Yesterday, the Securities and Exchange Commission (SEC) granted a whistleblower represented by Malecki Law the maximum-allowable award of 30% of whatever the agency recovers in connection with its 2018 action and investment fraud charges against Sandy J. Masselli Jr., Carlyle Gaming & Entertainment Ltd., and other associated entities. The alleged perpetrators from New Jersey were charged with securities fraud and the misappropriation of over $3 million in retail investor funds, alleged to have pocketed the money from selling unregistered securities and falsely telling investors that the investment was destined for an imminent and lucrative IPO.
The SEC provides significant financial incentive for whistleblowers to come forward regarding securities law violations. The SEC introduced its whistleblower program in 2012, and recently surpassed over $1 billion in awards granted to over 200 different whistleblowers; the largest SEC award on record is $83 million. Depending on the timeliness and credibility of the tip, the SEC’s whistleblower program is authorized by Congress, through the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to grant awards that range between 10% to 30% of any recovery that the agency’s enforcement division makes of $1 million or more. The recovered funds come from the assets recovered and sanctions money paid by persons or entities who are found to be in violation of the federal securities laws.
Although it can be lucrative, most whistleblowers come forward to report securities violations for moral reasons or because they are victims themselves. And the reality is that filing a successful claim, where the whistleblower is granted an award, is extremely rare. In 2020 alone, the SEC received almost 7,000 claims, yet it has only awarded barely 200 awards in nearly a decade since the program began. So while the whistleblower application form is fairly simple, it is often necessary to additionally provide the SEC with supplementary briefs with complete and properly redacted evidentiary exhibits, containing concrete and original information that is presented in a manner that gets the SEC’s attention.