A provisions of the newly enacted Dodd Frank act allows whistleblowers to share in the recovery against financial wrongdoers if the sactions exceed $1 million. This is a very broad statute and relates to almost any kind of financial mis-dealings. An example? The Securities and Exchange Commission charged a Connecticut based hedge fund manager Pequote Capital Management Inc. and its Chairman and CEO Arthur Samberg with insider trading in Microsoft Corporation securities. A separate action was brough against a former Microsoft employee who later worked at Pequot for allegedly tipping the firm and Samber with nonpublic information about Microsoft earnings. Pequit and Samberg agreed to pay $28 million to settle the SEC charges.The SEC’s complaint against Pequot and Samberg, filed in U.S. District Court in Connecticut, alleges that amid rumors in April 2001 that Microsoft would miss its earnings estimates for the quarter that had just ended, Samberg sought information from Zilkha, a Microsoft employee who had just accepted an offer from Samberg to work at Pequot. Zilkha quickly reached out to a Microsoft colleague, who sent him an e-mail stating that the company would meet or beat its earnings estimates for the quarter.
According to the SEC’s complaint, Zilkha then conveyed to Samberg his understanding that Microsoft would meet or beat its earnings estimates. Samberg thereafter traded in Microsoft on behalf of funds managed by Pequot. On April 19, after the market had closed, Microsoft announced that it beat its earnings estimates, driving up the price of Microsoft’s stock. As a result of the illegal trading by Pequot and Samberg, the Pequot funds made more than $14 million. The whistleblower is entitled to 30% of that amount or $4.2 million.
