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SEC Makes First Whistleblower Award Since Passage of Dodd-Frank

By: James W. Kraus
September 4, 2012

On August 21, 2012, the Securities and Exchange Commission (SEC) announced that an individual who had provided documents and other significant information in the investigation of a multi-million dollar securities fraud scheme had been awarded nearly $50,000. This is the first pay-out from a new SEC program designed to reward people who provide evidence of securities fraud. The award represents 30% of the dollar amount collected in an SEC enforcement action against the perpetrators of the scheme. This (30%) is the maximum percentage pay-out allowed by the Whistleblower Law.

The Whistleblower’s assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. It is still possible that additional sanctions will be issued. Any such increase, will increase payments to the Whistleblower.

Robert Khuzami, director of the SEC’s Division of Enforcement, stated, “this Whistleblower provided the exact kind of information and cooperation we were hoping the Whistleblower program would attract.” He indicated further that, “had this Whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”

The SEC did not approve a claim from a second individual seeking an award in this matter, because of the information provided that did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award.

The SEC indicates that the quality of tips that has been receiving is on the increase. It indicates that it has received about 8 tips per day since establishment of the program in August of 2011.