Three informants rewarded 5 percent each of settlement regarding fictitious hedge fund
The SEC has paid three whistleblowers for helping report a ‘sham hedge fund,’ in the second-ever case rewarded by the commission since it launched its whistleblower program almost two years ago.
The three whistleblowers will each receive a 5 percent share of any settlement to be collected from Locust Offshore Management and its CEO, Andrey Hicks, for alleged fraud totaling $2.7 mn, according to an SEC announcement. A fourth claimant to a whistleblower reward was rejected in the case.
The rewards are the second under whistleblower provisions of the Dodd-Frank Act that took effect in August 2011. The first award came a year later, when the SEC handed a tipster $50,000 for helping to stop a multi-million dollar case of financial fraud.
The latest reward comes after a US district court judge ordered Locust Offshore Management, which was falsely posing as an offshore hedge fund, to pay $7.5 mn in fines and disgorgement for fraud and sentenced the CEO to 40 months in prison. The investigation found that the company was selling shares in a fictitious hedge fund and transferring the proceeds to private accounts.
The fourth claimant to a whistleblower reward in the case was rejected because he offered information that was ‘vague and insubstantial,’ and unrelated to the Locust case, the SEC says.
In its first full year of operation, the SEC’s whistleblower program pulled in a total of 3,001 tips from all 50 US states and 50 countries, the SEC said in a press release late last year. Information related to corporate disclosure and financials accounted for 18.2 percent of all tips, while ‘offering fraud,’ or attempts to recruit somebody for help in committing fraud, accounted for 15.5 percent.
Days before the announcement of its second-ever reward under its whistleblower program, the SEC agreed to an internal whistleblower settlement of its own.
On June 10, the SEC agreed to pay a settlement of $580,000 in relation to claims by David Weber, the former chief investigator in the SEC’s inspector general’s office, that he was fired for alleging unethical conduct on the part of one of his co-workers. Weber’s record with the SEC will also be purged of allegations of misbehavior and altered to show that he voluntarily left the commission.
Weber was conducting several sensitive internal investigations when he was dismissed, including one in which he alleged the SEC was mishandling data from stock exchanges.
