The
SEC is awarding $25,000 under the SEC whistleblower program. The award will be split among three
whistleblowers who reported fraud by a hedge fund and its CEO/manager.
Whistleblowers and their lawyers have been waiting to see whether the SEC
will live up to its promise to reward people who report securities fraud
that cheats stockholders. The SEC is hardly breaking any records for the
number of awards it has handed out – this award is just the second
one the SEC has made since Congress strengthened the SEC whistleblower
provisions in 2010.
In this case, the three whistleblowers – who were not identified
— gave the SEC information about securities violations by Locust
Offshore Management and its CEO, Andrey C. Hicks. While the three tipsters
are splitting something slightly north of $25,000 right now, the SEC Office
of the Whistleblower has said that the three ultimately will split $125,000
for reporting the corporate fraud by Locust Offshore and Hicks.
It would be easy for whistleblowers to be discouraged by the fact that
the pace at which the SEC is handing out awards is so painfully slow.
However, two things give me hope that the SEC is quite serious about its
whistleblower program.
First, it was telling that the August 30th press release was the second
that the SEC has given out for this one award. It issued one press release
in June, when it decided to give the whistleblowers 15%, and then made
this second statement when it actually paid the trio the first installment
of the money that they will receive. Even if the pace of the awards has
been slow, the fact that the SEC is touting this award suggests to me
that it is eager to convince whistleblowers and their lawyers that it
is serious about rewarding insiders who are willing to step forward to
help the SEC stop securities fraud.
Second, last fall I attended a conference for attorneys who represent whistleblowers.
Sean McKessy, head of the SEC Office of the Whistleblower, came to talk
to our group. I wrote a blog entry about what Mr. McKessy said,
SEC’s Whistleblower Program: One Year, One Award, and Three Thousand
Tips Later. He reported that the public would see the number of awards increase as
the SEC had time to finish evaluating the tips that had come in. Once
these tips worked their way through the system, he said, rewards would
become more frequent. McKessy struck me as very serious and dedicated
to the task of using whistleblower’s tips to stop the securities
fraud that has helped undermine our economy in the last few years.
With McKessy fully committed to the whistleblower program, I am optimistic
that we will see the SEC making a number of awards to securities whistleblowers
over the next few months. No doubt McKessy would like to have more awards
he could point to as evidence that the SEC is taking whistleblower tips
seriously, but I believe he has set up the framework for a strong program,
and we will soon see the SEC stopping securities fraud results.