Legal Developments in Securities Law

Madoff Employee Admits Guilt : Three Simple Ways to Avoid Facilitating Securities Fraud at Your Job

Recently, a former trader at Bernard Madoff’s investment firm admitted to creating fictitious, backdated trades in Madoff’s notorious Ponzi scheme. Although certain types of securities fraud violations may be clear to an employee, such as being asked to falsify documents that are sent to investors, other requests by an employer may fall into a grey-area. How can an employee tell whether he or she is aiding the company in some way that enables it to carry out a massive fraud on its investors? Each individual case will vary, but here are some guidelines you can use to help you address this inquiry:

1.         React immediately to wrongdoing.

As mentioned above, if you’re being asked to falsify documents or if you’re getting payments for turning a blind eye, it’s very clear that there is wrongdoing, and you are involved in it. Even if you are not the mastermind behind the fraud, benefiting from it or aiding it will nonetheless implicate you. If you discover anything that clearly evidences that there is wrongdoing, your first step should be to take action to prevent the fraud from continuing. See #3 below for more information on what you can do.

2.         Trust your intuition.

If you feel that something isn’t quite right, there may be something more there. For example, if the company struggles to operate profitably despite advertising consistent profits, it’s possible the company may be intentionally misleading investors. Or, you may notice an accounting error. If you notice an error, you may want to bring it to the attention of the individual who can correct the error, but it may also help to speak with your company’s compliance department or even leave an anonymous tip on the company’s hotline.

3.         Know your options.

            Your company may have a compliance department that can address any concerns you may have. If you work at a smaller company, they may have guidelines on how to report any concerns you may have. If you work at a company with no compliance department, anonymous tip hotline or other guidelines to follow, you can consider filing a Tip, Complaint or Referral with the SEC through its new Dodd-Frank Whistleblower Program. Indeed, the SEC’s Whistleblower Program may even be your first option, depending on certain prerequisites for certain types of employees. If your attempts at resolving the issue within the company are  unsuccessful, the Whistleblower Program is a great follow-up option, as well. Remember, under the SEC’s new program, whistleblowers can actually receive a reward for their cooperation, as detailed in our previous blog posts, here and here. Of course, each individual case may be different, and the advice of an experienced attorney can be valuable if you are unsure of what you can do. Under the federal securities laws and numerous state laws, whistleblowers who are fired in retaliation for reporting wrongdoing are legally protected and may be entitled to damages or even reinstatement to their prior positions.


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