June 19, 2013 – The Securities and Exchange Commission announced that it has issued its second ever whistleblower incentive award. The whistleblower award program was established as part of the 2009 Dodd-Frank legislation and seeks to encourage whistleblowers by awarding them a percentage of the government’s recovery in enforcement actions that were aided by the whistleblowers.
In the SEC order, three whistleblowers were awarded 5% each of the more than $7.5 million in penalties that the defendants were ordered to pay. The information provided by the whistleblowers helped uncover “fraud in connection with the offer and sale of shares in the Locust Offshore Fund, Ltd. (the “Fund”), a pooled investment fund purportedly incorporated in the British Virgin Islands (“BVI”), which turned out to be wholly fictitious.” The SEC release described the whistleblowers contributions, stating “two of them provided information that prompted the SEC to open an investigation and stop the scheme before more investors were harmed,” and the “third whistleblower confirmed much of the information the others had provided and identified key witnesses.”
And more whistleblower awards are on the way, according to Stephen Cohen, Associate Director of the SEC’s Division of Enforcement. He predicted that over the next six months the whistleblower program will produce some “incredibly impactful cases” with “some extremely significant whistleblower awards.” Cohen made the comments while speaking at a Corporate Crime Reporter conference in Washington, D.C. on May 3, 2013.
Cohen also remarked on the value that whistleblowers and their attorneys bring to the enforcement process. “[W]histleblowers and in some instances counsel are putting together information for us, sometimes in huge reports with evidence, with documents, bringing it to us, and giving us sometimes a roadmap, sometimes a starting place for us to do an investigation, at least pointing us in the right direction – sometimes helping us all along the way to the end.”
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