Now that you’ve seen what ACA Insight has to offer, don’t be without it. Subscribe now!

The weekly news source for investment management legal and compliance professionals

Current subscribers - please log in to the website in the upper right-hand corner

News August 20 & 27, 2012 Issue

Whistleblower Program Makes Its First Payout

If you build it, they will come.

The SEC’s whistleblower program is in full swing, and on August 21 the SEC announced the program had issued its inaugural payout.

The SEC awarded $50,000 to a whistleblower who provided documents and other "significant information" that helped the SEC accelerate its investigation and ultimately shut down an undisclosed fraud before additional victims could be harmed.

"This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract," said Division of Enforcement director Robert Khuzami.

The program rewards individuals who provide original, high-quality information that leads to an enforcement action resulting in more than $1 million in sanctions. The award can be from 10 to 30 percent of the amounts collected.

"We’re seeing high-quality tips that are saving our investigators substantial time and resources," said SEC Chairman Mary Schapiro.

In this case, although the sanctions levied by court order exceeded the $1 million threshold, the SEC had only collected $150,000. The whistleblower received almost $50,000, the maximum amount of award permitted.

A second whistleblower also made a claim in the same action, which the SEC denied because the information provided "did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award," said the SEC.

The SEC has been rewarding whistleblowers for years, but this is the first award issued by the program established pursuant to the Dodd-Frank Act.

Back in the spring of 2011, the SEC awarded $1 million – the highest ever whistleblower award paid by the SEC – to the ex-wife of alleged Microsoft insider trader David Zilkha.

While digging during an ugly divorce proceeding for evidence of hidden assets on the family computer, the former Mrs. Zilkha found incriminating emails that helped the SEC win insider trading sanctions against not only Zilkha, but also Arthur Samberg and Pequot Asset Management.

Samberg and Pequot paid $28 million in sanctions, although Zilkha successfully challenged most of the $2.5 million in sanctions the SEC sought against him, based largely on expired statutes of limitation and other procedural grounds.

Office of the Whistleblower chief Sean McKessy said that since the program was established a year ago, about eight tips a day are flowing into the SEC. "The fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information," he said.