On June 12, 2013, the SEC issued the second-ever whistleblower bounty award pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in connection with SEC v. Andrey C. Hicks and Locust Offshore Management, LLC., No. 11-cv-11888 (D. Mass. 2011). This bounty could be the tip of the iceberg, and is particularly noteworthy because the award was divided among three individuals and the fourth tipster was denied an award.
In October 2011, the SEC filed an enforcement action against the defendants in Locust alleging fraud in connection with the offer and sale of securities. In March 2012, the U.S. District Court for the District of Massachusetts entered judgment in favor of the SEC after default was entered against the defendants. The Court held both defendants jointly and severally liable for disgorgement and prejudgment interest in the amount of $2,512,058.39, and imposed a civil penalty against each of the defendants in the amount of $2,512,058.39. The monetary sanctions, defined by the Securities and Exchange Act of 1934 (Exchange Act) as “any monies, including penalties, disgorgement, and interest, ordered to be paid,” 15 U.S.C. § 78u-6(a)(4)(A), totaled $7,536,175.17.
Four individuals anonymously submitted whistleblower tips to the SEC, and three were awarded 5% each of the monetary sanctions collected. The fourth individual was denied a bounty because some of the information was first provided to the SEC before July 21, 2010 (the date after which Dodd-Frank specifies that information is considered “original information” in the context of whistleblowing) and the information provided after July 21, 2010 did not cause the SEC to open an investigation or contribute to the success of the enforcement action in the Locust matter.
The award to each whistleblower on the amount collected was $376,808.76, with a potential aggregate award of $1,130,426.28.In this regard, it should be noted that Dodd-Frank permits an award to one or more whistleblowers in an aggregate amount of no less than ten percent (10%) and no more than thirty percent (30%) of the monetary sanctions imposed. 15 U.S.C. § 78u-6(b). The whistleblowers in Locust were awarded an aggregate of fifteen percent (15%) of the monetary sanctions levied.
While this second bounty provided little information about the rationale for the award percentage (not strikingly different from the first-ever bounty award), the SEC’s decision not to award the maximum amount permissible—coupled with its outright denial of an award to the fourth tipster—suggests the SEC was careful and took a deliberative approach. Additionally, this second bounty may encourage groups of employees to step forward and seek awards, a dynamic on which many have not focused.