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SEC issues $18.5 million civil penalty for unregistered digital token offering
On June 26, the SEC announced a settlement with two offshore entities, resolving allegations that the entities violated federal securities laws by raising more than $1.7 billion in unregistered digital token offerings. As previously covered by InfoBytes, in October 2019, the SEC obtained a temporary restraining order, halting the offerings. According to the SEC, the entities violated Sections 5(a) and 5(c) of the Securities Act by failing to register its offers and sales of securities with the SEC. Prior to the restraining order, the entities had sold approximately 2.9 million digital tokens worldwide, including more than 1 billion tokens to 39 U.S. purchasers. The settlement requires the entities to return more than $1.2 billion to investors in “ill-gotten gains” from the token offerings. Additionally, the parent company is required to pay an $18.5 million civil penalty and give proactive notice to the SEC before participating in any digital asset issuances for the next three years. The entities entered into the settlement without admitting or denying the allegations in the SEC’s complaint.
SEC issues two separate whistleblower awards totaling over $800,000
On June 23, the SEC announced a $125,000 award to a whistleblower in an enforcement action. According to the press release, the whistleblower’s “information and assistance helped both the SEC and another agency bring successful actions against the perpetrator of a fraudulent securities offering.” The formal order notes that the whistleblower’s information helped the SEC and another agency discover “a fraudulent scheme that preyed on a vulnerable investor community” and that the whistleblower provided assistance to the SEC and the other agency throughout the investigation.
Additionally, on June 19, the SEC announced a nearly $700,000 award to a whistleblower in an enforcement action. According to the press release, the whistleblower’s “significant information helped the agency bring a successful enforcement action that resulted in the return of money to harmed investors.” The formal order notes that the whistleblower reported the concerns internally “in an effort to remedy the conduct,” and provided ongoing assistance to the agency throughout the investigation.
These press releases also noted that as of June 23, the SEC has awarded 85 individuals a total of approximately $501 million in whistleblower awards since its first award in 2012.
CFTC awards $6 million to whistleblower for CEA action
On June 9, the Commodity Futures Trading Commission (CFTC) announced a more than $6 million whistleblower award to a claimant who reported “specific, credible and timely” information that led to a successful Commodity Exchange Act (CEA) enforcement action. The associated order notes that the claimant voluntarily provided original information leading to the opening of an investigation and the enforcement action, and was under no “legal obligation” to provide the information. The CFTC notes that while five claimants submitted whistleblower award applications to the CFTC in response to the covered action, the CFTC provided the award only to claimant one, as three of the other claimants failed to contest a preliminary determination in favor of the award to the successful whistleblower, constituting a failure to exhaust administrative remedies. The order provides limited details on the fifth claimant’s objections to the denial, but notes the CFTC determined that the claimant’s “arguments are baseless.” The order does not provide any other significant details about the information provided or the related enforcement action. The CFTC has awarded over $110 million to whistleblowers since the enactment of the Whistleblower Program under the Dodd-Frank Act, and their information has led to nearly $900 million in monetary relief.
SEC issues $50 million, whistleblower award, highest ever to one individual
On June 4, the SEC announced a nearly $50 million award to a whistleblower in an enforcement action, the largest amount ever awarded to one individual under the SEC’s whistleblower program. According to the SEC’s order, in applying the reward criteria, the SEC determined that the whistleblower (i) provided information that was “highly significant” and contained first-hand observations of misconduct that was previously unknown; (ii) laid out “in detail substantial aspects” of the misconduct and provided a roadmap for the SEC’s investigation; and (iii) provided information that helped the SEC return a significant amount of money to those harmed by the misconduct. The agency’s next largest awards were given in 2018 when the SEC awarded $50 million to two joint whistleblowers in March and $39 million to a single whistleblower in September, covered by InfoBytes here and here.
As of June 4, the SEC has awarded 83 individuals a total of over $500 million in whistleblower awards since its first award in 2012.
