Compliance Officer Awarded Over $1 Million as Whistleblower

The SEC recently announced that it granted a whistleblowing award that will range from $1.4 million to $1.6 million to a compliance officer who aided the SEC with an enforcement action against the officer’s company. The compliance officer approached the SEC after alerting the company’s management to imminent misconduct that would cause substantial financial harm to the company and/or its investors and the company’s management failed to act. This is only the second whisteblower award the SEC has made to an employee with internal audit or compliance responsibilities since the inception of the SEC’s whistleblower program in 2011. Whistleblower awards can range from 10 to 30 percent of the money collected in a successful enforcement action where fines exceed $1 million.

By law, the SEC may not disclose any information that may reveal the identity of the whistleblower; therefore, the SEC did not identify the compliance officer or the officer’s company. 

A copy of the SEC’s Press Release is available here.

SEC Charges a Hedge Fund Adviser and its Executives for Improperly Allocating Fund Assets

The SEC recently announced charges against Alpha Titans, LLC, a hedge fund advisory firm (“Alpha Titans”), and two of its executives for improperly allocating fund assets to pay for undisclosed operating expenses. The SEC alleged that Alpha Titans, its principal, Timothy McCormack, and general counsel, Kelly Kaeser, used the assets of two affiliated funds to pay more than $450,000 in office rent, employee salaries, and benefits without authorization from fund clients and without accurately and fully disclosing that the purposes for which the assets were being used. Alpha Titans also sent investors audited financial statements that failed to disclose nearly $3 million in expenses related to transactions involving entities also controlled by McCormack.

The SEC stated that charges were brought because “private fund managers must be fully transparent about the type and magnitude of expenses they allocate to the funds.” Alpha Titans failed in this regard because it did not disclose enough information for its clients to determine that the funds were paying these operational expenses.

Alpha Titans and McCormack agreed to pay just under $700,000 in disgorgement, penalties, and interest. McCormack and Kaeser also agreed to be barred from the securities industry for one year, and Kaeser may not act as an attorney on behalf of any entity regulated by the SEC for one year.

Charges were also brought against the accountant who conducted the fund’s outside audit, Simon Lesser. The SEC claims Lesser engaged in improper professional conduct by not considering the adequacy of the related party disclosures in the funds’ financial statements. Lesser agreed to pay a $75,000 penalty and to be suspended from practicing as an accountant of any entity regulated by the SEC for three years.

A copy of the SEC’s Press Release is available here.