Financial Fraud Whistleblowers

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On July 21, 2010, President Obama signed the Wall Street Reform and Consumer Protection Act (H.R. 4173), also known as Dodd-Frank. The bill, in part, is meant to encourage whistleblowers to step forward in response to fraud within the U.S. Financial Sector. Dodd-Frank applies to the violation of almost any law regulating securities, commodities, derivatives, or finance. Such fraud may include insider trading, ponzi schemes, bribery, or violations of  the Foreign Corrupt Practices Act.  More information about The Foreign Corrupt Practices Act.


In return for information possibly leading to enforcement proceedings and monetary sanctions, the government provides whistleblowers with substantial financial rewardsconfidentiality, and protections against employer retaliation.

Securities and Exchange Commission (SEC) is now authorized to pay an award to any whistleblower who supplies relevant information to the agency about violations of SEC regulations. This includes assurances of confidentiality and protections against employer retaliation. SEC enforcement authority applies to federal securities laws, the security industry, U.S. stock and options exchanges, and other U.S. electronic securities markets. Considering the N.Y. Stock Exchange alone has a daily trading value of $153 billion, the potential for fraud is substantial. More information.

The Dodd-Frank Act also authorized the Commodities Futures Trading Commission (CFTC) with similar whistleblower authority as the SEC. The CFTC works to maintain open and fair markets for commodities and futures contracts. This can involve nearly every type of business, including livestock, currency, energy, and insurance. The CFTC is also largely responsible for regulating and maintaining the derivatives market. More information.

Prior to the passage of the Dodd-Frank Act, the derivatives market was largely unregulated. The Act gives CFTC broad regulatory authority which includes not only swaps, but also options and other transactions based on market indices, commodities, rates, and financial interests. It is estimated that in 2009, the total value of these transactions was estimated as over $426 trillion. The Act also gives the SEC authority over “security-based swaps,” which refer to a narrow subset of swaps related to individual securities or loans. More information.



The firm of Berg & Androphy has extensive involvement in prosecuting complex fraud and securities cases. Our track record is a point of pride with us. We have represented individuals throughout the United States in qui tam cases against large multinational companies that have defrauded federal and state governments.

David Berg’s Securities Fraud Case Results:

  • Led detailed investigation into sub-prime mortgages and derivatives for a $5 billion hedge fund.
  • Lead counsel for 15,000 Limited Partners who sued Marriott Corporation for securities fraud.
  • Negotiated a $425 million settlement, one of the largest involving real estate.
  • Representation involving investigation of options back-dating at Fortune 500 company.
  • Obtained a verdict worth $52 million for Robert Bass’s investment company.
  • Co-lead counsel in the largest securities class action in nation’s history.


Other Financial Fraud Cases


IRS Tax Fraud Cases

In December 2006, Congress passed the Extension of Tax Relief Act of 2006 (“Tax Relief Act of 2006”), which contained a whistleblower reform provision (Section 406) amending Title 26 U .S.C. Section 7623 to include whistleblowers.1 These amendments authorize the IRS to create a Whistleblower Office to process tips received from individuals who “spot tax problems in their workplace, while conducting day-to-day personal business, or anywhere else they may be encountered.”2 Furthermore, the IRS is now currently authorized to pay such sums as deemed necessary for “(1) detecting underpayments of tax, and (2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving of the same.”3

The Tax Relief Act of 2006 significantly increased incentives for whistleblowers since Section 406 now provides for a recovery of at least 15%, but not more than 30%, of the collected proceeds.4 However, if the action is based upon “disclosures or specific allegations…resulting from a judicial or administrative hearing, from a government report, hearing, audit, or investigation, or from the news media,” the whistleblower’s recovery is limited to no more than 10% of the collected proceeds unless the whistleblower is an original source.5 Unlike the definition of original source in the FCA, Section 406 simply states that the reduction based upon public disclosure will not apply if the information was originally provided by the whistleblower.6

A whistleblower’s share will also be reduced if the whistleblower planned and initiated the violations. Furthermore, if the whistleblower is convicted of criminal conduct arising from planning and initiating of the violations, he is not entitled to any share of the recovery.7 A whistleblower may appeal an award determination to the Tax Court within thirty days of such determination.8

Critics of the tax whistleblower statute argue that it infringes on the rights of taxpayers by allowing informants to allege wrongdoing with little or no evidence.9 These critics also suggest that the statute raises serious privacy concerns.10 The most significant of these concerns is that “allowing private citizens to profit by disclosing taxpayer information would result in those individuals recklessly exposing information to persons not authorized by statute to receive such information.”11 However, under existing law, informants and qui tam plaintiffs must turn their information over to the government agencies that are authorized to receive tax-related information.12 Furthermore, any privacy concerns should probably be balanced against public policies that encourage private persons to expose tax-related fraud.13


1.      Extension of Tax Relief Act of 2006, Pub. L. No. 109–432 §406, 120 Stat. 2922 (Dec. 20, 2006). Section 406 applies to actions against any taxpayer except individuals whose gross income is $200,000 or less for any taxable year subject to the action, “if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.” Campbell v. Regents of University of California, 35 Cal.4th 311, 332, 25 Cal. Rptr.3d 320 (2005).
For a discussion on the Tax Relief Act and the Service Whistleblower Office, see Ventry, “Whistleblowers and Qui Tamfor Tax,” 61 Tax Lawyer 357, 358-359 (2008) (advocating for permitting private individuals to bring qui tam suits against taxpayers for violations of the internal revenue laws).

2.     Ventry, “Whistleblowers and Qui Tam for Tax,” 61 Tax Law. 357, 361 (2008) (quoting IR–News Rel. 2007–25).

3.      Extension of Tax Relief Act of 2006, Pub. L. No. 109-432 § 406, 120 Stat. 2922 (Dec. 20, 2006).

4.     Id. Under the previous law, payment of awards was discretionary, depending on what was deemed “adequate compensation” in a particular case. This amount typically did not exceed 15%, and all awards were capped at $2 million. Ventry, “Whistleblowers and Qui Tam for Tax,” 61 Tax Lawyer 357, 362 (2008) (quoting IR-News Rel. 2007-25). Currently, the Whistleblower Office makes the final determination of whether an award will be paid and the amount of any such award. Awards are paid in proportion to the value of information voluntarily given. See Styles, “Claims Submitted to the IRS Whistleblower Office Under Section 7623,” TAF Q.Rev. (April 2008).

5.      Extension of Tax Relief Act of 2006, Pub. L. No. 109-432 § 406, 120 Stat. 2922 (Dec. 20, 2006).

6.     Id.

7.      Id.

8.     Id.

9.     Ventry, “Whistleblowers and Qui Tam for Tax,” 61 Tax Lawyer 357, 384 (2008) (quoting IR-News Rel. 2007-25).

10.   Id. at 372.

11.    Id.

12.   Id. (Service informants are required to disclose their information to the Treasury Department, whereas qui tam plaintiffs must over their information to the Department of Justice. Both of these agencies are authorized under Section 6103 of the Internal Revenue Code to receive such information.)

13.   Id. at 373.