![]() By early 2018 the whistleblower concluded that the RRC businesses were operating fraudulently, that investor money was being commingled with other company funds, and that Gaylen Rust was likely running a massive a Ponzi scheme. What began as observations of odd and unusual business practices quickly let to serious concerns about outright fraud. The whistleblower’s suspicions grew as he observed unusual business activities and the total lack of financial controls RRC had. He stumbled upon information that led him to be highly skeptical of the outrageously high profit claims that were being made by RRC’s owner Gaylen Rust and began to investigate. Utah’s largest Ponzi scheme, Rust Rare Coin (RRC), would still be ongoing today if not for a brave whistleblower who was an employee at the company, and an investor. How a Whistleblower Stopped the Rust Rare Coin Ponzi Scheme Any country (or state) that wants to get serious about tax evasion should take note.” IRS Reports Ten-Fold Increase in Tax Whistleblower Awards: $312 Million, Forbes Magazine “For all the talk that fills Washington about making sure people pay their fair share, this little program of awarding whistleblowers … has punched far above its weight in terms of successfully going after big-time tax cheats. According to IRS whistleblower expert (and friend) Dean Zerbe the IRS program has been very successful: In 2019 alone the IRS handed out 181 awards totaling $120,305,278. Since 2007, the IRS Whistleblower Office has paid out over $931.7 million based on the collection of $5.7 billion in additional taxes. The IRS whistleblower program has also paid out millions in awards – from billions in collections. In its 2019 report to Congress the CFTC reported that since the inception of its whistleblower program it has issued 14 awards totaling approximately $100 million, and that enforcement actions initiated as a result of those tips have let to sanctions totaling more than $800 million. ![]() ![]() The CFTC also has a very successful whistleblower program. Clearly, massive whistleblower awards like that provide a powerful incentive for those with knowledge of fraud to come forward. The SEC’s Office of the Whistleblower paid out a $50 million award in March 2018 and a $39 million award in September 2018. In 2019, the SEC received its second largest number of whistleblower tips ever and paid out its third largest award to date – $37 million. In its most recent report to Congress, the SEC reported that since the program’s inception they have imposed over $2 billion in total monetary sanctions as a result of whistleblower reports, of which almost $500 million has been returned to harmed investors. ![]() The SEC’s Whistleblower Program was created by Congress on Jand can be found in Section 922 of the Dodd-Frank Act. But the prospect of receiving a financial award can change that calculus in a big way. Whistleblowing can be really bad for your career and can even put you in physical danger, so understandably people are not terribly excited about sticking their neck out. They provide financial incentives to individuals with knowledge of fraud to report that knowledge to state or federal securities (and tax) regulators. I think it is fairly noncontroversial for me to say that whistleblower laws are a good way to expose and stop fraudsters. Paying awards will incentivize people with knowledge of fraud to file whistleblower tips, which would stop more fraudulent schemes and put more fraudsters in prison. Paying big awards with a press conference would be a great way to publicize this little-known program. ![]() I can personally attest to the fact that there have been many applications for whistleblower awards filed with the Division of Securities (because I have filed a bunch of them), so why haven’t they paid out more awards? Making matters worse, Utah’s Whistleblower Act has never really been used much - they have only paid out one award so far. The statute passed easily, but unfortunately other states have not followed suit. And that it would be a model for other states to follow. We hoped at the time that this new statute would provide powerful incentives for whistleblowers to come forward and help combat Utah’s unusually high Ponzi scheme problem. Ben asked me to assist with the drafting and to provide testimony in support, which I gladly did. Utah’s statute was written and passed by a young ambitious politician named Ben McAdams in 2011. Utah is one of only two states in the United States that has a whistleblower act (Indiana is the other). ![]()
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