Archive for the ‘Financial Industry’ Category

1st – Ever Whistleblower Retaliation Case Brought by SEC

Friday, June 20th, 2014

In the first-of-its-kind enforcement action, The Securities and Exchange Commission accused a hedge fund adviser, Paradigm Capital Management, Inc. and its owner Candace King Weir, of squashing a top trader after learning that he reported trade violations at the firm.

Paradigm had failed to meet their obligations to obtain client’s consent prior to conducting trades. The firm created a conflicts committee that reviewed and approved transactions on behalf of fund clients. The SEC concluded that the committee could not be deemed independent and thus created a conflict of interest.

The whistleblower had been the head trader at the firm until the firm found that he alleged violations. At that point, he was stripped of his title, pushed to lower positions, and eventually forced to resign. The decision in this case sought to make it clear that retaliation, in any form, is unacceptable. Paradigm did not admit or deny any wrongdoing but agreed to pay approximately $2.2 million in sanctions to settle the retaliation charges and related trading violations.

For more information, click here.

JP Morgan Pays $614 Million In Mortgage Fraud Case

Friday, February 28th, 2014

JP Morgan is the most recent Wall Street firm to write a check, a whopping $614 million,  to the government to settle allegations that it violated the False Claims Act by knowingly underwriting non-compliant mortgages that received federal insurance coverage from the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA).   The resolution involved  an admission that for more than a decade they had violated the federal FCA.  Improper mortgage lending both undermines the housing market and threatens vital programs that provide millions of Americans the opportunity to own a home. This is the most recent action by the government to aggressively combat improper mortgage fraud.

More Incentives For Whistleblowers: New York Considers A New Law To Reward And Protect Whistleblowers

Friday, October 11th, 2013

Tracking the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, new legislation would establish whistleblower bounties and protections for information given to the New York State Department of Financial Services (“DFS”) – a super agency formed in October 2011 to regulate banks and insurance companies in New York.  Since its inception, DFS has received considerable attention as a result of substantial settlements, including in August 2012 when Standard Chartered PLC agreed to pay $340 million to settle DFS allegations that the bank violated anti-money laundering laws in connection with transactions for Iranian customers.  Had the new legislation been in effect at the time and had the settlement resulted from information from a whistleblower, that whistleblower would be entitled to between 10 and 30 percent of the recovery, or $34 million and $102 million. 

For more information, please see:

The 2012 IRS Whistleblower Report Is Out!

Tuesday, February 19th, 2013

A quick summary:

  • In FY  2011, the IRS received 314 submissions identifying 734 taxpayers that, based on the face of the submissions, appear to meet the section 7623(b) criteria.  In FY 2012, the IRS received 332 submissions identifying 671 taxpayers that, based on the face of the submissions, appear to meet the section 7623(b) criteria.  (P. 7)
  • In 2011, the IRS whistleblower program brought in $48 million.  In 2012, the IRS whistleblower program brought in $592.5 million.
  • In FY 2011, the Whistleblower Office paid the first claims under section 7623(b).  Five claims have been paid under the revised law. “Taxpayer privacy laws do not permit the publication of data on specific claims.”
  • The number of payments made under the section 7623(b) program is not projected to grow dramatically in FY 2013.
  • As of Dec 10, 2012 , the IRS has received 1,449 submissions from 1,126 whistleblowers covering 10,043 taxpayers.  The status of these cases is reported on page 9 and 10 of the report.
  • At the beginning of FY 2012, the Whistleblower Office staff of 18 included ten analysts with decades of experience in a broad array of IRS compliance programs. In addition, the IRS Office of Chief Counsel has appointed a senior attorney to serve as Special Counsel to the Director of the Whistleblower Office. The Special Counsel provides legal advice to the Director and coordinates support that other Chief Counsel offices provide.
  • In January 2012, the Small Business/Self-Employed (SB/SE) Division transferred the Informant Claims Examination (ICE) Unit to the Whistleblower Office. This group of 13 employees is responsible for case management and administration of the discretionary award program under what is now section 7623(a).
  • In July and August 2012, the IRS modified the case management information system to incorporate additional data fields, and modify existing data fields, to capture information that will enhance our ability to manage claims and will allow data to be collected that can help assess Whistleblower Office and Operating Division performance.
  • The IRS whistleblower law does not provide for whistleblower protection. “Unlike other laws that encourage whistleblowers to report information to the government, section 7623 does not prohibit retaliation against the whistleblower.” (P. 14)
  • A share of criminal fines are not part of the awards process.

To view the report, please see:

Prisoner Becomes Millionaire: IRS Whistleblower Awarded $104 Million

Tuesday, September 18th, 2012

Relator Bradley Birkenfeld will receive a $104 million award, for his part in revealing UBS Bank’s illegal offshore banking scheme.  It is believed to be the largest award to an individual Relator and the first major award under the IRS Whistleblower Act.  Birkenfeld will have to settle for online shopping for the time being as he is currently finishing out his felony sentence for his part in the scheme, including smuggling diamonds in a toothpaste tube, at home.

