Whistleblower Thought He Would Get a Big Payout. Instead He Got Nothing and Went Broke – The Wall Street Journal

John McPherson was almost certain hed get rich from the Securities and Exchange Commissions whistleblower program. Instead, he ended up bankrupt and embittered.

Despite what the SEC called his extraordinary and continuing assistance in helping the agency shut down an alleged $1.4 billion investment scam, Mr. McPherson was notified last year that his whistleblower award would likely be close to zero.

The reason? The target company, Life Partners Holdings Inc., had declared bankruptcy, and the SEC never collected financial penalties it was owed. Investors, however, were able to recoup more than $1 billion through the bankruptcy process.

Mr. McPhersons experience illustrates a little-known facet of the SECs whistleblower program: The regulator wont pay awards for financial recoveries in bankruptcy proceedings, even if the affected company entered bankruptcy as a result of the agencys enforcement actions.

Some critics say that discourages people from reporting the most egregious fraudsPonzi schemes and companies with major accounting chicanerywhich often collapse or end up in bankruptcy court.

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Whistleblower Thought He Would Get a Big Payout. Instead He Got Nothing and Went Broke - The Wall Street Journal