SEC Honors Three Individuals With Whistleblower Award

SEC Honors Three Individuals With Whistleblower Award
By U.S. Government [Public domain], <a href="">via Wikimedia Commons</a>

The Securities and Exchange Commission presented the second-ever Whistleblower Award to three individuals under the Dodd-Frank Act. Without naming the whistleblowers, SEC issued an order Wednesday saying that each of the three whistleblowers will receive 5 percent of funds the regulator will collect from enforcement action against Locust Offshore Management LLC and its CEO Andrey C. Hicks. The hedge fund’s chief Andrey C. Hicks has pleaded guilty of criminal fraud charges. He has been sentenced to 40 months in prison.

SEC Honors Three Individuals With Whistleblower Award

The New Whistleblower Program

Jordan A. Thomas, who helped the SEC develop the latest whistleblower program, says that it’s just the beginning. We will see a lot of whistleblower awards and enforcement actions. The SEC also said that the pace of whistleblower awards will pick up soon. The regulator’s Office of the Whistleblower chief Sean McKessy said that the program is gaining momentum and tips the agency is getting have led to successful actions.

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The revamped whistleblower program under the Dodd-Frank Act started operating in August 2011, and the first whistleblower award was given in August 2012. That first whistleblower was given $50,000, which was 30 percent of the funds SEC collected in the enforcement action against perpetrators of the scheme. SEC says enforcement actions usually take more than two years to complete, that’s why so few awards have been given so far.

Yesterday’s whistleblower award is related to an action filed in 2011. Whistleblowers had alleged that Locust Offshore Management LLC and  Andrey C. Hicks had offered to sell shares in a “wholly fictitious” investment fund. A District Court later ordered that Hicks and Locust pay $7.5 million in penalties. The SEC said it is yet to collect that sum, but assets have already been frozen in the case.

SEC’s Dilemma

The Dodd-Frank law provides employment protection to whistleblowers and awards 10 percent to 30 percent of the funds collected if the whistleblower’s original information leads to enforcement action and the regulator collects more than $1 million in penalties.

But the SEC itself may be in a dilemma. A few months ago, a Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) employee Eric Ben-Artzi filed a lawsuit that his boss at the German bank had fired him for blowing the whistle about Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) hiding its losses on derivatives. Now Eric Ben-Artzi’s ex-boss Robert Rice has become the chief counsel to SEC chairman Mary Jo White. Let’s see what will SEC do in this case.

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