Chat, we need to have a talk about whistleblowers getting left in the cold….

It’s a story as old as Wall Street. A group of savvy insiders gets together. They find a company, usually a small one, and quietly buy up huge amounts of its stock for cheap.

Then, the magic begins. They orchestrate a flurry of promotional activity and manipulative trades, creating the illusion of a hot commodity. The stock price soars. This is the “pump.”

Unsuspecting investors see the surge. They jump in, dreaming of a windfall. That’s when the insiders sell everything. The stock price collapses, leaving those regular folks holding a bag of worthless shares. This is the “dump.” In this case, a crew led by a man named Barry Honig allegedly pocketed millions.

This here article be a story about the people who tried to stop the crooks. It’s about what happens when you stick your neck out to do the right thing and the system you’re trying to help decides your contribution just wasn’t good enough.

The Outsiders’ Warning

Long before the SEC officially took action, the warnings were coming in. Two groups of outsiders saw the smoke and tried to point out the fire.

First, there was Lee Pederson, a patent attorney who had worked for Biozone, one of the companies at the heart of the scheme. Starting in 2013, he began sending tips to the SEC. He laid out the pump-and-dump, naming names like Phillip Frost, who he called the leader of a “white collar gang”. Pederson was candid. He admitted much of his information came from public sources, like lawsuits, but insisted his analysis was unique.

He sent dozens of emails over the years, a persistent voice trying to get someone, anyone, to pay attention.

Around the same time, John Amster and Robert Heath, two executive officers and patent experts, were on the same trail. In late 2013, they walked into the SEC’s Washington D.C. office for a meeting with high-level enforcement staff.

They presented case studies of what they saw as blatant pump-and-dump schemes, identifying some of the very same people the SEC would later charge, including Honig. They were trying to hand the regulators a roadmap to the fraud.

They did everything you’re supposed to do. They gathered evidence. They reported it through the proper channels. They put their credibility on the line. And they waited.

The Insider’s Edge

While Pederson, Amster, and Heath were sending their warnings from the outside, Daniel Fisher was on the inside.

He was a co-founder of Biozone, the company Frost eventually took over. After being forced out in 2012, he had a front-row seat to the scheme’s mechanics. He filed his own tips with the SEC in 2011 and 2012, long before the others.

Things got complicated. Fisher sued the men behind the scheme, but then settled with them in 2013. That settlement included a crucial clause: Fisher was supposed to withdraw his complaints to the SEC and the FBI. He was essentially agreeing to stay quiet. A court later found he violated that agreement by not withdrawing his grievances.

Yet, in October 2015, the SEC came calling. They invited Fisher to an in-person meeting. It was there, behind closed doors, that Fisher laid it all out. He described meetings he’d been in, the shady deals that created Biozone, and the whole pump-and-dump playbook.

This, the SEC decided, was the good stuff. It was new, it was helpful, and it “substantially advanced the investigation”. Fisher was the key.

The System’s Verdict: “Thanks, But No Thanks”

When the dust settled, the SEC had won. They secured over $11 million in sanctions from Honig and his crew. Under the Dodd-Frank Act, a portion of that money—up to 30 percent—was set aside as an award for the whistleblower whose information “led to the successful enforcement” of the case.

The SEC gave the entire award to one person: Daniel Fisher.

Pederson, Amster, and Heath got nothing. The SEC’s reasoning was a masterclass in bureaucratic logic.

Pederson’s tips, they said, were not helpful. His information was “duplicative,” “general in nature,” and based on public sources the staff already had. The SEC’s own enforcement attorney, Katherine Bromberg, declared that her team performed its “own analysis separate from any information provided by Pederson”. His years of emails and warnings? They didn’t move the needle.

Amster and Heath’s detailed presentations? Even worse. According to the SEC, the New York-based team that ran the investigation never even saw their information.

Their tips went into a black hole in the D.C. office. Because the enforcement staff didn’t personally use their information, it couldn’t have “led to” the outcome. It was a classic case of the right hand not knowing what the left was doing.

The whistleblowers took their fight to court, but the outcome was the same. The court deferred to the SEC’s discretion, finding its decisions were supported by “substantial evidence”—a legal standard that is, by the court’s own admission, “not high”. The system had spoken.

So What? A Chilling Message

This isn’t just about three guys who missed out on a payday. It’s about the message the system sends to anyone thinking about blowing the whistle on corporate crime.

The law was designed to create a powerful incentive for people to come forward with information about fraud. But what this case reveals is a system that can feel arbitrary and opaque. It suggests that your reward doesn’t just depend on the quality of your information, but on whether it lands on the right desk, at the right time, and is seen by the right person.

It rewards the well-placed insider, even one with a complicated past, over the diligent outsiders who…. you know, weren’t actively engaged in the fraudulent scam??

It allows the government to dismiss years of effort by simply saying, “We already knew that,” or “The right team never saw it.”

When we create a shitty economic system where doing the right thing feels like playing the lottery, we all lose. The next time a massive fraud is brewing, will the next Lee Pederson or John Amster even bother to pick up the phone? Or will they look at this story and decide it’s just not worth the fight?

All factual claims in this article are sourced from the United States Court of Appeals for the Eighth Circuit decision in Pederson v. U.S. Securities Exch. Comm., No. 24-2330, filed on August 22, 2025.

If you want to read a PDF about this legal case then please click on this following link: https://ecf.ca8.uscourts.gov/opndir/25/08/242330P.pdf