On June 12, 2013, the SEC issued the second-ever whistleblower bounty award pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in connection with SEC v. Andrey C. Hicks and Locust Offshore Management, LLC., No. 11-cv-11888 (D. Mass. 2011). This bounty could be the tip of the iceberg, and is particularly noteworthy because the award was divided among three individuals and the fourth tipster was denied an award.

Background

In October 2011, the SEC filed an enforcement action against the defendants in Locust alleging fraud in connection with the offer and sale of securities. In March 2012, the U.S. District Court for the District of Massachusetts entered judgment in favor of the SEC after default was entered against the defendants. The Court held both defendants jointly and severally liable for disgorgement and prejudgment interest in the amount of $2,512,058.39, and imposed a civil penalty against each of the defendants in the amount of $2,512,058.39. The monetary sanctions, defined by the Securities and Exchange Act of 1934 (Exchange Act) as “any monies, including penalties, disgorgement, and interest, ordered to be paid,” 15 U.S.C. §　78u-6(a)(4)(A), totaled $7,536,175.17.

Four individuals anonymously submitted whistleblower tips to the SEC, and three were awarded 5% each of the monetary sanctions collected. The fourth individual was denied a bounty because some of the information was first provided to the SEC before July 21, 2010 (the date after which Dodd-Frank specifies that information is considered “original information” in the context of whistleblowing) and the information provided after July 21, 2010 did not cause the SEC to open an investigation or contribute to the success of the enforcement action in the Locust matter.

The award to each whistleblower on the amount collected was $376,808.76, with a potential aggregate award of $1,130,426.28.In this regard, it should be noted that Dodd-Frank permits an award to one or more whistleblowers in an aggregate amount of no less than ten percent (10%) and no more than thirty percent (30%) of the monetary sanctions imposed. 15 U.S.C. §　78u-6(b). The whistleblowers in Locust were awarded an aggregate of fifteen percent (15%) of the monetary sanctions levied.

Implications

While this second bounty provided little information about the rationale for the award percentage (not strikingly different from the first-ever bounty award), the SEC’s decision not to award the maximum amount permissible—coupled with its outright denial of an award to the fourth tipster—suggests the SEC was careful and took a deliberative approach. Additionally, this second bounty may encourage groups of employees to step forward and seek awards, a dynamic on which many have not focused.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower…

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has the unusual experience of testifying in federal court in connection with investigations. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a ”Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a U.S. Library of Congress Burton Award Winner for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal. The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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