Second SEC Whistleblower Award Granted On Appeal

In its Preliminary Determination, the SEC’s Claims Review Staff (“CRS”) recommended denying an individual any SEC whistleblower reward.  The individual challenged the Preliminary Determination and took an administrative appeal to the Commission.  On May 13, 2016, the Commission granted the individual an award.  This was only the second SEC whistleblower award granted on appeal.

As of the end of Fiscal Year 2017, the SEC had received over 22,000 tips from whistleblowers.  In the eight+ years since the SEC whistleblower program began in 2010, many of the CRS’s recommendations to deny SEC whistleblower awards in other cases had been appealed to the Commission.  The Commission denied all but one of those appeals.

For information about the first SEC whistleblower award ever granted on appeal, click here.

second SEC whistleblower award

The SEC Order

Why The CRS Recommended Denying Any Award

The Order clarified that the SEC first opened its investigation in response to certain media reports.

After the investigation began, the individual submitted a “detailed whistleblower tip” about the same misconduct.

Although the SEC was already aware of the misconduct, the individual’s tip provided new information and supporting documentation.  In addition, SEC Enforcement staff spoke with the individual concerning the tip.

The Claims Review Staff’s reason for recommending the denial of any SEC whistleblower reward was that the information provided by the individual “did not lead to the successful enforcement of the Covered Action”.  As explained in the Commission’s Order:

Specifically, based on the factual record at the time, it appeared that Claimant’s information did not cause Enforcement staff to open the investigation or to inquire into different conduct, nor did the information appear to have significantly contributed to the success of the Covered Action.

Additional Evidence Led To The Second SEC Whistleblower Award On Appeal

After the individual submitted a written response to the Preliminary Determination, the CRS “received certain additional factual information from the staff in the Division of Enforcement responsible for the Covered Action”.

The additional evidence provided by the Enforcement staff itself showed that the individual’s whistleblower tip and assistance caused the staff to focus on conduct that it “might otherwise not” have focused on.

According to the Order, the whistleblower’s information “strengthened the Commission’s case by meaningfully increasing Enforcement staff’s leverage during the settlement negotiations” with the company.

The Commission explained that the new evidence “demonstrates that Claimant’s information was meaningful and that it made a substantial and important contribution to the successful resolution of the Covered Action”.

As a result, the Commission found that “Claimant’s information significantly contributed to the successful enforcement of the Covered Action within the meaning of Rule 21F-4(c)(2)” and gave him or her just the second SEC whistleblower award granted on appeal.  The SEC whistleblower reward came to more than $3.5 million.

second SEC whistleblower awards

The SEC’s press release

In a press release about the award, the Director of the SEC’s Division of Enforcement stated that “Whistleblowers can receive an award not only when their tip initiates an investigation, but also when they provide new information or documentation that advances an existing inquiry”.

Additional Information

For additional information about the second SEC whistleblower award granted on appeal, click on the links below: