The SEC handed out its first whistleblower reward of 2017 on Friday—a $5.5 million prize that expanded potential eligibility for whistleblower rewards yet again, in a small way.
In this instance, the whistleblower provided valuable, original information to the SEC, but apparently did not give the tip “in writing” when he or she first approached the agency. Technically that violates that language of Exchange Act Rule 21F-9(d), which says the information must be in writing if it were first submitted between passage of the Dodd-Frank Act (July 2010) and adoption of the SEC whistleblower rules (July 2011).
According to the SEC’s statement, investigators had already been working with the tipster before and during passage of the Dodd-Frank Act, so requiring that person to submit an entirely new tip in writing seemed redundant. Whatever details this whistleblower did provide, they were valuable enough that the SEC decided to waive the Rule 21F-9(d) requirement.
We don’t know much about what this particular misconduct was, where it happened, or what firm perpetrated it. The SEC does describe it as “an on-going fraud that preyed predominantly on a more vulnerable investor community,” which sounds to me like an investor scam against the elderly or immigrants, but that’s just a guess.
We do know the tipster worked at the firm in question, and provided information to the SEC while he or she was still employed there. This person also did not first approach the firm’s compliance officer, but it’s not even clear from the press release whether the firm had much of a compliance function.
I don’t know that compliance officers need to sound any alarms over Rule 21F-9(d). It applies specifically to tips and investigations in that interregnum between passage of Dodd-Frank and adoption of formal SEC rules; as time passes, investigations into that era will become more and more rare.
Now that the SEC Office of the Whistleblower is well-established, even if someone does literally call the SEC with a tip, steering that person to the correct format for “original information” shouldn’t be much of a hurdle.