SEC settles with blockchain company over unregistered ICO
On May 28, the SEC announced a settlement with a California-based blockchain services company resolving allegations that the company conducted an unregistered initial coin offering (ICO) of digital asset securities. According to the order, the company raised over $25 million by selling “Consumer Activity Tokens” to nearly 9,500 investors, including U.S. investors, to raise capital to “develop, administer, and market a blockchain-based search platform for targeted consumer advertising.” The company allegedly told investors that the tokens would increase in value and made the tokens available on third-party digital asset trading platforms after the ICO. However, the SEC found that the tokens constituted securities, and that the company allegedly violated Sections 5(a) and 5(c) of the Securities Act by distributing the tokens without having the required registration filed or in effect, nor did it qualify for an exemption to the registration requirements.
The order, which the company consented to without admitting or denying the findings, imposes a $400,000 penalty, and requires the company to disgorge $25.5 million and pay approximately $3.4 million in prejudgment interest. Additionally, the company is required to surrender all its remaining tokens to the fund administrator so they can be permanently disabled, publish notice of the order, and request the removal of the distributed tokens from all digital asset trading platforms.
SEC issues $2 million whistleblower award
On May 4, the SEC announced a nearly $2 million award to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower’s “information and assistance helped the agency bring a successful enforcement action and allowed investors to recover much of their money.” The formal order also states that the whistleblower, among other things, provided new information regarding an investigation into ongoing fraud, which informed the SEC’s need to “expeditiously seek a temporary restraining order and asset freeze to prevent further investor loss.” The whistleblower also suffered hardships.
As of May 4, the SEC has awarded 82 individuals a total of approximately $450 million in whistleblower awards since its first award in 2012.
SEC issues $18 million whistleblower award
On April 28, the SEC announced an award of more than $18 million to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower’s “significant information prompted an examination that resulted in an important enforcement action.” The formal order also states that the whistleblower, among other things, relayed information that alerted SEC staff to potential securities violations, and repeatedly raised concerns internally “in an attempt to immediately correct the problem,” which led to the whistleblower suffering hardships as a result. The SEC further emphasizes that the enforcement action resulted in millions of dollars being returned to retail investors.
As of April 28, the SEC has awarded 81 individuals a total of approximately $448 million in whistleblower awards since its first award in 2012.
SEC issues multiple whistleblower awards
On April 20, the SEC announced a $5 million award to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower “provided critical evidence of wrongdoing, which helped save time and resources in the SEC’s investigation.” The formal order also states that the whistleblower “promptly reported the information” and “suffered a unique hardship” by being terminated shortly after raising concerns internally.
Earlier on April 16, the SEC announced an award of more than $27 million to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower provided “critical investigative leads,” tied in part to misconduct occurring overseas, that “advanced the investigation and saved significant Commission resources.” The formal order also stated that the whistleblower, among other things, provided substantial assistance and cooperation, relayed information that “helped the Commission further significant law enforcement interests,” and “repeatedly and strenuously” raised concerns about internal misconduct within the whistleblower’s organization. The award is the sixth largest overall award since the program began.
According to the SEC, as of April 20 it has awarded 80 individuals a total of approximately $430 million in whistleblower awards since its first award in 2012.
SEC issues $2 million whistleblower award
On April 3, the SEC announced an approximately $2 million award to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower “provided vital information and assistance that substantially contributed to an ongoing investigation” that would otherwise have “been difficult for the agency to obtain absent the tip.” The formal order also states that the whistleblower “expeditiously reported the information” despite implied threats and suffering hardships, and that the law-enforcement interests in this investigation were high.
As of April 3, the SEC has awarded 78 individuals a total of approximately $398 million in whistleblower awards since its first award in 2012.
SEC announces $450,000 compliance-related whistleblower award
On March 30, the SEC announced a $450,000 award to a whistleblower in an enforcement action. According to the formal order, the whistleblower—who had compliance-related responsibilities at the company at issue in the enforcement action—suffered “unique hardships” after first attempting to report concerns within the company’s internal compliance structure. The whistleblower then reported the information to the SEC following the required 120-day time waiting period, which ultimately provided assistance to the SEC’s investigation and successful enforcement action. The SEC stated in its press release that this is the third whistleblower award given to an individual with compliance or internal audit responsibilities. As of March 30, the SEC has awarded 77 individuals a total of approximately $396 million in whistleblower awards since its first award in 2012.