A Whistleblower’s Legal Journey, Part III: How Do I Know If the Securities and Exchange Commission Will Be Interested in My Case?

On Behalf of | June 6, 2024 | Whistleblower Law

By Shaun Rosenthal and Danya Rangachar

Is the Securities and Exchange Commission (“SEC”) interested in your case? We have identified three real fact patterns where the SEC argued that there was fraud against investors. To make the fact patterns interactive, we have anonymized the company names and selected cases that had different results. In one case, the defendants were convicted. In another, the case is being vigorously litigated. In a third, the Supreme Court vacated a finding of fraud (see box below for the practical significance of the opinion). Read the fact patterns to guess the company and result.

The Fact Patterns

Company A: This startup had ambitious plans to develop a new consumer health product. Investors swarmed to the company, relying on the founder’s promises that the product was revolutionary and functioned. At its peak, Company A was valued at $9 billion. However, the company unraveled after an investigative journalist reported that the product was fraudulent.

Company B: This company’s subsidiary operated storage units for its customers. The government capped the level of sulfur that could be stored in storage units. Company B knew its customers often went over the sulfur limit. If they couldn’t reduce the sulfur in time, the customers would cancel their contracts with the subsidiary. Company B did not disclose these risks to its investors. After the cap was put in place, the company announced that fewer customers were using its storage units, causing the stock price to plummet by over 40%.

Company C: This publicly traded company provided software to thousands of companies and government agencies. Unfortunately, its state of cybersecurity was vulnerable and deficient. Hackers exploited a known vulnerability, inserting malicious code into the company’s software that was then distributed to Company C’s customers. Hackers then had access to its customers’ systems. The company didn’t explain how serious the cybersecurity risks were in its SEC filings. Instead, it provided vague breach disclosures. The hack ended up being one of the largest of its kind.

Click here to uncover the results and see how you did.

  • Company A is Theranos, and the company was convicted.
  • Company B is Macquarie Infrastructure Corporation (“Macquarie”), and the Supreme Court vacated the judgment against it.
  • Company C is SolarWinds, and the litigation is ongoing.


We have learned many lessons from bringing cases over the years and reviewing SEC precedent, including the above examples. We share some insights below:

  1. The SEC Does Not Require Criminal Intent by the Company: The SEC will act in cases where bad actors have varying levels of intent. In the Theranos case, Elizabeth Holmes was criminally liable for affirmatively “represent[ing] to investors that [that] Theranos’s proprietary analyzer . . . was presently capable of accomplishing certain tasks . . .; when, in truth, [she] knew that Theranos’s proprietary analyzer had accuracy and reliability problems[.]”¹ In contrast, SolarWinds withheld information about the cybersecurity risks of its product, which does not necessarily establish a criminal cause of action.
  2. Intentionality Matters: While both Theranos and SolarWinds vary in terms of the level of fraud, both cases are actionable under The Securities Exchange Act² due to the deliberate withholding, omission, or misstatement of material information to investors. There must be demonstrable intent by the Company to commit fraud.
  3. The SEC Cares About the Material Impact on Investors: The type of fraud (i.e., a fraudulent product, manipulating financial statements, etc.) is less important than its impact on investors. Macquarie still had a functioning product but failed to disclose a material legal risk that impacted the company’s value at large. This omission alone can trigger SEC action.
  4. The SEC May Occasionally Pursue Private Companies: The SEC “protect[s] investors by vigorously enforcing the federal securities laws to ensure truth and fairness.”³ Occasionally, the SEC will protect investors of private companies in addition to public companies, as it did in the Theranos case.

Review the fraud occurring at your company. Does it have a material impact on investors? Is the conduct intentional? Is it a public or influential private company? If so, your insights could be crucial in protecting investors and maintaining the integrity of the financial markets.

The fact patterns outlined above just represent three of many avenues of fraud that the SEC is interested in. If you suspect fraud at your company, but aren’t quite sure, feel free to fill out our online intake form to contact a whistleblower attorney at our firm today.

¹Third Superseding Indictment, U.S. v. Elizabeth Holmes and Ramesh Balwani, Case N. 18-258 (N.D. Cal. 2020).
²Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq.
³Mission, SEC (Dec. 29, 2023), https://www.sec.gov/about/mission

The Supreme Court’s Decision in Macquarie Infrastructure Corporation and its Practical Implications

We wanted to briefly explain why the Supreme Court vacated the judgment and why, as a practical matter, it may not have a large impact on similar cases.

The Supreme Court was presented with the question of whether a pure omission can cause a violation of Rule 10b-5(b). Rule 10b-5(b) states in part, “it shall be unlawful for any person . . . [t]o make any untrue statement of a material fact or to omit to state a material fact . . . in connection with the purchase or sale of any security.” 17 CFR § 240.10b-5.

The Court held Rule 10b-5 “does not proscribe pure omissions” but “covers half-truths.” Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. 257, 264 (2024). The Supreme Court explained: “the difference between a pure omission and a half-truth is the difference between a child not telling his parents he ate a whole cake and telling them he had dessert.” Id. Because the Second Circuit decided the case on the pure omission theory (i.e., the child did not tell his “parents he ate a whole cake”), the Supreme Court did not review the record to consider the half-truth theory (i.e., the child “had dessert” without specifying that he had the whole cake). Accordingly, the Supreme Court vacated the Second Circuit’s opinion that Macquarie was liable. Id. at 266.

As a practical matter, now that the Supreme Court unanimously outlined the law, the government and plaintiffs’ lawyers should ensure that any allegations under Rule 10b-5(b) are based, at least, on half-truths. Considering the quantity of disclosures a company makes (and failing to file disclosures is a violation in itself), the company is likely to have made a half-truth rather than a full omission. Indeed, even in Macquerie, the government insisted the case was “about half-truths rather than pure omissions.” Id. at 266 n. 2. But, as mentioned, the Supreme Court ignored these arguments because it was not originally the question presented to them.