March 17, 2015 — To help fight corruption and securities fraud in the market, the U.S. Congress initiated a whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The program authorizes awards for informants who alert the Securities and Exchange Commission (SEC) to credible, specific and timely information concerning an imminent or ongoing fraudulent scheme. Insiders who work in a company’s compliance, internal audit or legal department frequently are privy to such information. Whistleblowers could receive from ten to thirty percent of the amount the government recovers, provided the amount exceeds $1 million.
Brokerage Firm Used Third-Party Broker-Dealer to Bid Secretly on Bonds During Auctions for Which Firm was Liquidation Agent
A New York City brokerage firm and its CEO have been charged with fraud in acting as both buyer and seller at auctions to liquidate collateralized debt obligations (CDOs). VCAP Securities and its CEO Brett Thomas Graham will pay almost $1.5 million to resolve the SEC’s charges. VCAP will pay $1,149,599 in disgorgement and prejudgment interest. Graham has consented to pay $127,733 in disgorgement and prejudgment interest as well as a penalty of $200,000.
VCAP was the liquidation agent for a number of CDOs. This position of trust gave VCAP access to bidders’ confidential information and instructions. In engagement agreements, VCAP and Graham assured bidders that they and their affiliates would neither bid in the CDO auctions nor misuse bidders’ confidential information. Unbeknownst to participating bidders, however, VCAP and Graham allegedly made arrangements with a third-party broker-dealer to make secret bids on behalf of VCAP’s affiliated investment adviser.
The third-party bidder used the confidential information about the other bids to win the bonds by bidding only slightly more than the next highest bidder. The third-party bidder then sold the bonds immediately to VCAP’s affiliated investment adviser. In this way, the investment adviser affiliate acquired 23 bonds in five auctions. After VCAP’s affiliated investment adviser secretly acquired the bonds, Graham and VCAP failed to disclose that information on documents provided to various trustees.
The scheme allowed Graham and VCAP to achieve bargain pricing in several auctions on bonds that benefitted funds they managed.
Whistleblowers Notify SEC of Violations
While Waters & Kraus was not working with the whistleblower on this SEC matter, we are representing tipsters in similar instances of SEC fraud. If you have comparable claims against your employer or anyone else engaged in securities fraud, contact us or call our qui tam attorneys at 800.226.9880 to learn more about our practice and how we can work together to notify the government about fraud and abuse. Our qui tam lawyers, Michael Armitage and Gary Paul in the firm’s California office, are committed to advancing and protecting informants’ interests in whistleblower lawsuits.