June 27, 2013 — Unethical securities investment firms and their traders may be tempted to use their position illegally to make a personal profit. But financial fraud is a serious crime. To help fight fraud in the securities industry, the U.S. Congress set up a whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010. Whistleblowers who notify the government about financial crimes, such as front-running investment schemes, for instance, may be rewarded for stepping forward to collaborate with the SEC. Informants could take home up to thirty percent of the government’s recovery as a result of the information, so long as the total recovery tops $1 million.
Front-Running Scheme Allegedly Leads to Hefty Profits for Dallas Trader
The SEC has frozen the assets of a Dallas, Texas investment advisory firm and filed fraud charges against it. Daniel Bergin, a senior equity trader at Cushing MLP Asset Management, is alleged by the SEC to have made hundreds of trades using his wife’s accounts in a scheme called “front running.”
Many investment advisers with large institutional clients hire traders to manage their exposure to volatility in the market. Large client orders are placed in sufficient quantities to reduce the risk of unfavorable price movements. Bergin is the trader with Cushing who manages price exposures for institutional client orders for equity trades.
According to the SEC, Bergin routinely engaged in front-running by purchasing securities in personal trades through his wife’s accounts early in the day on the same days when he planned to buy the identical securities in much larger quantities on behalf of the firm’s large institutional clients. To hide his own trading, Bergin allegedly failed to tell the firm about his wife’s accounts or to obtain pre-clearance from the firm for his personal trades in his wife’s accounts.
The SEC alleges that in 2011 and 2012, Bergin made at least $1.7 million in profits from trading in his wife’s accounts. Over $520,000 of that amount was illicitly generated, the SEC alleges, by 132 instances of front-running. Bergin’s wife, Jacqueline Zaun, was named in the SEC’s charges to allow the agency to recover Bergin’s allegedly illicit profits from her trading accounts.
Whistleblowers Collaborate With SEC to Combat Financial Fraud
Employees of investment advisory firms who have information about insider trading or other financial fraud schemes should become fully informed of their rights under the Dodd-Frank whistleblower program before they notify the SEC. Insider informants who want to protect their anonymity must act through their legal counsel — they cannot notify the SEC directly. The knowledgeable financial fraud lawyers at Waters & Kraus have long experience in protecting the rights of conscientious whistleblowers. Contact us by email or call our securities fraud attorneys at 800.226.9880 to learn how we can advance and safeguard your interests.
