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Analysis of Recent SEC Whistleblower Awards


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 click here to learn about Immunity and Protection for Whistleblowers

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. Click here to learn about Internal Protection for Whistleblowers.

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 whistleblower.

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 proceedings.

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

If you have discovered evidence of government fraud, contact an experienced False Claims Act attorney before blowing the whistle. You may be entitled to a substantial reward and the legal protections afforded to whistleblowers under state and federal laws. The attorneys of Berger & Montague are nationally recognized experts in Whistleblower/Qui Tam actions with over a decade of experience pursuing these complex fraud cases. For more information or to schedule your confidential consultation, use the form on this page or call us at 1-800-424-6690.

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For further reading:
Federal and State Whistleblower Laws Relating to the SEC Whistleblower Programs
Immunity and Protection for Whistleblowers