The Phaserl


The Untold Story of Why the SEC Paid Whistleblower Eric Hunsader $750,000

by Pam Martens and Russ Martens, Wall Street on Parade:

On March 8, 2016 the Securities and Exchange Commission (SEC) wired $750,000 into the bank account of Eric Hunsader as a whistleblower award for spotting and documenting an illegality at the New York Stock Exchange. Hunsader is a trading software and market data expert and founder of Nanex LLC, a market data company that also provides a boatload of free research on behalf of the public interest. Hunsader is one more thing: he’s the SEC’s biggest critic when it comes to its failure to restore integrity to U.S. stock exchanges and U.S. markets.

The SEC doesn’t release the names of its whistleblowers but Hunsader alerted the media himself to his award in order to silence critics and one particular executive at the New York Stock Exchange who had, heretofore, disparaged in public Hunsader’s allegations about the NYSE’s discriminatory dissemination of market data in order to benefit high frequency traders.

In announcing the whistleblower award on January 15 of this year, the SEC seemed to go out of its way in its press release to pat its then unnamed whistleblower on the back, writing:  “This award demonstrates the Commission’s commitment to awarding those who voluntarily provide independent analysis as well as independent knowledge of securities law violations to the agency.  We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation.”

But the SEC’s appreciation wasn’t as generous as it might have been. According to the same press release, it could have awarded Hunsader up to 30 percent of the $5 million fine it collected from the New York Stock Exchange, or $1.5 million. Instead, it awarded Hunsader only 15 percent. And then there was the matter of the puny amount of the fine itself against the NYSE and how long it took the SEC to get the award to Hunsader.

The fine against the NYSE came on September 14, 2012. Hunsader’s wire of the money came over three years later. In announcing its action against the NYSE, the SEC noted that it was the first time it had ever imposed a financial penalty on an exchange. Under law, exchanges are supposed to be self-regulatory organizations, policing their own markets and upholding the highest principles of fair dealing to garner the public’s trust of U.S. markets.

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