Private Placement Whistleblower Attorney
Private placements are special investments that are generally only available to a select class of investors, usually brokers, financial institutions, and high-net worth individuals. These investments are not subject to the same regulations that attach to public offerings because of the sophistication that is expected of investors. This unfortunately allows unscrupulous individuals and entities to attempt to use private placements to commit fraud.
The Securities and Exchange Commission (SEC) works to stop all forms of investment fraud, including those that occur with private placements and private equity funds. However, the SEC can only do so much on its own. The agency relies upon whistleblowers who provide valuable inside information about fraudulent activity. If you have evidence that someone is using these investments to defraud others, you may be able to claim a financial reward for reporting it. The whistleblower attorneys of Oberheiden P.C. can help.
The Basics of Private Placements
Although anyone can invest money in publicly offered stocks, private placements are – as the name implies – only available to a certain group of investors and institutions. Private placements operate under what is known as a 4(a)(2) exemption to SEC rules. This means that companies that offer these securities do not have to first file or register with the SEC.
Private placements are popular tools to raise money for startups in the internet and financial technology sectors (among other industries). As alternatives to the more regulated initial public offering (IPO), private placements facilitate the launching, growth, and development of companies without the concern for public and government scrutiny that attends public securities. The sale does not have to be registered, the company offering the placement does not have to provide a prospectus, and certain financial details can legally be withheld.
The main reason for these lax rules is that private placements can only be offered to investors who are considered to be accredited. Accredited investors are those individuals and institutions who have extensive financial resources and sophisticated understanding of the securities industry. Access to private placements is therefore restricted to wealthy individuals, banks, mutual funds, insurance companies, and pension fund managers.
Signs of Possible Private Placement Fraud
Since private placements are not as regulated as public securities offerings, dishonest individuals and entities sometimes view them as vehicles by which they can commit fraud. Those who work for the companies that offer private placements are in a unique position to readily identify red flags that could signal fraud. Some of those signs include the following:
Failure to provide basic information about the private placement: Companies that offer private placements are not required under SEC regulations to provide the same level of disclosure as the ones that sell public offerings. By the same token, the refusal to disclose even fundamental details about the investment should raise suspicion. Most companies will put together something known as a private placement memorandum, or PPM, to provide essential information about the investment. Investors should tread carefully with companies that don’t give out a PPM.
Understating the degree of investment risk: All investments come with a certain level of risk, and this is no less true for private placements. An offering company should be upfront with investors about the risk levels inherent to their products. While many companies emphasize the strengths of their private placements, an honest offering company will be transparent about potential weaknesses. This allows investors to fully and fairly evaluate the investment and determine if it fits their risk tolerances. Any attempt to downplay or hide risks may be an indication that the offering company is attempting to lure investors outside of their comfort zones and into something which could result in staggering losses.
Discouraging or disallowing questions: Investors should be permitted and encouraged to ask questions before choosing to make an investment in a private placement. Conversely, the offering company should be willing to provide prompt, clear answers so the investor can make an educated decision about the product. Unwillingness to answer questions and an evasive attitude should be suspect.
No net worth requirements: As mentioned above, private placements can only be sold to accredited investors who meet certain net worth or income criteria. Put simply, these investments are not for everyday people. If the offering company has no net worth requirements or makes little or no attempt to verify that the requirements have been met, the private placement may be fraudulent.
Broad advertising: Deliberately marketing these products to average and relatively less sophisticated investors is also a sign of trouble. Private placements are not appropriate for all investors, so a broad and indiscriminate marketing campaign to advertise them should be scrutinized. Offering companies should simply not advertise private placements in a manner that is likely to attract interest from everyday investors.
How to Qualify For a Whistleblower Reward
Blowing the whistle on SEC fraud involving private placements isn’t just the right thing to do, it’s the smart decision. Not only can you protect vulnerable investors, you may be able to protect your company (and ultimately your job) by stopping bad actors within it from engaging in federal securities laws violations. You may even qualify for a whistleblower reward.
