SEC Begins Disbursement of Second Whistleblower Award

The U.S. Securities and Exchange Commission (“SEC”) announced on Friday, August 30, 2013, that its second-ever whistleblower award, to be split among three anonymous claimants, will amount to $125,000, for their tip exposing a sham investment fund.  The fund had already raised $1.7 million before the operation was shut down as a result of the information provided by the whistleblowers.  The SEC announced that the whistleblowers would each receive five percent of the money that the SEC ultimately collects in the enforcement action against the purported hedge fund, Locust Offshore Management, and its CEO, Andrey C. Hicks.

Hicks pled guilty in December 2012 to five counts of wire fraud and consented to forfeit his interest in property previously seized by the Justice Department.  Hicks was also sentenced to 40 months in prison.  Since then, approximately $170,000 has been administratively forfeited in the criminal proceeding – money that is deemed collected for purposes of issuing whistleblower awards.  As a result, the whistleblowers received $8,505 each on August 30, and should receive more as the government processes what it estimates to be approximately $845,000 in assets it has seized from Hicks.

As David J. Marshall, an attorney with the whistleblower law firm of Katz, Marshall & Banks, who represents individuals who report information to the SEC, noted in an interview with Law360 last week, the information provided by the whistleblowers was invaluable not because of the amount of money they recouped for the government, but because of the amount of money they prevented from being defrauded from future investors.  Marshall told Law360 that “They had raised $1.7 million and were well on their way to raising what could have been a very large amount of money that investors would never have seen again.  It appears that the SEC whistleblower program helped the SEC nip a sham hedge fund in the bud before it did much greater harm to the market.”