Monday, July 31, 2017

SEC awards two whistleblowers $4.2M, provides info on government employee eligibility

By Lene Powell, J.D.

In two whistleblower awards two days apart, the SEC awarded $2.5 million to a government employee and $1.7 million to a company insider who provided tips and continuing assistance in SEC enforcement actions. The orders were redacted to preserve confidentiality, but offer some information on award eligibility for employees of government agencies and factors in the size of awards (Release Nos. 34-81200 and 34-81227).

Government employee. In an award of almost $2.5 million, the claimant was “an employee of a domestic government agency” who reported suspicions about a company’s improper conduct to the SEC and provided supporting documentation. As the investigation progressed, the claimant continued to provide “specific, timely, and credible information, helpful documents, significant ongoing assistance, and relevant testimony that accelerated the pace of the investigation.”

The order notes that an employee of a federal, state, or local government agency can be eligible for an award under the SEC whistleblower program, subject to two statutory exceptions:
  • The claimant cannot be an employee of “an appropriate regulatory agency,” defined under Exchange Act Section 3(a)(34) as the Commission and any of the banking agencies listed in the definition, including the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation. 
  • The claimant cannot be an employee of an employee of “a law enforcement organization.” Neither the Exchange Act nor the whistleblower rules define this term, but the Commission interpreted it as “having to do with the detection, investigation, or prosecution of potential violations of law.” Although certain components of the claimant’s governmental employer have law enforcement responsibilities, those responsibilities are housed in a separate, different component of the agency. The SEC said that for appropriate cases, it makes sense to apply the term “only to employees of a clearly separate agency component that performs law enforcement functions, rather than to all employees of an entire agency that happens to have been granted law enforcement powers among its many other separate responsibilities and powers.” 
The claimant did not meet either exception, so was eligible for the award.

Company insider. The SEC awarded $1.7 million to a company insider who alerted the SEC to a serious, multi-year fraud that otherwise would have been difficult to detect, allowing the SEC to return millions of dollars to injured investors and prevent further harm.

“When whistleblowers tip the SEC, it not only can bring wrongdoers to justice but also relief to investors,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “This whistleblower's valuable information enabled us to stop further investor harm and ultimately return money to victims.”

The SEC made the award even though the claimant did not comply with Exchange Act Rule 21F-9(d), relating to submission of a signed Form TCR and submissions after the Dodd-Frank Act was enacted but before the effective date of SEC whistleblower rules. Normally this omission might require an award denial, but claims review staff found it appropriate to waive the requirement given “unusual circumstances”:
  1. SEC staff was already actively working with the Claimant before enactment of the Dodd-Frank Act; 
  2. The claimant provided the new post-Dodd-Frank Act information in the format requested by Enforcement staff; 
  3. The policy underlying the Rule 21F-9(d) writing provision, relating to the indicia of reliability and the certainty as to the time the information was provided, was clearly satisfied in the context of this claim. 
In considering whether the claimant’s delay in reporting the fraud should reduce the award, the Commission said it did not apply the delay factor as severely as it otherwise might have had the delay occurred after the whistleblower program was established and whistleblower protections were in place. The award was also affected to some extent by the claimant’s limited culpability in the fraud.

The releases are Nos. 34-81200 and 34-81227.