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Whistleblowers: Incentives, Disincentives, and Protection Strategies by Frederick D. Lipman

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CHAPTER ONE

The Dramatic Expansion of Whistleblower Awards under Dodd-Frank

ON JULY 23, 2010, the Securities and Exchange Commission (SEC) announced an award of $1 million to Glen Kaiser and Karen Kaiser (formerly Karen Zilkha) of Southbury, CT, for providing information on alleged illegal insider trading in Microsoft Corp. by a hedge fund advisor (Pequot Capital Management, Inc.); its chief executive, Arthur J. Sanberg; and David E. Zilkha. Mr. Zilkha was previously a Microsoft employee who was married to Karen and who accepted an employment offer at Pequot. Karen subsequently married Glen Kaiser, an anesthesiologist. While Pequot was in the process of hiring him, Mr. Zilkha allegedly tipped Pequot and Sanberg about an upcoming earnings report from Microsoft that indicated that the company would beat its earnings target. Sanberg allegedly traded on this inside information, reaping $14.8 million in profits, and the SEC won a judgment (including interest) against Pequot and Sanberg for $17,938,468. Documents in the Zilkhas' divorce proceedings revealed that Pequot agreed to make a $2.1 million payment to David Zilkha several years after his departure from Pequot in November 2001.1

How did Karen Kaiser uncover the specific evidence that resulted in her $1 million award? When Karen and David Zilkha divorced, Karen had kept the hard drive from the family's computer because it contained family photos. During the divorce and child support proceedings, David Zilkha listed a $2.1 million ...

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