Carson Block and Muddy Waters sued for half of the $14 million whistleblower award by the Securities and Exchange Commission

A private investor is pursuing $7 million in a lawsuit against short seller Carson Block and his equity research firm Muddy Waters LLC in a spat over an approximately $14 million whistleblower award by the Securities and Exchange Commission. Kevin Barnes worked with Block on a report that formed the basis of an SEC action, and he and Block had agreed to share proceeds from regulatory actions stemming from their research on the China-based advertising company Focus Media Holding.

The 2010 Dodd-Frank Act established the SEC cash-for-tips program. It awards whistleblowers between 10% and 30% of monetary penalties when tips result in successful enforcement actions and when penalties exceed more than $1 million.

In his lawsuit, Barnes says the SEC granted Block the whistleblower award in March but he declined to compensate Barnes for his contribution to the report on Focus Media, which was published in 2011.

In keeping with its policy, the SEC doesn’t name whistleblowers or identify cases connected to awards. and the SEC said it eventually decided to award one claimant about $14 million and nothing to the other. The SEC also said the report on Focus Media didn’t name its authors, so the agency credited both claimants as authors.

Jeffrey Newman is a whistleblower lawyer with the firm Newman & Shapiro and can be reached at jnewman@NewmanShapiro.com or at 978-880-4758.