Are the Feds on to you, whatever it is you’ve allegedly been doing wrong? Is the SEC about to bring an enforcement action against you for running a Ponzi scheme/defrauding investors/cooking the books? Fear the FBI is about to knock on the door with some uncomfortable questions about some questionable filings or performance reports or unusually well-timed stock trades? Got a sense that the unfortunateness about to befall you is the consequence of some rat bastard stabbing you in the back?

Well, there may be nothing you can do at this late a stage to save yourself. But you can be sure to screw the aforementioned stool pigeon right back by simply making a bankruptcy filing the last thing you do before the cuffs hit your wrists.

The [SEC], in revising and clarifying rules for its whistleblower program last year, said that by statute it can only pay awards based on actions brought by it or other government entities, not from bankruptcies, which are private actions. That is true, it said, even if a bankruptcy in some way results from SEC enforcement action or the activities of a whistleblower….

The SEC asked the federal judge overseeing the case to appoint a receiver to take control of Life Partners. If that had happened, Mr. McPherson might have been in line for a whopping payout, based on the more than $1 billion later recovered by investors…. On the eve of a January 2015 hearing at which the judge was going to consider appointing a receiver, Life Partners filed for bankruptcy protection, saying it was doing so “to avoid the appointment of a receiver which could have liquidated the company.”

The SEC quickly got the bankruptcy judge to appoint a trustee to take control of Life Partners. It was an almost identical outcome, but under the aegis of a bankruptcy court…. Part of the reason the SEC hadn’t collected anything was due to the regulator’s own actions. When Life Partners declared bankruptcy, the SEC had a legal claim over $38.7 million, which was the company’s portion of the disgorgement and penalties the agency had won in the 2014 court judgment. But the SEC voluntarily subordinated its claim, making sure Life Partners’ retail investors collected as much as possible.

Whistleblower Thought He Would Get a Big Payout. Instead He Got Nothing and Went Broke [WSJ]

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