The Commission’s First SEC Whistleblower Award Granted On Appeal
The First SEC Whistleblower Award Ever To Overrule A Preliminary Determination Of The SEC’s Claims Review Staff
The SEC’s Claims Review Staff (“CRS”) issued a Preliminary Determination recommending that an individual’s SEC whistleblower reward claim be denied entirely. The individual contested the Preliminary Determination through an administrative appeal to the Commission. On July 31, 2014, the Commission departed from the CRS’s recommendation and granted an award to the individual. This was the first SEC whistleblower award ever granted by the Commission on an appeal from an adverse decision of its CRS.
Previously, numerous CRS recommendations to deny awards in other cases had been appealed to the Commission. None of those appeals were granted.
Inside Counsel magazine named this award as one of the “Five milestones in the Dodd-Frank whistleblower reward program”.
[Disclaimer: The SEC whistleblower in this case was a client of The Pickholz Law Offices LLC.]
Persuasive Detailed Chronology Presented On Appeal
In the Commission’s Order granting the award on appeal, it explained the CRS’s reasoning. The CRS had recommended denying an award because, while the individual’s information was both “original” and “led to the successful enforcement” of the SEC’s action, it did not appear to the CRS to have been provided “voluntarily” because a self-regulatory organization (“SRO”) had previously inquired into the matter.
Among other things, the individual’s appeal “set forth a detailed chronology of the relevant events” that persuaded the Commission that he “engaged in diligent efforts to correct and bring to light the underlying misconduct in this case”.
The Order described the chronology and facts as “materially significant extenuating circumstances”. Therefore, the Commission deemed it “appropriate in the public interest and consistent with the protection of investors to waive the ‘voluntary’ requirement … on the unique facts of this award claim and to make an award to” the whistleblower.
Extenuating Circumstances Contributed To First SEC Whistleblower Award On Appeal
In a footnote, the Commission described some of the extenuating circumstances that led it to grant its first SEC whistleblower award ever on appeal. “Among the highly unusual circumstances that” the individual presented on appeal were:
(1) “prior to the enactment of the Dodd-Frank whistleblower award program and the concomitant anti-retaliation protections, Claimant was working aggressively internally at [Redacted in original] to bring the securities law violations to the attention of appropriate personnel and to obtain corrective action for the benefit of investors;”
(2) “the SRO inquiry originated from information a third party provided to the SRO that in part described Claimant’s role in identifying the issue that gave rise to the violations and — effort to obtain corrective action;”
(3) “Claimant was led to believe by [Redacted in original] early on during the SRO inquiry that [Redacted in original] had provided the SRO with all of the materials that Claimant had developed for his use in internal efforts to obtain corrective action; and”
(4) “Claimant’s persistent efforts in reporting to the Commission once — learned that the SRO inquiry had been closed and that [Redacted in original] internal efforts would not protect investors from future harm.”
First SEC Whistleblower Award On Appeal Recognized Claimant’s Efforts As Well As Personal And Professional Injuries Suffered
As stated in the Order:
We believe that this award appropriately recognizes the significance of the information that the Claimant provided to the Commission, the efforts the Claimant made both to protect investors and to report the violation internally, and the personal and professional injuries that the Claimant suffered in bringing the violations here to light.
In a press release about the award, the Chief of the SEC’s Office of the Whistleblower stated:
The whistleblower did everything feasible to correct the issue internally. When it became apparent that the company would not address the issue, the whistleblower came to the SEC in a final effort to correct the fraud and prevent investors from being harmed.
He added that “This award recognizes the significance of the information that the whistleblower provided us and the balanced efforts made by the whistleblower to protect investors and report the violation internally.”
For additional information about this first SEC whistleblower award ever granted on appeal, click on the links below:
- The SEC’s July 31, 2014 Order granting the award. (External link to the SEC’s website.)
- The SEC’s Press Release about the award. (External link to the SEC’s website.)
- Excerpt from Inside Counsel magazine article naming the award as one of the five key events in the history of the SEC whistleblower program. (Note: external link to The Pickholz Law Offices website. )
- Video Documentary about the case, “The Whistleblower’s Story”. (External link to YouTube.)
- Article about the case, “Former MassMutual agent: Why I became a whistle-blower”. (External link to the Boston Business Journal)
- Article about the case, “The Man Who Blew The Whistle”. (External link to The New York Times)
- Article about the case, “The $2.5 Billion Math Problem”. (External link to Colgate University website.) Short excerpt from the article here. (Note: external link to The Pickholz Law Offices website.)