The last two months have seen the issuance of several awards from both the SEC and CFTC. As is often the case, these awards underscore the importance of timely disclosures.
Award Summary:
- SEC:
- October 1, 2024: $1.8 million to one Whistleblower
- October 8, 2024: $5 million to three Whistleblowers
- October 10, 2024: $12 million to three Whistleblowers
- November 25, 2024: $ 2 million to one Whistleblower
- CFTC:
- November 8, 2024: $4 million to two Whistleblowers
Award Spotlight: Penny Stock Fraud
On October 10, 2024, the Securities and Exchange Commission announced a $12 million award to be split equally among three joint whistleblowers for their assistance and information in a penny stock fraud scheme.
The case, Securities and Exchange Commission v. GPL Ventures LLC et al, Case No. 1:21-cv-06814-AKH, was filed in the Southern District of New York in August 2021. According to the complaint, GPL Ventures LLC and its affiliates operated as unregistered dealers by privately purchasing microcap stocks at a discounted price and publicly selling them, generating over $81 million in gross proceeds while also engaging in illegal stock scalping.
The case resulted in a final judgment against the defendants with a settlement of more than $39 million, as well as permanently prohibiting them from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Whistleblowers’ $12 million award therefore appears to be at or near the 30% limit under the Rules.
The SDNY docket shows that two of the three whistleblowers, Soham Awon and Richard Edelson, each submitted a declaration identifying themselves as SEC whistleblowers. Given the risks faced by whistleblowers, it is highly unusual for them to identify themselves publicly in this manner. As the whistleblowers’ attorney explained, this case “was unique because if there’s an ongoing fraud, the SEC can go in and file an emergency action.” By coming forward publicly, the Whistleblowers enabled the SEC to file the emergency action, thus freezing the defendants’ assets and halting the fraud.
In their declarations, the Whistleblowers—one a former employee, and the second a former consultant—shared details about bank and brokerage accounts, along with the specific methods the GPL defendants employed to generate profits. These profits stemmed from the spread between the discounted prices at which they acquired stock—whether through aged debt purchases or investments in Reg. A offerings—and the market prices of the microcap issuers’ stock. These declarations enabled the SEC to freeze $80 million in assets. By filing with the SEC in a timely manner, the Whistleblowers were not only able to help the SEC discover a completed fraud, but to stymie an ongoing one, thus protecting future investors.
Award Spotlight: Impact of Timely Reporting
The Commodity Futures Trading Commission similarly highlighted the significance of timely reporting in its November 12 press release, announcing a $4 million award to two whistleblowers. The same Order determined that a further three Whistleblowers were not eligible for any award.
While each successful Whistleblower was found to have provided specific, credible, and timely assistance to the CFTC that led to the charges being successfully resolved, one whistleblower received a larger award than the other due, in part, to the “timeliness of the reporting. ” Whistleblower Office Director Brian Young explained as a general rule, the office assigns “a decreased award for those who unreasonably delay reporting.”
For more information, see Lundin PLLC’s Whistleblower Write-Up. If you are interested in becoming a whistleblower, contact Lundin PLLC Senior Attorney Alexandra Douglas at [email protected].