Expose Broker-Dealer & Investment Adviser Violations with Experienced Financial Fraud Attorneys

Broker-dealers and investment advisers occupy positions of trust at the heart of the financial system. When they fail to meet their legal and regulatory obligations or exploit their clients for personal gain, the consequences can be severe for investors and the integrity of the markets alike. Whistleblowers with inside knowledge of these violations are often essential to bringing them to light.

• Recordkeeping failures, inadequate compliance programs, supervisory deficiencies, undisclosed fees, and conflicts of interest are among the most common violations by broker-dealers and investment advisers.
• Whistleblowers can report these violations to the SEC Whistleblower Program, when misconduct involves securities, and the CFTC Whistleblower Program, when it involves commodities, and may be eligible for significant financial rewards.
• Anyone with knowledge of broker-dealer or investment adviser violations—including investors, employees, compliance personnel, or industry participants—may qualify as a whistleblower.

If you have witnessed or discovered violations by a broker-dealer or investment adviser, you do not have to navigate reporting on your own. Reach out to our experienced attorneys at Whistleblower Partners for comprehensive guidance on how to blow the whistle on these illegal practices.

Common Broker-Dealer and Investment Adviser Violations

Broker-dealers and investment advisers are subject to an extensive web of regulatory requirements designed to protect investors and maintain market integrity. The following are among the most common violations that whistleblowers have helped expose.

Undisclosed Fees and Conflicts of Interest (Including Churning)

Investment advisers owe their clients a fiduciary duty, which includes the obligation to disclose all material conflicts of interest and to act in their clients’ best interests. Broker-dealers are subject to Regulation Best Interest, which similarly requires them to act in the best interest of retail customers and to disclose material conflicts. When firms or their representatives fail to disclose fees, compensation arrangements, or other conflicts of interest that could influence their recommendations, they deprive clients of information critical to evaluating the advice they receive.

One common form of undisclosed conflict is churning — the practice of excessively trading a client’s account in order to generate commissions for the broker, without regard to the client’s investment objectives or best interests. Churning can cause significant financial harm to clients, particularly those in retirement accounts or with limited investment resources. Other forms of undisclosed conflict include recommending proprietary products that generate higher compensation for the firm or steering clients into share classes with higher fees when lower-cost alternatives are available.

Ponzi Schemes

Broker-dealers and investment advisers have been implicated in some of the most significant Ponzi schemes in history. In a Ponzi scheme, returns paid to earlier investors are funded not by legitimate investment activity, but by money brought in from newer investors — a structure that is inherently unsustainable and ultimately collapses, leaving most investors with devastating losses. Investment professionals who operate or facilitate Ponzi schemes represent a profound betrayal of the trust their clients place in them. For a fuller discussion of Ponzi schemes and how whistleblowers can help expose them, see our Investment and Securities Fraud page.

Suspicious Activity Reporting

Broker-dealers are also required under the Bank Secrecy Act and applicable FINRA rules to file Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN) when they detect transactions that may involve money laundering, terrorist financing, or other financial crimes. Failures to file required SARs, or the deliberate suppression of SAR filings to protect valuable clients or business relationships, can facilitate serious financial crime and expose the firm and the broader financial system to significant harm. Whistleblowers who are aware of SAR filing failures at their firms may be able to report that conduct not only to the SEC but also through the FinCEN Whistleblower Program.

Failure to Maintain Adequate Compliance Programs, Controls, and Supervision Systems

Investment advisers registered with the SEC are required under the Investment Advisers Act to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of federal securities laws. Broker-dealers face similar obligations under rules administered by FINRA and the SEC. When firms fail to establish, maintain, or enforce adequate compliance programs — or when compliance functions are understaffed, underfunded, or ignored — violations can go undetected, and investors can suffer harm. Likewise, firms are expected to maintain adequate supervisory systems and controls to prevent advisor or dealer misconduct, such as unauthorized trading, front-running, and fraud. Whistleblowers who are aware of systemic compliance failures at their firms are often uniquely positioned to bring those failures to regulators’ attention.

Recordkeeping and Reporting Failures

Broker-dealers and investment advisers are required by law to maintain accurate books and records and to make timely, accurate reports to regulators. These obligations exist because regulators, investors, and other market participants rely on the integrity of financial records to detect misconduct, assess risk, and ensure compliance with applicable laws. Recordkeeping failures — whether through deliberate falsification, negligent omission, or the destruction of required records — can conceal a wide range of other violations and deprive regulators of the information they need to protect investors.

How Can Whistleblowers Help?

Whistleblowers play a vital role in helping regulators uncover violations by broker-dealers and investment advisers. Compliance personnel, employees, and others with inside knowledge of these firms are often the first to become aware of systemic failures or misconduct. Their tips can be essential to initiating investigations that protect investors and hold firms accountable.

You can report broker-dealer or investment adviser violations by making a tip to the SEC Whistleblower Program. If you are unsure whether the conduct you have witnessed rises to the level of a reportable violation, it is a good idea to consult with an attorney experienced in securities fraud. If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.