Last week, the Securities and Exchange Commission (SEC) issued an order awarding three whistleblower awards to tipsters who helped the SEC with its enforcement action against Locust Offshore Management, LLC and its CEO Andrey C. Hicks. The SEC has not collected against its $7.5 million default judgment against the defendants, so the whistleblowers will have to wait to receive their award. With each whistleblower positioned to receive five percent of what the SEC ultimately recovers, the whistleblowers could each receive a maximum of $375,000.

While these awards are modest compared to the mega-millions some originally predicted, they are significant in the trend they portend. The SEC issued its first whistleblower award for $50,000 in August 2012. The long lull between the first and second awards led many to criticize the program, but it appears the tides are turning and the long-predicted waves of awards are about to begin. Recently, the SEC Division of Enforcement Associate Director Stephen Cohen, stated that the SEC plans to announce more and larger awards over the next year. This is supported by information on the SEC's website which posts Notices of Covered Actions whenever a final judgment or order results in monetary sanctions exceeding $1 million. Right now, for 2013 alone, there are 51 cases eligible for a whistleblower award. The whistleblower program currently has more than $450 million in funding, another sign that the SEC anticipates more and larger payouts in the future.

The three unnamed whistleblowers will each collect five percent of the SEC's ultimate recovery against Locust and Hicks. The SEC filed the enforcement action in October 2011 in the U.S. District Court for the District of Massachusetts, alleging that Hicks falsely portrayed Locust as a pooled investment fund incorporated in the British Virgin Islands. In reality, Locust was entirely fictitious and Hicks transferred more than $1.7 million from multiple investors to his personal bank accounts. Two days after the SEC filed its enforcement action, the Department of Justice (DOJ) unsealed a criminal complaint against Hicks charging him with wire fraud, attempting to commit wire fraud and aiding and abetting wire fraud. Hicks later pleaded guilty and was sentenced to 40 months in prison.

The SEC order stated that the whistleblowers "voluntarily provided original information to the commission that led to the successful enforcement of the Locust matter." Two of the whistleblowers provided information that prompted the SEC to open the investigation, allowing the SEC to stop the fraudulent scheme before more investors were harmed. The third whistleblower confirmed information uncovered in the investigation and identified key witnesses. The SEC disclosed the existence of a fourth whistleblower whose award was denied as the information provided was not deemed to "significantly" contribute to the enforcement action. The three SEC whistleblowers will also be able to apply to the SEC for awards based on any amounts collected by the DOJ stemming from Hicks's guilty plea.

While this second award may not be significant in and of itself, what it signals for companies is the beginning of an unsettling trend. As employees become increasingly aware of the potential to receive monetary awards for blowing the whistle, employees will be incentivized to disclose potential misconduct to the SEC rather than remaining quiet or reporting internally. With 3,001 whistleblower tips received in 2012, the whistleblower program is here to stay. For corporations, that means ensuring that compliance programs and training are up-to-date and that employees are aware of all avenues for reporting suspected misconduct internally.