On October 1, 2013 the Securities and Exchange Commission
announced its third and largest whistleblower award yet, $14
million, to a person "whose information led to an SEC enforcement
action that recovered substantial investor funds." The SEC
did not identify the defendant because the whistleblower wishes to
remain anonymous. Because the range for awards to SEC
whistleblowers is between 10% and 30% of the money collected, it is
safe to assume that the total fine paid by the firm sanctioned is
at least $140 million. Please
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This marks the largest-ever whistleblower award the SEC has paid
out since it launched its new whistleblower incentive program under
the 2010 Dodd-Frank Wall Street reform law. Congress authorized the
whistleblower program in the 2010
Dodd-Frank Act to reward individuals who offer high-quality
original information that leads to an SEC enforcement action
resulting in sanctions of more than $1 million.
Because the SEC carefully protected the anonymity of this
person, it is likely that other potential whistleblowers will feel
reassured and come forward.
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The SEC has shown that it is committed to protecting
whistleblowers. The head of the SEC's Office of the
Whistleblower, Sean McKessy, spoke with the Wall Street Journal's
Risk and Compliance blog on September 24, 2013. He stated
that he has asked his staff to "be on the lookout" for
opportunities to enforce the Dodd-Frank Act's anti-retaliation
provisions. These would be found in fact patterns showing
that a company "didn't treat their employees in good faith" after
the employees made a report to the SEC. Mr. McKessy also
stated that even if it turned out a report to the SEC was
incorrect, as long as the whistleblower had reason to believe that
what he or she reported was true, the SEC would still enforce the
Dodd-Frank anti-retaliation provisions if a whistleblower was
retaliated against on the basis of those reports.
The SEC's first payment to a whistleblower was made in August
2012 and totaled approximately $50,000. That whistleblower
helped SEC stop a multi-million dollar fraud. The $50,000
award represents 30 percent of the amount collected in the SEC
enforcement action against the perpetrators of the scheme, which is
the maximum percentage payout allowed by the whistleblower law.
The award recipient provided documents and other significant
information that allowed the SEC's investigation to move at an
accelerated pace and prevent the fraud from ensnaring additional
victims. The whistleblower's assistance led to a court ordering
more than $1 million in sanctions, of which approximately $150,000
has been collected thus far. The whistleblower will receive 30% of
the additional sanctions collected when they are collected. The
court was also considering whether to issue a final judgment
against other defendants in the matter. Any increase in the
sanctions ordered and collected will increase payments to the
The SEC did not approve a claim from a second individual seeking
an award in this matter because the information provided did not
lead to or significantly contribute to the SEC's enforcement
action, as required for an award.
Mr. McKessy noted that the SEC had awarded the highest possible
payout (30 percent) with its first award because the whistleblower
"met the paradigm of an ideal whistleblower" by being very
persistent in reporting and ensuring that the SEC continued to pay
attention to the misconduct, and by helping the SEC "get to the
finish line" by working with the SEC throughout the
The SEC's second payment to a whistleblower was made in August
and September 2013, when more than $25,000 was awarded to three
whistleblowers who helped the SEC and the U.S. Department of
Justice halt a sham hedge fund. This is the first installment
of anticipated payments to the whistleblowers as additional assets
are collected from the purported hedge fund manager. The ultimate
total payout in that case once all sanctions are collected is
likely to exceed $125,000.
The SEC's order rewarded each of the three whistleblowers with 5
percent of the money that the SEC ultimately collects from its
enforcement action against Locust Offshore Management and its CEO
Andrey C. Hicks. In cases where there are related criminal
proceedings in which money is collected by another regulator, a
provision in the whistleblower rules allows whistleblowers to then
additionally apply for an award based off the other regulator's
collections in what qualifies as a "related action." The SEC
subsequently approved 5 percent payouts to each whistleblower for
money collected in the related criminal action.
Hicks pled guilty on Dec. 12, 2012, to five counts of wire fraud
and consented to the forfeiture of his interest in property
previously seized by the Justice Department. He was sentenced to 40
months in prison. Approximately $170,000 has been administratively
forfeited in the criminal proceeding - money that is deemed
collected for purposes of issuing whistleblower awards. Thus, the
three whistleblowers will receive an additional $8,505 each.
Additional payments can be made to these whistleblowers upon
forfeiture of the additional assets that have been seized.
The aggregate value of assets seized from Hicks is estimated to
be approximately $845,000, and the whistleblowers are expected to
ultimately receive 15 percent of this amount for a combined total
of approximately $125,000.
The SEC's order does not identify the whistleblowers, whose
confidentiality is protected under the SEC's whistleblower program.
The order states that two of the whistleblowers provided
information that prompted the SEC to open an investigation and stop
the scheme before more investors were harmed. The third
whistleblower identified key witnesses and confirmed information
the other two whistleblowers provided.
According to Mr. McKessy, the three whistleblowers who won the
second award and equally shared a total of 15%of the money
collected by the SEC, did not receive the maximum of 30% allowed
because, while they provided the SEC with very important
information, they were not in a position to give the SEC ongoing
assistance during the prosecution of the case.
Contact Us To Learn More
We invite you to learn more about our Whistleblowers,
Qui Tam & False Claims Act Practice Group. For more
information or to schedule a confidential discussion from a false
claims act lawyer, please fill out the form on the right. You can
also call us at (215) 875-4699.
For further reading:
Federal and State Whistleblower Laws Relating to the SEC
and Protection for Whistleblowers