Credit Suisse whistleblower to demand a reward from SEC
Whistleblower, Rich Gates, who tipped off wrongdoing over the operation of Credit Suisse's dark pool to the SEC, has said ﻿he plans to apply for a financial reward from the regulatory agency. The SEC can award whistleblowers between 10% and 30% of a fine, and with sources suggesting that Credit Suisse may have to pay c. $50m in fines to the SEC and $30m to the New York attorney general; Gates could potentially ﻿win﻿ $15m from the case﻿.

With reports that Credit Suisse may pay tens of millions of dollars to settle allegations of wrongdoing in the operation of its dark pool, the man who tipped off the agency says he’s planning to ask for a “whistleblower” award.

Rich Gates, the founder of fund manager TFS Capital, said he’s planning to apply for a whistleblower reward after the agency announces its penalty against Credit Suisse.

A Bloomberg News report said Credit Suisse may have to pay more than $50 million in fines and disgorgement to the SEC and another $30 million to the New York attorney general over allegations the company misrepresented itself. Credit Suisse declined to comment.

The SEC can award whistleblowers between 10% and 30% of a fine, meaning Gates potentially is in line for a $15 million payday. Gates said he will submit a claim, provided the SEC suit turns out to be along the lines of the complaints he made.

The issues Gates has had with dark pools have been well-chronicled, in the pages of the Wall Street Journal as well as the popular Michael Lewis book “Flash Boys.”

Gates devised tests of buying and selling the same security in various dark pools or exchanges to see whether anyone was getting in front of his trades. They were, including in Credit Suisse’s dark pool, Crossfinder, which Gates said was the result of what is dubbed latency arbitrage, or the practice of taking advantage of slight delays in price dissemination.

TFS Capital, for what it’s worth, is now a client of Credit Suisse’s Crossfinder.

“This was a bigger issue four or five years ago,” Gates said, which he believes is a result of his and other efforts to bring attention to the issue. “Since then, the SEC really tightened the screws, and it’s got much better.”

Gates recalls the conversations he had with the SEC about the allegations.

Gates recalls multiple phone calls and “tons” of emails with the SEC over the matter. That’s of significance since Gates potentially is in line to receive a whistleblower award, using powers granted to the SEC under the Dodd-Frank Act. The whisteblower awards are meted out if the SEC says “high-quality original information” is provided that leads to an enforcement action.

Gates says he’s not planning to take any more issues in the market to the government, though he does see issues around payment for order flow.

While one arm of the government may award Gates a substantial sum, another is trying to take it away. Another firm he’s involved with, the Powhatan Energy Fund, is being sued by the Federal Energy Regulation Commission, allegedly for manipulating the power market. Powhatan has set up a separate website in its public fight against the agency.

The irony Gates sees is that FERC is suing over what the SEC may reward him for — when a security is simultaneously bought and sold.

“There’s a funny parallel there,” Gates says. “HFT was invited to come in and slaughter the sheep. I think the same thing is happening in the FERC world, where utilities are the preferred players, and outsiders like me, you try to squish them.”