How Whistleblowers Can Report Ponzi Schemes and Receive SEC Whistleblower Awards [Podacst] [Video]
Tuesday, January 21, 2025
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Fraudsters beware: The days of running decades-long Ponzi schemes are over. Whistleblowers can now report your frauds and scams to the SEC and potentially earn multimillion-dollar awards for their efforts.

Since 2011, the SEC has issued more than $2.2 billion in awards to whistleblowers who provided original information to the SEC about violations of federal securities laws, including reports of Ponzi schemes, scams, and other frauds. Under the SEC Whistleblower Program, the SEC awards eligible whistleblowers when their tips lead to successful enforcement actions with monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC.

Luckily for whistleblowers (and unfortunately for Bernie Madoff wannabes), there has never been a better time for whistleblowers to report Ponzi schemes to the SEC and receive whistleblower awards. As explained below, Ponzi schemes are near all-time highs and the SEC is focused on rooting out these frauds. Whistleblowers can identify these Ponzi schemes based on their common characteristics and “red flags” for fraud. Once identified, whistleblowers should take the appropriate steps to report the Ponzi schemes in accordance with the rules of the SEC Whistleblower Program to ensure their eligibility for an award and to maximize their award percentage.

Whistleblowers Needed: Ponzi Schemes Are Near All-Time Highs

In 2020, CNBC reported that Ponzi schemes hit their highest level in a decade, with authorities uncovering 60 alleged Ponzi schemes with a total of $3.25 billion in investor funds. This level of fraudulent offerings, however, was not an outlier. It was the beginning of a trend. In 2022, authorities uncovered 57 Ponzi schemes that involved over $5.3 billion of potential losses. In 2023, authorities uncovered 66 Ponzi schemes that involved nearly $2 billion in potential investor losses.

In lockstep with the increasing number of Ponzi schemes, the SEC Office of the Whistleblower has received an increasing number of whistleblower tips related to Ponzi schemes in recent years. According to the SEC Office of the Whistleblower’s Annual Reports to Congress, the percentage of whistleblower tips related to offering frauds, such as Ponzi schemes, has increased in every fiscal year (FY) since 2021:

In 2016, the former Director of the SEC’s Division of Enforcement recognized in a speech the importance of whistleblowers to the SEC in rooting out Ponzi schemes, stating:

Offering frauds and Ponzi schemes are another class of cases where whistleblowers have greatly aided us. Retail investors are frequently the largest class of victimized investors in these schemes and they also can be difficult to detect until it is too late. Whistleblowers have provided us with timely and valuable tips enabling the Commission to quickly halt these fraudulent schemes and protect investors from further harm. Whistleblowers also have helped focus us on false and misleading statements in offering memoranda or marketing materials, enabling us to act quickly and stop these investment frauds from attracting more investors.

Nearly a decade later, the same remains true. Whistleblowers are critically important to the SEC in identifying and halting Ponzi schemes.

SEC Increases Focus on Ponzi Schemes

According to a recent Bloomberg article, the SEC under the Trump administration “will turn away from more expansive or novel enforcement tools used in the Biden administration, and double down on bread-and-butter fraud cases.” This sentiment has been echoed by experts throughout the industry. The SEC’s increased focus on fraud cases bodes well for whistleblowers reporting Ponzi schemes and other fraudulent investment offerings, as the SEC will likely dedicate more of its limited resources to combatting these scams.

How Whistleblowers Can Spot a Ponzi Scheme

A new paper titled “Ponzi Schemes: A Review” by Zhe Peng and Phelim P. Boyle outlines the key features of Ponzi schemes. Whistleblowers should consider these features when attempting to identify a Ponzi scheme. The paper examines 8 key features: “(i) the promoter or founder; (ii) the plausible story; (iii) trust-building mechanisms; (iv) the investment promise; (v) withdrawal features; (vi) marketing strategies; (vii) regulations; (viii) agency issues; and (ix) how the scheme ends.”

The SEC has also published investor warnings describing red flags for Ponzi schemes. According to the SEC, investors (and whistleblowers) should consider the following underlying traits of an investment offering when seeking to identify a potential Ponzi scheme:

  • Promises of high investment returns with little or no risk;
  • Regular, positive returns regardless of market conditions;
  • Investments that are not registered with the SEC or an appropriate state regulator;
  • Unlicensed individuals or unregistered firms;
  • Secretive or complex strategies for which investors cannot get complete information;
  • Lack of paperwork or inaccessibility to information about an investment in writing;
  • Difficulty receiving payment; and
  • Promises of “rolling over” investments and higher returns in the future on the amounts rolled over.

Recently, fraudsters have begun to rely on scam promissory notes and virtual currencies to raise money for Ponzi schemes.

How to Report a Ponzi Scheme to the SEC and Receive an Award

To report a Ponzi scheme and qualify for an award under the SEC Whistleblower Program, the SEC requires that whistleblowers or their attorneys report the tip online through the SEC’s Tip, Complaint or Referral Portal or mail/fax a Form TCR to the SEC Office of the Whistleblower. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC.

In FY 2024, the SEC Office of the Whistleblower received 24,980 whistleblower tips and, as noted above, the office has received an increasing number of whistleblower tips related to Ponzi schemes since FY 2021. Before submitting a tip, whistleblowers should consult with an experienced whistleblower attorney and review the SEC whistleblower rules to, among other things, understand eligibility requirements and consider the factors that can significantly increase or decrease the size of a future whistleblower award.

To date, the largest SEC whistleblower awards by amount are:

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