Blow me, he said. So she did...

It must have been a rancorous divorce.

SEC now freer to hike whistleblower awards

A woman discovers on a family hard drive evidence that potentially implicates her ex-husband and the hedge fund in the insider trading scandal. She turns it over to investigators, who use it to shut down the fund and assess tens of millions of dollars in penalties. And then they pay $1 million to the woman for ratting on her ex.

It sounds like a tale spun in Hollywood, but it's the real-life story behind a recent Securities and Exchange Commission case, which could hint at the course of future investigations as the agency capitalizes on brand-new powers to financially reward whistleblowers.

It is the largest amount ever awarded by the SEC under a former authority to reward whistleblowers in insider-trading cases. But the size of the award underscores how the SEC plans to use an expanded power to reward people who provide help that can stop securities fraud.

The financial regulatory law signed by President Obama last week grants the SEC the authority to pay up to 30 percent of any monetary sanction to a whistleblower -- even if the whistleblower took part in misconduct. Although the previous law limited payments to insider-trading cases, money can now be doled out for information on any securities law violation.

The SEC's whistleblower system, until recently, had been considered ineffective.

Harry Markopolos, the whistleblower who tried to persuade the SEC that Bernard Madoff was running a Ponzi scheme, blasted the agency's program last year. "If my experience is any guide, the treatment accorded whistleblowers ranges from dismissive to outright unwelcome," he told a Congress.

The agency's internal watchdog has been equally critical.

In the recent case, the SEC charged that Pequot, Samberg and Zilkha engaged in insider trading in shares of Microsoft. The agency alleged that, in 2001, Samberg reached out to Zilkha for information on whether the company would meet its earnings estimates. Zilkha, then working for Microsoft, checked by e-mail with fellow employees to find out whether Microsoft would meet or beat its estimates.

Zilkha then gave Samberg the information, the SEC said, and Samberg traded, earning Pequot more than $14 million. Zilkha later joined Pequot for a short time, earning millions of dollars.

The e-mail from Zilkha to a colleague at Microsoft was the crucial document Kaiser turned over to the SEC. "We initially got involved to figure out why David Zilkha seemed so reluctant to tell Karen about this $2.1 million payment from Pequot," said Mark Sherman, the Kaisers' attorney. "Once we analyzed the family hard drive, we were able to help the SEC connect the dots in their investigation."

In May, Pequot and Samberg agreed to settle the charge for $28 million, including a $10 million penalty, the basis for the whistleblower payment. The case against Zilkha continues in administrative court.

Pequot and Samberg didn't admit or deny wrongdoing in the settlement. "Mr. Zilkha engaged in no wrongdoing and intends to take this matter to a hearing at which he will demonstrate he is innocent of any improper conduct," said Henry Putzel III, Zilkha's attorney.