On Wednesday, June 12, 2013, the Securities and Exchange Commission (“SEC”) issued its second-ever whistleblower award under the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). The award was made to three whistleblowers who provided information leading to the SEC’s enforcement action against Andrey C. Hicks and Locust Offshore Management, LLC, which was filed in October 2011.
In that action, the SEC alleged that Hicks and Locust committed fraud in connection with the offer and sale of shares in the Locust Offshore Fund, a pooled investment fund purportedly incorporated in the British Virgin Islands, which turned out to be wholly fictitious. On March 20, 2012, the U.S. District Court for the District of Massachusetts entered final judgments against the defendants and imposed penalties totaling over $7.5 million.
In its Wednesday order, the SEC recommended that each of the three unnamed whistleblowers should receive an award equal to five percent of the total penalties imposed on the defendants, or roughly $375,000 each. The award determination was made under the whistleblower incentive provision of Dodd-Frank, which states that a whistleblower who voluntarily provides original information regarding securities violations may be entitled to an award in an amount between 10 to 30 percent of any monetary recovery the SEC obtains through an enforcement action resulting in more than $1 million in total sanctions.
The award comes on the heels of a panel discussion including Stephen Cohen, the Associate Director of the Enforcement Division of the SEC, in which Mr. Cohen stated that the SEC whistleblower program would soon produce “incredibly impactful cases” with “some extremely significant whistleblower awards.” We are pleased to see that the SEC has wasted no time fulfilling that promise.