/>iPonzi Schemes and SEC Whistleblower Awards
Under the SEC Whistleblower Program, eligible whistleblowers may receive an award for providing the SEC with original information about any violation of the federal securities laws, including information about a Ponzi scheme. If the SEC uses a whistleblower’s information to bring a successful enforcement action, the whistleblower is eligible to receive 10% to 30% of the monetary sanctions collected as a whistleblower award. The largest SEC whistleblower awards to date are $50 million and $33 million.
What is a Ponzi Scheme?
The SEC defines a Ponzi scheme as “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” Ponzi schemes typically collapse when the fraudsters operating the scheme are unable to recruit new investors and a large number of investors ask to cash out.
For example, Bernie Madoff got away with his $50 billion Ponzi scheme for decades until the financial crisis of 2007-2008 hit. The downturn in the economy caused the current investors to ask for their money back and halted inflows from new investors. In late 2008, the scandal broke and Madoff admitted his investment business was in fact a Ponzi scheme.
The SEC compiled a list of Ponzi scheme red flags, which include:
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high investment returns with little or no risk;
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overly consistent returns;
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unregistered investments;
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unlicensed sellers;
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secretive and/or complex strategies;
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issues with paperwork; and
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difficulty receiving payments.
For more information about Ponzi schemes, see the SEC’s General Resources on Ponzi schemes.
Recent Enforcement Actions Against Ponzi Schemes
$85 Million Ponzi Scheme
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On May 1, 2018, the SEC announced fraud charges against Arthur Adams and his company, Madison Timber Properties, for running an alleged $85 million Ponzi scheme. According to the SEC’s complaint, Adams lied to investors by telling them their money would be used by his company to secure and harvest timber, and promised annual returns of 12% to 15%. Instead of using the investors’ money for timber, Adams used it to pay for his own personal expenses, to develop an unrelated real estate project, and to pay back early investors with later investors’ funds.
$102 Million Ponzi Scheme
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On June 19, 2018, the SEC obtained as asset freeze for a $102 million Ponzi scheme. According to the SEC’s complaint, the defendants raised millions of dollars from at least 637 investors across the United States, falsely claiming that the investors’ money would be used “to operate businesses in fields such as financial services, insurance, real estate development, and medical laboratories.” Instead, the defendants spent at least $20 million to enrich themselves, paid $38.5 million in a Ponzi-like payments to early investors, and transferred much of the remainder in transactions that appear unrelated to their purported business.
Report Ponzi Schemes Anonymously to the SEC
The SEC Whistleblower Program protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Moreover, a whistleblower can report a Ponzi scheme anonymously to the SEC if represented by an attorney. In certain circumstances, a whistleblower may remain anonymous, even to the SEC, until an award determination. However, even at the time of an award, a whistleblower’s identity is not made available to the public.
SEC Whistleblower Program
Since the enactment of the SEC Whistleblower Program, the SEC has paid more than $250 million to whistleblowers. Whistleblower tips have lead the SEC to successful enforcements actions resulting in more than $1 billion in financial remedies.
To learn more about the SEC Whistleblower Program, download the eBook SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award
