SEC Makes Second Dodd-Frank Whistleblower Award and Hints at Larger Awards to Come

On June 12, the Securities and Exchange Commission (“SEC”) announced its second-ever whistleblower payout under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

The whistleblower program began operating in August 2011, but enforcement actions can take several years to complete. This award arose from a 2011 action alleging that Andrey Hicks sold “wholly fictitious” investment fund shares to investors. Hicks pled guilty to criminal charges and received 40 months in prison, and a U.S. district court ordered $7.5 million in disgorgement and penalties.

The whistleblower payout will award each of three whistleblowers 5 percent of whatever funds the SEC ultimately collects from the enforcement action. As we reported last year, the SEC made its first payout under Dodd-Frank in August 2012. That award amounted to only $50,000, but constituted 30 percent of the amount the SEC had collected.

The Chief of the SEC’s Office of the Whistleblower commented, “We are likely to see more awards at a faster pace now that the program has been up and running and the tips we have gotten are leading to successful cases.” And the SEC Division of Enforcement Associate Director recently warned of a “likely change in the discussion about the magnitude of some of these awards over the next six to twelve months”—a prediction supported by the whistleblower program’s substantial funding and financial incentives for employees.