24 January 2017 - Post by:Kurt Wolfe
In 2016, the SEC announced 7 of its ‘Top 10’ whistleblower awards. And the Office of the Whistleblower has continued apace in 2017, recently announcing its sixth-largest whistleblower award – more than $5.5 million to a whistleblower ‘who provided critical information that helped the SEC uncover an ongoing scheme’.
According to the Order Determining Whistleblower Award Claim, the whistleblower was a corporate insider whose tip helped stop an ongoing scheme ‘that preyed predominantly on a more vulnerable investor community’. The Commission highly values whistleblower tips in cases involving affinity frauds or at-risk investors. Indeed, Jane Norberg, Chief of the SEC’s whistleblower office, hailed the contribution of the whistleblower in this case: ‘Whistleblowers play a key role in bringing wrongdoing to the SEC’s attention, and this whistleblower helped prevent further harm to a vulnerable investor community by boldly stepping forward while still employed at the company’.
A particularly interesting aspect of this award was the whistleblower’s failure to comply with Rule 21F-9, which sets out certain procedural hoops through which SEC whistleblowers must jump to qualify for an award. In particular, the whistleblower in this case failed to provide original information ‘in writing’ — a prerequisite for information to be considered as the basis for a whistleblower award.
The staff requested, and the Commission agreed, to waive the whistleblower’s non-compliance with the rule ‘given certain highly unusual circumstances’ surrounding the tip. The Commission noted that the whistleblower was working with the staff before the SEC whistleblower rules became effective, and it would have been counterproductive to require the whistleblower to reproduce the information in writing. The Commission also noted that the whistleblower submitted the information in ‘the format the Enforcement staff expressly requested’ and there were sufficient indicia of reliability as to the information provided.
The Commission’s decision to exercise its discretion to waive the whistleblower’s non-compliance with Rule 21F-9 is noteworthy. Rewarding a whistleblower who did not strictly adhere to the Commission’s whistleblower rules is unusual. Indeed, in recent months the SEC has denied several claims for whistleblower awards where claimants failed to comply with the rule. (See, for example, the SEC’s November 7, 2016, November 14, 2016, and December 19, 2016, orders denying claims for whistleblower awards for failure to comply with Rule 21F-9 requirements).
The SEC’s flexibility in this case demonstrates its commitment to attracting high quality tips about possible violations of the federal securities laws. The SEC will take extraordinary measures in appropriate circumstances to attract and reward whistleblowers. Whistleblowers’ counsel will undoubtedly tout this case as another potential incentive for would-be whistleblowers who are considering making a report to the Office of the Whistleblower.
This award brings the SEC’s tally to more than $142 million awarded to 38 whistleblowers since 2012. Impressively, the SEC boasts that ‘enforcement actions from whistleblower tips have resulted in more than $904 million in financial remedies’. The $904 million figure includes more than $400 million in disgorgement of ill-gotten gains.