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Fraud in the Financial Industry

Whistleblowers play a key role in exposing fraud by banks and other companies in the financial industry. Phillips & Cohen has represented whistleblowers in successful qui tam lawsuits that alleged various types of fraud by some of the biggest Wall Street investment banks -- Goldman Sachs, Smith Barney, Merrill Lynch among others -- as well as credit card giants Providian Financial Corp. and Total System Services Inc. Those qui tam cases returned hundreds of millions of dollars to the U.S. Treasury.

Some possible areas of fraud in the financial industry that could violate the False Claims Act and therefore could be the basis for a qui tam lawsuit by a whistleblower include:

  • Funds received through the federal bailout programs known as the "Troubled Asset Recovery Program" (TARP) and the "Capital Purchase Program" (CPP) but are received under false pretenses or aren't used as required under the terms of the programs.
  • The Federal Reserve's Term-Asset-backed Securities Loan Program (TALF) if certain TALF requirements are violated, such as a prohibition on the use of off-shore vehicles by hedge funds.
  • Mispricing securities or financial services purchased by public pension funds or federal, state and municipal governments.
  • Material violations of Treasury auction requirements.
  • Insider trading or other securities frauds affecting public pension funds.
  • Mortgages backed by the Federal Home Administration obtained through fraudulent information.
  • Bid-rigging, kickbacks or "pay for play" to get municipal bond business thus fraudulently driving up the costs to the issuing agency.
  • The mispricing of derivatives or other material misrepresentations in connection with municipal transactions.

If you are aware of any firms engaging+ in fraud that involves government funds or programs and would like to discuss this with our attorneys, please contact us.

Whistleblower cases involving tax fraud that exceeds $2 million are covered under a different law, the Tax Relief and Health Care Act of 2006. Banks and other entities in the finance industry have been known to engage in tax fraud and tax evasion by helping their clients evade taxes through sham trusts, for example, or abusive tax shelters.

Municipal bond arbitrage violations through "yield burning" also have been an area where investment banks have pocketed money that should have gone to the government. In some cases, municipal bonds are falsely certified to get tax-exempt treatment, which can cause significant losses to the U.S. Treasury.

For more information about whistleblower cases involving tax fraud and abuses, please see our pages describing the Internal Revenue Service whistleblower program.

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