Investment Company Act of 1940 Whistleblower Attorney

Commonly known as the 40 Act, the Investment Company Act of 1940 is the one of the primary federal laws that regulates businesses in the securities, trading, and investment industries. This broad statute is intended to ensure that investment companies deal honestly and transparently with investors and that their securities offerings are free of securities fraud and conflicts of interest.

The 40 Act is one of several federal securities laws that protect both individual investors and the U.S. economy more generally, with enforcement in the hands of the Securities and Exchange Commission (SEC). Although SEC and Commodity Futures Trading Commission (CFTC) investigators and other officials help ensure compliance with the law, whistleblowers also play a vital role in keeping investment companies honest. They can even claim a potentially substantial monetary reward by providing the government with the information it needs to enforce the nation’s securities laws in some cases. Find out more about the law and how Oberheiden P.C.’s whistleblower lawyers can assist you with seeking a reward.

What Does the 40 Act Do?

Investment companies that are subject to the 40 Act may be required to meet one or more of the following requirements:

• Register their businesses with the SEC
• Register their securities offerings with the SEC
• Appoint and continue to maintain a board of directors for each of its investment funds (with the additional requirement that at least 75% of the directors are independent and unaffiliated with the fund’s activities)

Under the Securities Exchange Act, there are also important disclosure requirements to protect the financial interests of investors. By mandating this disclosure, the law helps ensure that investors have the opportunity to make prudent investment decisions based on accurate details about the company and its securities. More specifically, investment companies are generally required to give the following information to investors:

• Details about the company’s financial holdings
• The company’s investment policies
• Background information about the company’s management
• Material risks that the investor may experience with the securities offerings

How Do Investment Companies Violate the Investment Company Act?

Dishonest investment companies have devised numerous schemes to break the law by circumventing its crucial disclosure, accuracy, and transparency requirements. Some of the more common violations of the Investment Company Act are:

• Incorrect valuations: Providing an accurate valuation of a security is essential to ensuring that investors can make wise decisions with their money. False or misleading disclosures come in many forms but generally involve attempts to purposely mislead the investor about what the securities product is worth.
• Portfolio “pumping”: Investment portfolio managers sometimes buy up investment fund holdings at the end of a quarter or year to artificially inflate the value of the fund. These are not legitimate transactions but are instead designed to trick investors.
• Window dressing: Similarly, portfolio managers may execute transactions (buy or sell securities) at the end of a quarter, with the intention of incorrectly valuing a fund. Window dressing schemes give investors incorrect information about the assets of a portfolio.
• Misstatement of risk information: Either omitting key information about risks or misrepresenting the nature of them can also drive investors to making imprudent decisions. Investors have the right under the law to know how the products in which they invest might lose value.
• Improper conflicts of interest: A conflict of interest exists where an investment company recommends a product to an investor in a manner which may benefit the company at the expense of the investor’s rights. Various conflicts of interest may need to be mitigated or eliminated, depending on the circumstances.
• Registration issues: Investors count on accurate registration data to make their decisions. Public and private companies have been sanctioned for failing to register their investment products with the SEC, for improperly registering them, and for misrepresenting the status of their registrations.

Put our highly experienced team on your side

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

Becoming an Investment Company Act Whistleblower

If you work for an investment company, you already have inside knowledge of how the business operates and how it relates to investors. You may be aware of illegal activity concerning registrations, transactions, conflicts of interest, communications with investors, and more. Due to your unique position at the company, you might be able to observe firsthand how the practices of your employer may harm investors and the securities and financial markets.

By stepping forward and reporting what you know to the SEC, you may be able to help put an end to these activities. You may also be able to claim a whistleblower reward. However, there is more to becoming a whistleblower than informing the SEC what you know and handing over evidence of it. These are some specific requirements that a knowledgeable law firm can help you meet:

• Provide original information about illegal activity: Tipsters regularly contact the SEC with information about Investment Company Act violations and improper securities trading practices, while the media also reports illegal activity. The information that you provide must not be something that the SEC or the general public already knows, but must be new and original.
• Voluntarily report what you know: If you sit on the information that you have for too long, the SEC may find out that you know something and subpoena you to report your information to the agency. As a general rule, you must voluntarily turn over your original information to the federal government to seek a whistleblower reward.
• Your information must be useful to the SEC’s enforcement efforts: What you provide to the SEC must be sufficient to support the SEC in its enforcement actions against non-compliant investment companies. Therefore, vague, incomplete, and speculative information or hearsay is not enough.
• The SEC must collect over $1 million in sanctions: SEC monetary sanctions that are recovered from non-compliant investment companies tend to be substantial, but they must be in excess of $1 million. Provided this threshold is met along with other criteria, a whistleblower may be entitled to claim a percentage of any amount the SEC recovers.

Our legal team is ready to help you get started with your whistleblower claim. We can review the evidence you have, determine whether it will be enough to support an SEC enforcement action, and then help you report it through the proper channels. If the information successfully aids the SEC, we will then work to negotiate a fair reward amount. Give us a call or fill out our online contact form to begin working on your Investment Company Act whistleblower claim.

FAQ: Filing an Investment Company Act of 1940 Whistleblower Complaint