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Securities fraud whistleblower exposed Ponzi scheme

The story of a stock trader who went undercover to help the FBI expose a Ponzi scheme shows some of the problems that have confronted the government even when it knows that a fraud is occurring.

Ty Schlobohm brought his concerns about investments promoted by Trevor Cook to the attention of the Justice Department, the Securities & Exchange Commission and the Commodities Futures Trading Commission. But the agencies involved sometimes questioned whether they had jurisdiction and collecting evidence for a criminal case took a long time.

As the New York Times article notes, “That the authorities brought Mr. Cook to justice is undoubtedly a positive outcome. But Mr. Schlobohm’s journey as a whistle-blower, and some of the financial losses that still occurred even though authorities were closely monitoring Mr. Cook, also underscore the limitations of the system.”

Joseph T. Dixon III, the criminal prosecutor in the case, acknowledged the importance of private individuals assisting the government. “We need citizens in the business community to come forward with information so we can move forward.” He also noted that for some there may be no financial incentive and sometimes may even entail a financial risk.

Revisions to the SEC and CFTC whistleblower programs are intended to increase the rewards given to those who come forward with information about investment fraud. They may have come too late for Ty Schlobohm, but he voices no qualms about his decision.

Mr. Schlobohm is represented by Phillips & Cohen LLP.

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