SEC Announces Whistleblower Action
The Securities and Exchange Commission issued an order on June 12, 2013 awarding three whistleblowers a total of 15 percent of the money that the SEC ultimately collects from its enforcement action against sham hedge fund Locust Offshore Management LLC and its CEO Andrey C. Hicks, who defrauded investors of $2.7 million. To date, the SEC has not collected any amounts on these judgments, so no immediate payments will be made to the whistleblowers.
In March 2012, the United States District Court for the District of Massachusetts entered default judgments against Locust and Hicks and ordered them to pay approximately $7.5 million in disgorgement and penalties. Hicks also pled guilty to criminal fraud charges in 2012 and he was sentenced to 40 months in prison. Although the SEC obtained an asset freeze on the defendants' assets, it has not collected any amounts on these judgments to date. Instead, the Department of Justice in its related action collected approximately $800,000 from Hicks to date. The whistleblowers will be entitled to apply to the SEC for a whistleblower award based on the amounts collected by the Department of Justice.
As with the first SEC whistleblower award order last year, this order does not identify the whistleblowers but stated that two of them provided information that prompted the SEC to open an investigation and stop the scheme before more investors were harmed. The third whistleblower confirmed much of the information the others had provided and identified key witnesses. A fourth application for an award was denied because the information provided did not lead to or significantly contribute to its enforcement action, as required by law.
The awards stem from the SEC's October 2011 lawsuit and emergency asset freeze, in which the SEC alleged that Hicks misled investors about his credentials and diverted investor assets to his personal bank account, rather than the hedge fund that Hicks purported to run.
The awards are the second made under the SEC's whistleblower program, which began operating in August 2011. The SEC issued its first whistleblower award in August 2012.
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. Awards can range from 10 percent to 30 percent of the money collected. The law also includes provisions to protect whistleblowers from being identified and safeguard them from retaliation.
* * *