SEC LogoAfter awarding 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 Mgmt., LLC., No.  1:11-cv-11888-RGS (D. Mass. 2011), the SEC announced that the three whistleblowers were being awarded additional funds based on assets collected by the Justice Department in U.S. v. Andrew C. Hicks, No. 11-mi-1147-RBC (D. Mass. 2011) (press release can be accessed here).  The two cases constituted “related actions” because they were based on the same original information.  The SEC’s determination to award an additional bounty based on the related criminal action is likely to lead to more whistleblower tips.

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.  Based on the same facts and circumstances, also in October 2011, the U.S. Attorney for the District of Massachusetts charged Andrey C. Hicks with wire fraud, attempting to commit wire fraud, and aiding and abetting wire fraud.  In March 2012, the U.S. District Court for the District of Massachusetts entered judgment in favor of the SEC after a default judgment was entered against the defendants.  The sanctions totaled approximately $7.5 million.  On June 12, 2013, the SEC announced an award to three of the four tipsters who provided tips in the action of 5% each of the monetary sanctions collected.  The award to each whistleblower on the amount collected was $376,808.76, with a potential aggregate award of $1,130,426.28.  On June 28, 2013, the SEC approved an award of 5% to each whistleblower of the money collected in the related criminal action.

In December 2012, Hicks pled guilty to five counts of wire fraud and was sentenced to 40 months in prison.  In addition, Hicks consented to the forfeiture of his interest in property previously seized by the Justice Department.  Approximately $170,000 had been administratively forfeited.  These funds, according to the SEC, were deemed “collected” for purposes of issuing a whistleblower award and therefore the three whistleblowers were entitled to 5% each of the amount collected, or $8,500 each.  Additionally, the value of the assets seized from Hicks totals approximately $845,000, and thus the whistleblowers are expected to receive 5% each ($42,250)—a total of 15% of the amount seized ($126,750).

The additional whistleblower award based on the assets seized in the criminal action are provided pursuant to Rule 21F-3(b) under the Securities Exchange Act of 1934, 17 C.F.R. § 240.21F-3(b).  Agencies that fall under the “related action” include an Attorney General of the United States, an appropriate regulatory authority, self-regulatory organization, or state attorney general in connection with a criminal case.  17 C.F.R. § 240.21F-3(b). 

Implications

This additional whistleblower award based on the related action is significant, particularly given that it illustrates the close interaction between the SEC and the Justice Department in pursuing civil and criminal actions and the likelihood that a willingness to pursue actions across agencies is likely to lead to higher awards, and in turn, encourage more tips.

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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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