The Securities and Exchange Commission (“SEC”) has made its second award to whistleblowers under the Dodd-Frank Act. The award was made to three individuals who aided the SEC in its investigation against Andrey C. Hicks and Locust Offshore Management, LLC (“Locust”), a fictitious entity that was represented to investors as a pooled investment fund incorporated in the British Virgin Islands. On March 20, 2012, the SEC obtained a final judgment against Mr Hicks and Locust for defrauding investors. A Massachusetts federal court ordered Mr Hicks and Locust to pay more than $2.5 million in disgorgement and interest, as well as civil penalties of more than $5 million. Mr Hicks was also sentenced to 40 months in prison.
Four individuals (whose identities have been withheld pursuant to the federal law) submitted whistleblower award claims to the SEC. The SEC Claims Review Staff determined that three of the individuals should receive awards for voluntarily providing original information that led to the successful prosecution of Locust.
According to the SEC, the first two whistleblowers provided information leading to the opening of the SEC investigation, while the third confirmed the information as well as identified additional material witnesses. Each of the three whistleblowers were awarded five percent (5%) of the amount of monetary sanctions collected from Mr Hicks and Locust, for a combined total of fifteen percent (15%) of the amount collected. The total award is expected to be $125,000. To date, $25,000 has been paid to the whistleblowers, who may also apply for an additional ward based on the $800,000 collected by the DOJ in a related action. The fourth whistleblower’s claim was denied because the information provided was not found to be “original information” that contributed to the success of the prosecution. For more information please click here, here and here.
In Enforcement Watch 8, we commented on the first award made under the legislation ("SEC makes its first award to a whistleblower under the Dodd-Frank Act").
Although a relatively small dollar amount, this second award under the Dodd-Frank whistleblower provisions indicates that the SEC is continuing to take advantage of its ability to reward tipsters who provide valuable, original information concerning misconduct in the financial industry. Indeed, SEC officials are reported to have stated that even more - and larger - whistleblower awards will soon be made. Of course, the denial of the fourth whistleblower's claim demonstrates that the SEC intends to reward only meaningful tips comprised of actionable "original" or unique information.