Friday, September 08, 2017

No award for whistleblowers who filed late claims

By Anne Sherry, J.D.

The Second Circuit affirmed an SEC order denying a whistleblower award to two claimants who applied two years past the claim deadline. The court would not set aside the SEC’s interpretation of its rule as requiring timeliness unless the delay is due to factors beyond the claimant’s control. The Commission was also not required to provide the petitioners with actual notice of their potential eligibility for an award (Cerny v. SEC, September 7, 2017).

The notice of covered action posted on the SEC’s website listed the deadline to file a claim as June 3, 2012, but the petitioners did not apply for awards until 2014. Last March, the Commission entered a final order concluding that the claims were untimely and that the claimants had not demonstrated extraordinary circumstances warranting relief from the time bar. The claimants timely appealed to the Second Circuit.

Under the SEC’s whistleblower rules, an award claim is barred if the application is not submitted within ninety days of the notice of covered action. The Commission retains the sole discretion to waive any of its award procedures “based upon a showing of extraordinary circumstances.” It has consistently interpreted this to mean that the failure to timely file was beyond the claimant’s control.

The petitioners argued that the quality of information they provided to the agency, and the agency’s failure to properly catalog their submissions, constituted extraordinary circumstances. But they failed to demonstrate how the SEC’s interpretation of its regulation was plainly erroneous or inconsistent with the rule. The appeals court concluded that the SEC’s interpretation was controlling, and the agency did not abuse its discretion by determining that the petitioners had not established extraordinary circumstances.

The second argument before the appeals court was that the lateness should be excused because the petitioners never received actual notice of their eligibility for a whistleblower award. The court noted that under the relevant regulation, the SEC is not required to provide actual notice. The rule simply provides that when an SEC action results in monetary sanctions exceeding $1 million, “the Office of the Whistleblower will cause to be published on the Commission’s Web site a ‘Notice of Covered Action.’” The SEC did not abuse its discretion by declining to excuse the lateness based on a lack of actual notice, and to the extent the petitioners challenge the notice rule itself, that is beyond the scope of the appeals court’s review.

The case is No. 16-934-ag.

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