline. It has since returned, and the data is no longer reachable. However, the company had no comment as to why it allowed the problem to exist for months after it acknowledged it was an issue last August. KrebsOnSecurity says the number of accounts affected may be as high as 37 million, despite Panera disputing that only 10,000 records were exposed.
Apr 4, 2018 | Consumer Protection, Employment & Technology Archive
Kehoe Law Firm, P.C. is making consumers aware that on April 3, 2018, a class action complaint was filed against the American Express Company for alleged violations of the Telephone Consumer Protection Act. According to the complaint, American Express “. . . routinely violates 47 U.S.C. § 227(b)(1)(A)(iii) by using an automatic telephone dialing system and an artificial or prerecorded voice to place non-emergency calls to telephone numbers assigned to a cellular telephone service without prior express consent, in that [American Express] places autodialed and prerecorded or artificial voice calls to wrong or reassigned cellular telephone numbers.”
The complaint alleges that shortly after the Plaintiff obtained a new cell phone in 2017, American Express started to make calls to the Plaintiff’s cellular telephone from (844) 349-7984.
Allegedly, “[w]hen dialed, at one time, (844) 349-7984 played a message that stated: ‘Thank you for calling American Express. . . .’” On another occasion, “[w]hen dialed . . . (844) 349-7984 played a message that stated: ‘You have reached a non-working number at American Express.’” American Express “. . . placed at least one call to Plaintiff’s cellular telephone number on December 15, 2017, and at least one call on December 18, 2017[,]” as well as other separate calls. According to the class action complaint, when the “Plaintiff answered at least one of [American Express’] calls to her cellular telephone,” the Plaintiff “. . . was greeted with an artificial or prerecorded voice explaining that [American Express] was calling for someone other than and unknown to Plaintiff.”
The complaint states that the Plaintiff did not provide prior express consent to place calls to her cell phone, neither is/was an American Express customer nor has/had a business relationship with the Defendant. The class action complaint seeks, among other things, statutory damages and injunctive relief. The action was filed in United States District Court, Northern District of Oklahoma (4:18-cv-001777-GKF-FHM).
Do You Believe You Are a Victim of Illegal Robocalls, Text Messages, “Junk” Faxes or Telemarketing Sales Calls?
If you have received illegal robocalls, text messages, “junk” faxes or telemarketing sales calls, you may be able to recover at least $500 for each illegal call, text or fax you received and, possibly, as much as $1,500 for each illegal call, text message or facsimile that was made either willfully or knowingly.
To help evaluate your potential legal claims under the Telephone Consumer Protection Act, please complete KLF’s confidential Robocall Questionnaire or, if you prefer to speak with an attorney, please complete the form above on the right, e-mail [email protected] or contact Michael Yarnoff, Esq., [email protected], (215) 792-6676, Ext. 804, for a free, no-obligation evaluation of your potential legal rights.
Kehoe Law Firm, P.C.
Apr 3, 2018 | Shareholder & Investor Protection
Fraudulent Initial Coin Offering Raised More than $32 Million From Thousands of Investors
Two co-founders of a purported financial services start-up were charged on April 2, 2018 by the Securities and Exchange Commission with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. According to the SEC’s announcement about the fraudulent ICO, criminal authorities separately charged and arrested both defendants.
Centra Tech., Inc. Co-Founders Masterminded a Fraudulent ICO
According to the SEC’s complaint Sohrab “Sam” Sharma (“Sharma”) and Robert Farkas (“Farkas”), co-founders of Centra Tech., Inc., allegedly, masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a “CTR Token.”
Sharma and Farkas, allegedly, claimed that funds raised in the ICO would help build a suite of financial products. They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard.
To promote the ICO, Sharma and Farkas, allegedly, created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.
Defendants Charged with Violating Anti-Fraud and Registration Provisions of the Federal Securities Laws
The SEC’s complaint, filed in U.S. District Court, Southern District of New York, charges Sharma and Farkas with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Sharma and Farkas serving as public company officers or directors and from participating in any offering of digital or other securities. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Sharma and Farkas.
Sale of Unregistered Securities Issued in a “So-Called” Initial Coin Offering
According to the SEC’s complaint:
From approximately July 30, 2017 through October 5, 2017, Defendants raised at least $32 million from thousands of investors through the sale of unregistered securities issued by Centra . . ., an entity controlled primarily by Defendants. The Centra securities were issued in a so-called “initial coin offering” . . ., a term that is meant to describe the offer and sale of digital assets issued and distributed on a blockchain. Defendants sold the Centra Token (CTR) (“CTR Token” or “Centra Token”), an ERC20 token issued on the Ethereum blockchain, in Centra’s ICO. Defendants promoted the Centra ICO by touting nonexistent relationships between Centra and well-known financial institutions, including Visa, Mastercard and The Bancorp.
Defendants, individually and through Centra, engaged in an illegal unregistered securities offering and, in connection with the offering, engaged in fraudulent conduct and made material misstatements and omissions designed to deceive investors in connection with the offer and sale of securities in the Centra ICO. By doing so, Defendants violated and aided and abetted Centra’s violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.
The Centra ICO was an illegal offering of securities for which no registration statement was filed with the Commission or was then in effect, and as to which no exemption from registration was available. The Centra ICO was a generalized solicitation made using statements posted on the internet and distributed throughout the world, including in the United States, and the securities were offered and sold to the general public, including to United States investors, in this district and elsewhere.
Source: SEC.gov
