Bankruptcy Process Affects Whistleblower’s Big Payout

On June 27, 2021, the Wall Street Journal published an exposé by Mark Maremont on how a successful whistleblower under the U.S. Securities and Exchange Commission’s (“SEC”) program could still walk away with nothing. Jordan Thomas was quoted on the matter.

The article discussed the case of John McPherson and his whistleblowing about a company named Life Partners Holdings, Inc. (“LPH”). Mr. McPherson was a partner of a consulting firm in the “life settlements” industry at the time. He was credited with over 100 communications with SEC staff and estimates that he spent about 3,000 hours on the case over a 5-year period. Ultimately, the SEC pursued enforcement action against LPH based on Mr. McPherson’s information, obtaining an award of $47 million in sanctions.

However, because LPH declared bankruptcy and the SEC voluntarily subordinated its claim to the sanctions award, nothing was actually collected by the agency. Thus, it has not paid any award to Mr. McPherson, and maintains that it does not have to on this basis.

The article includes viewpoints – in addition to Mr. McPherson’s – that this approach discourages whistleblowers. Jordan remarked that the scenario was deeply troubling and inapposite to the foundation of the SEC program, but that such cases are relatively infrequent and tend to involve “low-level fraud.” Still, he opined that the SEC should reinterpret its relevant rule, or that corrective legislation should be enacted.