The whistleblower in a hedge fund advisor case recently received a $600,000 award from the U.S. Securities and Exchange Commission (SEC). The case involved allegations that the hedge fund owner made improper transactions with an affiliated broker dealer that she owned, without disclosing the affiliation to her client. The company’s head trader reported the actions to the SEC and the owner retaliated against him repeatedly, leading to his resignation from employment.
In response to the SEC’s finding of wrongdoing, the hedge fund agreed to pay $2 million in settlement costs, which includes a $300,000 penalty, along with $1.7 million in disgorgement and approximately $180,000 in interest. Under the Dodd Frank Act, the SEC awarded the whistleblower the maximum allowable percentage of the settlement amount.
The Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act became law in July of 2012. The legislation was created in response to financial concerns that brought about the recession and it includes strict regulation standards on financial institutions. It also protects whistleblowers who provide the SEC with information about wrongdoing. Additionally, if the reported information leads to at least $1 million in sanctions, the whistleblower may receive compensation. Awards can range from 10% to 30% of the total sanction amount.
The Implications of the Award
The award in this case represents 30% of the settlement amount, which is the maximum allowable payment. The SEC is sending a strong message to employers that they will be held accountable for retaliation against whistleblowers. According to reports, the SEC whistleblower chief hopes that the substantial award in this case will influence other financial institution employees to report wrongdoing free from fear of retaliation by their employers.