The IRS applauded Mr. Birkenfeld for identifying taxpayer behavior that they were otherwise unable to detect and described the information he provided as comprehensive in both its breadth and depth.  As a result of the investigation kicked off by Mr. Birkenfeld’s Complaint, UBS paid a $780,000,000 fine, 35,000 taxpayers voluntarily repatriated illegal accounts under an amnesty program, and recovered $5 billion in back taxes.  Additionally, the Swiss were forced to change their tax treaty with the United States resulting in them turning over the names of 4,900 taxpayers’ who are now under investigation for their illegal accounts.

For more information, please see:

Commodity Options Fraud And Misappropriation Result In $2.5 Million In Sanctions Against Abraham Gutterman And His Companies

Thursday, July 5th, 2012

Gold-BarsAbraham Gutterman and his companies, Alliance Capital Metals LLC and AR Goldman Wealth Management, LLC, are barred from the commodities industry by a court order from Judge Marcia G. Cook, of the U.S. District Court for the Southern District of Florida.  As a result from a Commodity Futures Trading Commission (CFTC) complaint associated with a fraudulent gold and oil commodity options scheme, Gutterman and his companies will have to pay a civil fee of $2.1 million, as well as fees to the defrauded clients.  The scheme included various tactics, some of which included high pressure sales strategies, false advertising of services, no proof of documentation, falsely claiming that the company was registered with the CFTC and many more.  In addition to the fees, trading and registration bans have been placed on Gutterman and his companies, prohibiting them from breaching the Commodity Exchange Act and CFTC regulations again.

For more information, please see:

$14.5 Million Dollar Payment To Bank Of America/Countrywide Whistleblower

Thursday, June 7th, 2012

Kyle Lagow, a former home appraiser with Countrywide Financial brought suit under the Federal False Claims Act accusing his employer of defrauding the Federal Government by inflating appraisals on government backed loans.  Lagow along with four other whistleblowers, initiated suits that were combined and ultimately led to a $25 billion settlement reached between state and federal officials and five lenders including Bank of America.  The settlements were unsealed in February 2012 but the amount of Mr. Lagow’s payment was just released. 

For more information please see:

Second Circuit Court of Appeals May Uphold Citigroup Settlement with the SEC

Tuesday, March 20th, 2012

Several months ago we reported about Judge Jed Rackoff’s rejection of a settlement between the SEC and Citigroup for its marketing of collateralized debt obligations.  The judge found insufficient facts that the settlement was reasonable or in the public interest because Citibank would not admit to liability.   That decision is now on appeal to the United States Court of Appeals for the Second Circuit.  That court recently stayed Judge Rackoff’s order, concluding that the parties had shown a substantial likelihood of prevailing on appeal.  Addressing the issue of the propriety of the stay, the Court of Appeals rejected Judge Rackoff’s reasoning that settlement without an admission of liability failed to serve the public interests because the rationale prejudged whether the SEC could prevail at trial.  The court also found that requiring an admission of liability could undermine the ability to settle.  They also rejected Judge Rackoff’s finding that the settlement was unfair to Citigroup.  The Court of Appeals reasoned that Citigroup was in the best position to gauge its best interests.  Although the Court of Appeals will later rule on the merits of Judge Rackoff’s decision, the ruling on the stay provides a preview of what is likely to come in the opinion. 

For more information, please see:

FIRREA Provides Another Outlet for Whistleblowers

Monday, October 31st, 2011

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 has a little known provision that allows a whistleblower to report instances of bank and financial institution fraud.  The law allows private individuals to submit confidential claims to the Department of Justice.  The department can then investigate and use its enforcement powers to recover penalties or damages, or the department can refer the case to private cause to pursue the claim on behalf of the government.  Private citizens initiating such claims receive a bounty payment on any recovery.  The types of violations that may be reported under the FIRREA include false statements in connection with a credit or loan application, misrepresenting status to obtain a loan, or making false entries in the books of a financial institution. 

See article here:

Citigroup Agrees to Pay $285 million to settle SEC Enforcement Action on Mortgage-Related Securities but the Judge is Unhappy

Monday, October 31st, 2011

Citigroup agreed to resolve securities fraud charges in relation to its sale of mortgage-backed securities for a whopping payment of $285 million.  Goldman Sachs and JP Morgan Chase & Co. settled similar claims with the SEC last year.   At the time of sale, those securities produced $126 million in profit for Citigroup’s brokerage subsidiary and $34 million in fees.  Citigroup will disgorge these funds plus $95 million in fines. Despite the hefty settlement, the assigned judge, Judge Jed Rackoff, assigned to the case, has called the settlement into question.  As part of the proceedings to approve the settlement, he has questioned whether the settlement is sufficient, why no individuals were held individually responsible, and why there was no demand for admission of wrongdoing.    

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