Securities Headlines: SEC Announces $17M Whistleblower Lawsuit, Delta Employees File 401(K) Lawsuit Against Fidelity, Blackstone President Says Hedge Funds Could See 25% Asset Loss, and Deutsche Bank is Fined $6M By FINRA

SEC Issues Its Second Largest Whistleblower Award
U.S. Securities and Exchange Commission has awarded the ex-employee of a company more than $17M for a whistleblower tip that helped move the regulator’s probe forward, ultimately resulting in a successful enforcement action against that company. This is the second largest award that the regulator has issued since it started its whistleblower program in 2011.

To date, the program has awarded over $85M to 32 whistleblowers. The largest SEC whistleblower award so far has been $30M and it was issued in 2014. In the last five months alone, five whistleblowers have been awarded over $26M.

Under the SEC whistleblower program, whistleblowers may be entitled to receive a monetary award if the information they’ve voluntarily given the regulator is original and helpful, resulting in an enforcement action, and the monetary sanction arrived at is greater than $1M. In such cases the whistleblower may be entitled to 10-30% of the funds collected. The payments come out of an investor protection fund paid for by monetary sanction payments issued to the SEC for securities law violations.

Delta 401(K) Participants File Lawsuit Against Fidelity
Fidelity Investment units are now defendants in a 401(K) lawsuit filed by participants in a Delta Air Lines Inc. retirement plan. The plaintiffs want class action status.

They claim that Financial Engines, which was retained to give investment advice to the Delta Family-Care Savings Plan, is paying Fidelity a substantial chunk of the fees it receives from the 401(k) plan members. This has purportedly inflated the cost of investment advice services that are essential to the plan and is a violation of Fidelity’s fiduciary duty. They also claim that Fidelity’s management of BrokerageLink, a self-directed brokerage account, acquires share classes with high expense ratios that pay the broker dealer significant revenue-sharing payments. The plaintiffs believe Fidelity is “effectively” utilizing the assets of the plan to its benefit.

Fidelity claims the allegations are meritless.

Blackstone President Says Hedge Funds Could Industry Could Lose Assets
In a recent interview with Bloomberg TV, Blackstone Group LP President Tony James said that hedge funds might lose about 25% of its assets over the next year. The $2.9 trillion industry’s performance has been pretty bad for this year, with hedge funds suffering a 1.8% loss so far, and investors have been leaving. Last year’s results were also horrible and 979 funds were shut down.

James said to expect hedge funds to under-perform the stock market. He said that fees charged by hedge fund managers—usually 20% of investment profits and 2% of yearly assets” —are difficult to “justify” at the moment. Billionaire Warren Buffet has also said the same.


Deutsche Bank Ordered to Pay FiNRA $6M for Inaccurate Blue Sheet Data

The Financial Industry Regulatory Authority is fining Deutsche Bank Securities Inc. $6M for late and inaccurate blue sheet data. According to the self-regulatory organization, from at least ’08 through ’15, there were substantial failures with the firm’s blue sheet system, which caused Deutsche Bank (DB) to turn in thousands of blue sheets that omitted or misrepresented key information on more than 1 million trades. The inaccurate blue sheets were submitted to regulators.

FINRA also said that quite a number of these blue sheets failed to meet regulatory deadlines. For example, in July and August last year over 90% of the blue sheets submitted by Deutsche Bank were purportedly turned in late.

The regulator said that Deutsche Bank’s blue shield system failures included programming mistakes and a failure to put into place enhancements that would have allowed it to satisfy regulatory reporting requirements. By settling, the firm is not denying or admitting to the FINRA charges.

Blue sheets are designed to help FINRA and the SEC investigate for insider trading and market manipulating. Under FINRA rules and federal securities laws, firms must provide this information when regulators request them.

The SEC Order Regarding the Whistleblower Case (PDF)

Delta 401(k) participants sue Fidelity alleging fiduciary breach, BusinessInsurance, May 31, 2016

Blackstone’s Tony James predicts hedge fund assets may shrink by 25%, Opalesque, May 26, 2016

FINRA Fines Deutsche Bank Securities Inc. $6 Million for Submitting Inaccurate and Late Blue Sheet Data, FINRA, June 29, 2016