Dawn Brotherton May 9, 2016, 4:02pm


CHICAGO (Legal Newsline) — On Jan. 15, the Securities and Exchange Commission issued a press release saying that the agency had awarded a whistleblower $750,000. Later, the recipient, Eric Hunsader - founder and CEO of Nanex, LLC - identified himself to the press.

“I wanted to set the record straight,” Hunsader told Legal Newsline. “It was about our reputation.”

Nanex is a Chicago-based business that provides data analysis and exchange reporting on financial data feeds. In 2010, Hunsader was comparing the quotes in time-stamps between stock prices on the public and private New York Stock Exchange direct feed. These prices should be similar, but he discovered a “persistent delay in updating the data feeds.”

Nanex coined the term “quote stuffing.” He attempted to work with the NYSE to fix the problem, but his reputation and that of his company’s was allegedly attacked.

“Our research was the stuff of conspiracy theories,” is what he says others were saying about the analysis his company provided. He believed his character was disparaged.

He voluntarily took the information to the SEC as a whistleblower, but “the term whistleblower is a misnomer,” he said. He did not have insider information, but third-party data.

In 2012, the SEC fined the NYSE $5 million for compliance failures that gave certain customers an improper head start on trading information, which was shown by the analysis provided by Hunsader. The SEC said public customers did not have the same market information as proprietary customers, which is an unfair practice. It was the first time the SEC had fined a stock exchange.

The NYSE and NYSE Euronext were both ordered to cease and desist these alleged violations. In addition, the exchanges must also retain an independent consultant to review the market data to ensure compliance with the rules.

When the SEC announced the award of $750,000 given to a whistleblower for this enforcement action, it said in the press release, “The voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders"

Hunsader is the first independent third party to earn a Dodd-Frank whistleblower award, but not the first recipient. Since the inception of the Dodd-Frank program, the SEC has paid out more than $55 million to whistleblowers.

Hunsader had learned about the award about six months before it was made public. By law, the SEC cannot divulge the names of whistleblowers, either directly or indirectly.

Hunsader’s name was not made public until he went to the press. When asked if there was an award ceremony, Hunsader laughed, “I myself asked the same thing… There was no Ed McMahon moment. The money was wired into an account. I waited until everything was finalized before coming forward.”

Hunsader plans to use the money for college education funds for his four daughters. The SEC has an “investor protection fund established by Congress,” which is funded through the sanctions paid to the SEC.

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