More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Showing further signs that the Securities and Exchange Commission’s whistleblower program is working, the SEC announced Friday that three whistleblowers have been awarded more than $25,000 combined for tips and information they provided to help the agency and Justice Department stop a sham hedge fund.
The $25,000 is the first installment of anticipated payments to the whistleblowers as additional assets are collected from the purported hedge fund manager, the SEC said. The whistleblowers are expected to ultimately receive a total of approximately $125,000.
The SEC issued an order earlier this summer rewarding each of the three whistleblowers with 5% of the money that the SEC ultimately collects from its enforcement action against Locust Offshore Management and its CEO, Andrey Hicks.
“In cases where there are related criminal proceedings in which money is collected by another regulator, a provision in the whistleblower rules allows whistleblowers to then additionally apply for an award based off the other regulator’s collections in what qualifies as a 'related action,’” the SEC said in a statement. The commission subsequently approved 5% payouts to each whistleblower for money collected in the related criminal action.
Hicks pleaded guilty on Dec. 12, to five counts of wire fraud and consented to the forfeiture of his interest in property previously seized by the Justice Department. He was sentenced to 40 months in prison.
Approximately $170,000 has been administratively forfeited in the criminal proceeding, money that is deemed collected for purposes of issuing whistleblower awards, the SEC says.
Therefore, the SEC says that the three whistleblowers will now receive $8,505 each. Additional payments can be made to these whistleblowers upon forfeiture of the additional assets that have been seized. The aggregate value of assets seized from Hicks is estimated to be approximately $845,000, and the whistleblowers are expected to ultimately receive 15% of this amount for a combined total of approximately $125,000.
Whistleblowers’ names are confidential under the SEC’s whistleblower program. The order states that two of the whistleblowers provided information that prompted the SEC to open an investigation and stop the scheme before more investors were harmed. The third whistleblower identified key witnesses and confirmed information the other two whistleblowers provided.
The SEC’s whistleblower program is authorized under the law to reward individuals who offer high-quality, original information that leads to an SEC enforcement action in which more than $1 million in sanctions is ordered.
More information about the whistleblower program and how to report a tip is available at http://www.sec.gov/whistleblower.