The SEC doled out another huge whistleblower award on Thursday, this time splitting $54 million between two whistleblowers in a case with enough special circumstances to make your head spin.

The first recipient, Claimant 1, received $39 million, the second-largest award the SEC has ever given. That said, the SEC denied Claimant 1 even more money because he had already been seeking another award from a second agency related to the same offense.

Another person, Claimant 2, received $15 million — even though that person didn’t approach the SEC with his information until after another agency interviewed him first, another departure from typical whistleblower award practice.

As usual, we don’t know much about the specifics of this case, such as what firm suffered the enforcement action or the exact penalty that firm paid. But whistleblower awards must fall between 10 and 30 percent of whatever monetary settlement results from the tip. So $54 million in awards means the original sanction was anywhere from $180 million to $540 million.

Regardless, the SEC order granting the awards makes for interesting reading. For example, Claimant 1 apparently was “unreasonably delayed” in reporting his tip to the SEC, but that information subsequently proved so valuable that it was worth the $39 million anyway. Claimant 1 also won favor with the agency because he “provided ongoing assistance to the Enforcement staff, including traveling at Claimant 1’s own expense to meet with staff in person on multiple occasions.” (Frequent flier miles, people; that’s why you save them up.)

Claimant 2, meanwhile, first appeared before a different agency (we don’t know which one) conducting its own investigation related to whatever corporate misconduct started all this. More than a year later, Claimant 2 then showed up at the SEC with his whistleblower tip, and the information he presented to the SEC somehow stemmed from his earlier interview with the first agency.

Normally that would leave you ineligible for a whistleblower award, because your tip no longer qualifies as a “voluntary” submission under Rule 21-F4(a) of the SEC’s whistleblower program. That rule says a person must offer his or her tip before the Commission sends a “request, inquiry, or demand” to him or her looking for the low-down.

So what happened here? The order doesn’t say much, although it offers one clue.

First, Claimant 2 tried to say Rule 21-F4(a) didn’t apply to him because the other agency didn’t direct its request specifically to him — and then Claimant 2 cites several factors supporting that point which, lamentably, the SEC redacted from its final order. Whatever those arguments were, the SEC rejected them anyway, but redacted all its counter-arguments, too.

Then, however, the order breezily continues: “At the same time, we recognize that the specific concerns animating Rule 21F-4(a) are not present under the unique circumstances of this case and that relief from the strict operation of the rule is appropriate.”

The bottom line: the SEC does want to be strict with eligibility for its whistleblower awards, especially when the claimants are working with multiple agencies investigating the same corporate misconduct. But the SEC also will depart from its rules if special circumstances arise.

Compliance officers on the outside of a case, however, are still left to wonder exactly what those special circumstances might be.

Whistleblower Politics

Speaking of whistleblower awards, our previous post was a look at comments the SEC has received for its proposals to reform the whistleblower awards program — including the controversial idea of capping large awards at no more than $30 million.

One comment that jumped out to me came from whistleblower law firm Kohn, Kohn & Colapinto. The firm warned that many whistleblowers have already submitted tips under the current regime, without caps on their potential awards, and still await a determination on their claims. If the SEC now does impose caps, that “raises major due process issues.”

That strikes me as the sort of language you’d use in a legal challenge against whatever caps the SEC might decide to impose. And the Democratic commissioners on the SEC, Kara Stein and Robert Jackson, have already said they’re not sure the language of the Dodd-Frank Act allows the SEC to impose a cap.

All summer I’ve dismissed the possibility of a legal challenge because the SEC had been deadlocked at a 2-2 partisan split; it’s not like the agency was going to adopt any reforms anyway. But the Senate did confirm Elad Roisman this week to be the fifth commissioner, giving SEC chairman Jay Clayton his Republican majority again.

So suddenly, pushing through these program reforms is much more possible — and that, in turn, could prompt someone to challenge the reforms in court. So might the SEC adopt only some of the reforms, and leave the controversial cap for another day?

It’s all still speculation, but that speculation is now a lot more plausible.

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