Along with other federal agencies, the SEC whistleblower program is designed to incentivize individuals to report fraudulent securities activities. Our experienced team can help determine whether your information meets the government’s criteria for a reward. The requirements include:
- Original information: The whistleblower’s information must not already be known to the SEC or the general public. We can review what you have to determine if it qualifies.
- The information must lead to an enforcement action: The SEC must be able to use your report to launch a successful enforcement action. This means the more detailed your information, the better.
- The government must recover at least $1 million: If the government recovers sanctions that exceed $1 million, you can potentially claim a portion of the money. Many private placement schemes involve millions of dollars.
- You must voluntarily provide the information: Those individuals who voluntarily report what they know are more likely to be eligible for a reward. If you only provided the information because the government asked for or demanded it, you may not qualify.
If you have evidence of private placement fraud, or you are not sure whether you do, we encourage you to contact Oberheiden P.C. We will discuss your information confidentially and, if you are eligible for a whistleblower reward, get started on your case.
Put our highly experienced team on your side
Dr. Nick Oberheiden
Founder
Attorney-at-Law
Lynette S. Byrd
Former DOJ Trial Attorney
Partner
Brian J. Kuester
Former U.S. Attorney
Hon. Kevin McCarthy
55th Speaker, U.S. House of Representatives (ret.)
Government Consultant
Mike Pompeo
Of Counsel
Former U.S. Secretary of State
John W. Sellers
Former Senior DOJ Trial Attorney
Linda Julin McNamara
Federal Appeals Attorney
Nicholas B. Johnson
Former Prosecutor
Roger Bach
Former Special Agent (DOJ)
Chris J. Quick
Former Special Agent (FBI & IRS-CI)
Michael S. Koslow
Former Supervisory Special Agent (DOD-OIG)
Ray Yuen
Former Supervisory Special Agent (FBI)
FAQ: Filing a Private Placement Whistleblower Complaint
How Can a Whistleblower Attorney Help Me?
We carefully evaluate each case of private placement fraud to determine if the individual in possession of the evidence can meet the government’s strict whistleblower requirements. If so, we will file all necessary paperwork, acquire additional evidence to bolster your SEC whistleblower claim, and keep your details confidential. We will also negotiate on your behalf with the government for the highest possible reward amount, keep you apprised of the status of your case, and advise you of your legal rights throughout the process.
How Much is a Whistleblower Reward Worth?
Generally, the value of a whistleblower reward ranges between 10% and 30% of the sanctions recovered. The more useful and specific your information is, the more likely it is to qualify for a higher percentage. Having an experienced attorney is beneficial in negotiating for the reward amount that you deserve.
Can I Improve My Chances of a Higher Reward?
The more detailed and helpful your evidence is, the better; vague, speculative, and weak reports are not of much value to the government. You can also enhance your reward amount by continuing to be cooperative with the SEC, since its investigations can take a significant amount of time. If the fraud in question affects many individuals, you are also more likely to win a high reward. Finally, the government rewards those who report first, so do not delay in contacting our SEC whistleblower attorneys if you have evidence of fraud.
Are There Protections Against Employment Retaliation
Many would-be whistleblowers are afraid to speak up because they fear they will face employment retaliation. Fortunately, the law protects whistleblowers from retaliation and imposes potentially substantial punishments on employers that retaliate. You should know that retaliation takes many forms, such as termination, demotion, denial of a promotion, withholding pay or a promised bonus, reduced hours, and other forms of punishment.
Can I Remain Anonymous?
You can anonymously blow the whistle on private placement fraud, but you need to have an SEC whistleblower lawyer to do so. That’s because the government needs someone it can communicate with, and this is the role of an experienced whistleblower lawyer. Our law firm will protect your anonymity while working for the highest possible reward.
How Long Do SEC Investigations Take?
The SEC will need to make sure it has sufficient and strong evidence against an offering company before it decides to take legal action. In many cases of fraud, the SEC will work with other government agencies like the Department of Justice to coordinate their investigations. Accumulating evidence, investigating fraud, and identifying the bad actors will take time. It is therefore not unusual for a private placement whistleblower case to take years to resolve. As much as possible, our financial fraud lawyer will work to expedite the government’s work.
