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SEC Awards $875 Million To Two Whistleblowers

Jun 6, 2014

The Securities and Exchange Commission (SEC) just announced another whistleblower award. The award, in excess of $875,000, will be equally split between two individuals who provided tips and assistance to the SEC.

The SEC’s whistleblower program, which was authorized by the Dodd-Frank Act, provides financial reward for what the agency deems to be high-quality, original information that leads to an SEC enforcement action and under which at least $1 million in sanctions occur, according to Corporate Crime Reporter. Awards to whistleblowers may range from 10 to 30 percent of the total money collected in the case.

The SEC must protect the whistleblower confidentiality and is banned from disclosing information that may directly or indirectly reveal the identity of a whistleblower, wrote Corporate Crime Reporter.

“These whistleblowers provided original information and assistance that enabled us to investigate and bring a successful enforcement action in a complex area of the securities market,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower. “Whistleblowers who report their concerns to the SEC perform a great service to investors and help us combat fraud,” McKessy added, according to Corporate Crime Reporter. Since it began in late 2011, eight whistleblowers received awards through the SEC’s whistleblower program.

In one of the most recent cases, the SEC issued a $14 million payout in a whistleblower case involving a massive real estate scam that involved allegations made in 2013 and concerning some 250 investors. The investors were, for the most part, from China, and claimed to have been “duped” by Anshoo R. Sethi, 30, and two of his companies, according to The Wall Street Journal. Allegations also included that Sethi and his two Chicago, Illinois-based companies tricked the investors into paying more than $155 million for a purported plan to build a hotel and a conference center, people familiar with the matter told the Journal.

According to the SEC, the investors claimed they believed they were increasing their likelihood of receiving green cards under the scam. The scam involved qualification for immigration providing United States residency that was tied to investments that created employment, the Journal reported. According to the SEC, Sethi and his companies sold more than $145 million in securities and collected $11 million in administrative fees from investors, Compliance Week reported that the investors were led to believe that when they bought interests in ACCC, they would be financing construction of what was described as the “World's First Zero Carbon Emission Platinum LEED certified” hotel and conference center to have been built close to Chicago's O'Hare Airport.

The investors were also led to believe that the investments would improve their chances of receiving U.S. citizenship through the EB-5 Immigrant Investor Pilot Program under which overseas investors are provided with a way in which to obtain U.S. residency by investing in domestic projects that create or preserve jobs for U.S. workers, according to Compliance Week.

The SEC alleged that Sethi and his companies did not have the required building permits and, according to the Journal, their claims of being supported by major hotel chains were false. Also false was the documentation provided to immigration authorities.

The federal government decided that the whistleblower, who is permitted to maintain anonymity, was due 10 percent of the money recovered for the investors. "We're confident there will be more frequent and numerous payouts as the program continues to gain momentum," SEC enforcement chief Andrew Ceresney, told the Journal at the time. The award, issued September 30, 2013, is considered the most significant whistleblower award by the SEC’s Office of the Whistleblower, according to Compliance Week and the $14 million totals about 10 percent of the funds returned back to investors and is on the lower end of the 10-30 percent of the whistleblower award range established under the Dodd-Frank Whistleblower Program.

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