Types Of SEC Whistleblower Cases: Public Pension Plan Frauds
Public Pension Plan Frauds is a term used to refer to frauds committed against any public retirement plan. The public pension plan can be administered by a Federal, State, or local government or agency. Information pertaining to Public Pension Plan Frauds
, submitted by an SEC whistleblower, is welcomed by the SEC and can be the basis for the Commission to pursue an enforcement action against the fraudsters.
As the largest class of investment capital in the U.S. securities markets, public pension funds greatly affect publicly held companies, the securities markets, and the entirety of the U.S. economy. Just as significantly, the management of public pension plan funds affects taxpayers and the millions of state and municipal retirees who rely on those funds for their pensions and other benefits.
Throughout its history, the SEC has taken significant actions against individuals and companies for defrauding public pension plans or their members. SEC whistleblower cases for Public Pension Plan Frauds can be brought against plan administrators, advisors, trustees, officers, directors, employees, or anyone else who is involved with the administration and/or protection of public pension plans.
What Are Public Pension Plan Frauds?
In terms of the SEC, the name Public Pension Plan Frauds often refers to the context in which the fraud occurs, i.e.
, public pension plans. While there are laws and rules concerning public pension funds specifically, Public Pension Plan Frauds are not limited to just those specific laws or rules.
For example, Public Pension Plan Frauds often involve violations of the broader securities laws, such as violations committed under SEC Rule 10b-5. That Rule makes it improper to use manipulative and deceptive practices in the offer or sale of securities.
Actions taken by individuals or companies to misstate information about public pension plans or their investments can result in SEC whistleblower cases. The SEC can also bring enforcement cases for fraudulently manipulating the assets of, or the investments in, public pension funds.
Pay-To-Play In Public Pension Plan Frauds
A common practice among public pension plans is to hire outside financial experts (investment advisors) to manage their plans and invest the money in their pension funds on behalf of the funds’ members.
Under federal law, any sort of material compensation paid by investment advisors, or their agents, to the people empowered with the ability to decide who is awarded those investment management contracts is considered a fraud. In other words, investment advisors and their agents cannot pay bribes, bestow gifts, or give kickbacks to plan administrators or fund officials to win business from a public pension fund.
Additionally, investment advisors who are trying to win business from a public pension fund are not allowed to make political contributions to a political candidate who controls or could influence the investment advisor selection process. If an investment advisor, investment firm, or any of their employees, officers, or directors do so, they must refrain from doing paid work for the fund for a period of at least two years.
Information about pay-to-play practices at public pension funds can lead to significant SEC whistleblower cases.
False Advertising/Marketing Of Public Pension Plans
Investment advisors may not make misleading statements when either seeking to obtain public pension fund business or when reporting performance results to the funds. A few examples of such false or misleading statements are:
- Deceptive use of financial modeling or hypothetical data;
- Giving misleading information to the media or to consultants;
- Providing false compliance reports or other required reports; or
- Inflating or deflating a fund’s investment performance results.
Many types of SEC enforcement cases involve false or misleading advertising or marketing.
Conflicts Of Interest And Self Dealing In Public Pension Plan Frauds
Under federal law, an investment advisor to a public pension fund is prohibited from engaging in investment activities on behalf of the public pension fund that creates conflicts of interest between the investment advisor and the fund. An investment advisor to a public pension fund also cannot make its own stock trades using confidential information that it has about the pension fund’s investments.
Some examples of these types of frauds include:
- Selective IPO allocations;
- Failure to follow best execution practices; or
- Soft dollar arrangements.
If an individual believes that a public pension fund, or its officers, directors, employees, agents, or investment advisors, are committing any of the above-mentioned acts, or any other act that is in the best interest of someone other than the fund, then they may have information that the SEC would be interested in. Reporting this information to the SEC could help to get a whistleblower case started.
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