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SEC Awards and Denies Whistleblower Claims in Hedge Fund Case

by Steve Quinlivan   |   June 12, 2013

On October 26, 2011, the Commission filed an enforcement action in SEC v. Andrey C. Hicks and Locust Offshore Management, LLC, 1:11-cv-11888-RGS (D. Mass. 2011) (the “Locust Matter”). The SEC alleged in its complaint that the defendants, Andrey C. Hicks (“Hicks”) and Locust Offshore Management, LLC (“Locust”), committed fraud in connection with the offer and sale of shares in the Locust Offshore Fund, Ltd. (the “Fund”), a pooled investment fund purportedly incorporated in the British Virgin Islands (“BVI”), which turned out to be wholly fictitious. On March 20, 2012, the U.S. District Court for the District of Massachusetts entered final judgments in favor of the Commission after default was entered against the defendants. Among other relief, the court held both defendants jointly and severally liable for disgorgement and prejudgment interest in the amount of $2,512,058.39. In addition, the court imposed a civil penalty on Locust Offshore Management, LLC in the amount of $2,512,058.39, and a civil penalty on Andrey C. Hicks in the amount of $2,512,058.39.

The SEC ordered that three whistleblowers shall each receive 5% of the monetary sanctions collected. “Monetary sanctions” means any money, including penalties, disgorgement, and interest, ordered to be paid and any money deposited into a disgorgement fund or other fund pursuant to Section 308(b) of the Sarbanes-Oxley Act of 2002 as a result of a Commission action or a related action. So it appears  each whistleblower stands to receive around $125,000 if collected, or  about $376,000 in total.

The claim of a fourth whistleblower was denied.  The SEC determined the information was not “original information” because it was not submitted after July 21, 2010, the date that Section 21F was added to the Exchange Act by the Dodd-Frank Wall Street Reform and Consumer Protection Act.   The SEC further concluded that the information provided by the fourth claimant after July 21, 2010 did not lead to the successful enforcement of the Locust Matter because it neither caused the SEC to open its investigation nor significantly contributed to the success of the enforcement action.

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