The Securities & Exchange Commission announced 3 whistleblowers would be receiving approximately $125,000 for providing information about a hedge fund scam. The 3 provided helped the SEC shut down Locust Offshore Management and its CEO, Andrey Hicks. Hicks was sentenced to 40 months in federal prison on related criminal fraud charges. Although it did not identify the whistleblowers by name, the SEC says that two of the whistleblowers provided information that caused the government to open its investigation while the third provided corroborating information and witnesses.
We first wrote about this story in October 2011. When we first reported on this story, Hicks had just been sued by the SEC and criminal charges had yet to be filed. We were skeptical then about a man just 4 years out of college (Harvard with a perfect 4.0 gpa or so he said) who claimed to have $16 billion of money under management. At the time we wondered if he was a brilliant financial genius or a fraudster with a huge ego. Apparently it was the latter – the feds say Hicks was a college drop out. (Perhaps he can earn a real degree while in federal prison.)
It great to learn that it was the action of whistleblowers who brought Hicks to justice. According to the criminal complaint, Hicks lied to investors and simply put the money – millions of dollars – in his own bank account. We are glad to see that justice prevailed but saddened that the awards were so small. The latter warrants some discussion.
The four primary whistleblower award statutes (SEC, IRS, False Claims Act & FIRREA) allow whistleblowers to receive a percentage of what the government collects. In this case, the SEC obtained a $7.5 million judgement against Hicks and Locust. Little money has been collected, however. The SEC said in June that it had not yet collected any monies. The Justice Department, however, had collected some monies through the criminal case.
Complicating the award process is that 4 people made claims. Ultimately the SEC decided the award would be split 3 ways. Why? The SEC says the 4th person was simply too late. Whistleblowers are generally paid on a first come basis. If you have information you must be the first to report in order to collect. Here the government said 3 people had helpful information meaning the award gets split. In most instances there is just one person eligible to receive the award.
The whistleblowers in this case made a claim under the SEC’s whistleblower program. Congress authorized that program in the 2010 Dodd-Frank Act to reward individuals who offer high-quality original information that leads to an SEC enforcement action resulting in sanctions of more than $1 million. Awards can range from 10 percent to 30 percent of the money collected. The law also includes provisions to protect whistleblowers from being identified and safeguard them from retaliation.
About the author. Brian Mahany is a lawyer representing whistleblowers. His firm has the largest pending false claims act case anywhere in the U.S. against a lender – HUD’s $2.4 billion case against Allied Home Mortgage. Brian and his team help whistleblowers stop fraud and collect the largest awards possible. Brian can be reached at or by telephone at (direct). He also publishes a daily blog, Due Diligence, that has hundreds of text searchable posts about tax law, fraud and whistleblower stories.
Posted by Brian Mahany, Esq.