Whistleblower update: Normal service resumes at the SEC’s Office of the Whistleblower

Kurt Wolfe

Things went conspicuously quiet at the SEC’s Office of the Whistleblower after President Trump took office. Over the past several weeks, however, there have been a number of interesting developments at the Whistleblower Office, which remind us that the SEC’s whistleblower program is still up and running. In this blog, we take a look at several of those developments.

 

Busy Spell Gives Way to Months of Relative Quiet

Leading up to President Trump’s inauguration, the Whistleblower Office operated at near break-neck pace. From November 8, 2016 through January 20, 2017, the Commission approved a number of high-dollar whistleblower awards, including three of its “top ten” whistleblower awards;[1] it also announced actions against several employers that improperly impeded or retaliated against whistleblowers.[2]

But after President Trump’s inauguration, the Whistleblower Office became noticeably quiet. In fact, over the next three months, the office took only three public actions, all of which related to Obama-era whistleblower tips:

 

  • On January 23rd, the Monday after President Trump’s inauguration, the Whistleblower Office announced a $7 million award, split among three whistleblowers who “helped [the Commission] detect and prosecute a scheme preying on vulnerable investors.”

 

  • On February 18th, the Commission issued a Final Order denying a whistleblower award claim that the Claims Review Staff initially declined in September 2016.

 

  • And on February 28th, without a press release, the Whistleblower Office approved a whistleblower award claim that the Claims Review Staff initially recommended in June 2016.

 

Some speculated that the relative silence might indicate that changing political winds had shifted away from the whistleblower program. But that doesn’t seem to be the case. Many legislators, notably Senator Chuck Grassley (R-Iowa), remain steadfastly behind government whistleblower programs.[3] And the Financial CHOICE Act 2.0, viewed by many as a potential bellwether of securities enforcement attitudes in the Trump Administration, does little to diminish the SEC whistleblower program. (Indeed, as Reuters recently reported, the bill would deny bounty payments to SEC whistleblowers who are implicated in the misconduct they reported—a mere tweak to existing limitations.)

 

Normal Service Resumes at the Whistleblower Office

Notwithstanding the period of relative quiet, in recent weeks things have picked up considerably.

On April 25th, the SEC approved the first whistleblower award of the Trump Administration—a $4 million award that marks the tenth-largest award in the program’s history. According to the press release announcing the award, the Commission awarded “a whistleblower who tipped the agency with detailed and specific information about serious misconduct and provided additional assistance during the ensuing investigation, including industry-specific knowledge and expertise.”

The award is noteworthy because a prerequisite to qualify for a whistleblower award—that the tip must lead to an enforcement action in which the Commission obtains monetary sanctions totaling more than $1,000,000—was partially satisfied “by payment…to another governmental authority” in a related action. This is only the second time the Commission has approved an award on the basis of sanctions collected in a related action.

On May 2nd, the Commission announced an award of more than $500,000 to a whistleblower who reported “information that prompted an SEC investigation into well-hidden misconduct that resulted in an SEC enforcement action.” Jane Norberg, Chief of the SEC’s Office of the Whistleblower, lauded the value of company insiders who report possible securities laws violations. “Company insiders are in a unique position to provide specific information that allows us to better protect investors and the marketplace,” she said. “We encourage insiders with information to bring it to our attention.”

Most recently, on May 4th, the Commission denied a whistleblower award claim. Denials aren’t typically great fodder for conversation, but in this case the Commission issued a detailed order that includes several helpful insights. First, tips provided before the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, do not constitute “original information” under the whistleblower rules and, therefore, cannot form the basis of a successful whistleblower claim. Second, even if timely submitted on the proper form, a tip on which the Enforcement staff did not rely cannot form the basis of a successful whistleblower claim—even if the tip ostensibly relates to a successful enforcement action. Finally, to form the basis of an award, any information shared with other federal agencies must have been shared with the Commission and led to the success of an SEC enforcement action. In this case, the claimant could not demonstrate that he submitted a tip to the SEC, or another government agency, that the Enforcement staff relied on in connection with a successful enforcement action.

 

What’s next for the Whistleblower Office?

Including its April 25th and May 2nd awards, the Whistleblower Office has now awarded approximately $154 million to 44 whistleblowers. And according to the SEC, enforcement actions from whistleblower tips have resulted in more than $953 million in financial remedies.

At the moment, no proposed legislation would do great harm to the SEC’s whistleblower program, and rumors that the program could be on the chopping block have subsided.

As such, if recent events are any indication, we expect the Whistleblower Office to continue enticing and rewarding whistleblowers. We will continue to update you on developments relating to the whistleblower program.

 


[1] The whistleblower awards included awards of $20 million, $5.5 million, and $3.5 million, all of which counted among the SEC’s ten largest whistleblower awards at the time. During the same time period, the Whistleblower Office also approved an award of nearly $1 million. I previously analyzed the $20 million and $3.5 million awards here; my analysis of the $5.5 million award is available here.
[2] On December 19, 2016, Neustar Inc. agreed to pay $180,000 to settle charges that its severance agreements improperly impeded at least one former employee from communicating with the SEC. On December 20, 2016, Sandridge Energy Inc. agreed to pay $1.4 million to settle charges that it used illegal separation agreements and retaliated against an internal whistleblower. On January 17, 2017, an investment manager agreed to pay $340,000 to settle charges that its separation agreements improperly required exiting employees to waive their ability to obtain whistleblower awards. And on January 19, 2017, HomeStreet Inc. agreed to pay $500,000 to settle charges that it improperly took steps to impede former employees from sharing information with the SEC. (The settlement also included certain accounting violations.)
[3] Indeed, in March 2017, Senator Grassley and Senator Ron Wyden (D-Oregon) introduced bipartisan legislation to improve IRS communication with tax fraud whistleblowers and protect those whistleblowers from workplace retaliation.
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