Financial Fraud
Financial Fraud, Far Too Common
Upon his capture in 1934, bank robber Willie Sutton was asked by FBI agents why he robbed banks. Sutton’s blunt response was “because that’s where the money is.” Since that statement and throughout history, the same rationale of stealing from the most direct source of money has perpetuated acts of financial fraud. However, financial fraud is not how Hollywood may portray the outlaw bank robbers of Sutton’s day, instead typically involves flagrant abuses of trust that robs people of their homes, means of support and life’s savings.
“The impact of financial crime is not confined to Wall Street—and many times the victims of fraud have worked hard and played by established investment rules, only to see their retirement and life savings vanish at hands of white-collar criminals.” — Former Attorney General Eric Holder
Major financial fraud schemes, from Enron to Bernie Madoff, have mired the first decades of this century. These devastating frauds, among others, have produced a few realizations. First, the interconnectivity of the modern financial system can allow a defect in one sector of the economy to have a domino effect, potentially bringing down the entire system. Second, to guard against this threat, laws must be enacted to criminalize the specific malfeasance that can lead to financial fraud, the Sarbanes-Oxley Act and Dodd-Frank Act are the primary examples. Third, even the most vigilant law enforcement agencies cannot effectively enforce these laws on their own, but need substantial help from whistleblowers with inside knowledge of elaborate and covert financial fraud schemes.
Financial Fraud Whistleblower Laws
Outside of the False Claims Act, there are federal statutes that provide protection and awards to whistleblowers who are knowledgeable about financial fraud. For instance, the SEC has overhauled its whistleblower provisions in the Dodd-Frank Act, creating an entire division, the SEC Office of the Whistleblower to assess and investigate whistleblower claims. Under the SEC whistleblower provisions, if an eligible individual provides information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered, they are entitled to an award between 10% and 30% of the money collected.
The IRS also has a similar whistleblower provision for those knowledgeable of tax fraud. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected based on the whistleblowers information.
Further, the Sarbanes-Oxley Act applies to all publicly traded companies and provides any whistleblower who successful in a retaliation case must be “made whole” from harm suffered and makes it a federal crime, punishable by up to 10 years in prison, to retaliate against a protected whistleblower. Notably, the Sarbanes-Oxley Act also amended the RICO Act to include retaliation against a protected whistleblower as a predicate act for RICO prosecution.
Private Enforcement of Financial Fraud
The attorneys of Frohsin Barger & Walthall understand that not all fraud involves publicly traded companies or fits into the specific definitions of actionable conduct under specialized fraud statutes. Often, a business or individual has been defrauded by someone they trusted, whether a business partner, employee or other fiduciary. In these cases, the attorneys of Frohsin Barger & Walthall have utilized our experience in investigating, developing and prosecuting fraud cases to find the best remedy to make our client whole.