An Interesting Whistleblower Award

Here’s something you don’t see every day: two recipients of a whistleblower award from the Securities and Exchange Commission fighting over how to split $22 million between them.

The SEC announced the award on Monday, and as usual, we know little about the case itself. Apparently the misconduct happened at a financial firm, which at some point agreed to a cease-and-desist order for whatever violations it was committing. A whistleblower award of $22 million also implies that the firm paid a fine somewhere between $73 million to $220 million. What exactly the firm did, or when the violations happened, we don’t know.

More intriguing was the drama around the two whistleblowers sharing that $22 million. Claimant 1 received $18 million, because that person submitted his tip to the SEC first and provided extensive assistance that helped SEC enforcement attorneys devise their investigation plan. Claimant 2 received $4 million because he (or she; we don’t know) arrived with his tip several years later — but Claimant 2 was still “a valuable first-hand witness,” who provided documents and other evidence that helped SEC lawyers seal their case against the firm.

What’s interesting is that according to the SEC award order, these two tipsters knew each other. Each one argued that he, not the other, provided the real goods about their employer and the misconduct; and that he, not the other, should receive more of the whistleblower award. 

Let’s begin with Claimant 1. My ears perked up because the SEC included this line about him: “Claimant 1 made persistent efforts to remedy the issues, while suffering hardships.” 

whistleblowerHmmm. That makes Claimant 1 sound suspiciously like a compliance officer or an internal auditor. We can’t be sure of that; typically when the SEC tipster is a compliance or audit executive, that fact is disclosed in the settlement order, and no such fact is disclosed here. It could also be that Claimant 1 is just an especially ethical and upstanding manager. Regardless, Claimant 1 sounds like a gatekeeper of some kind.  

Meanwhile, Claimant 2 was somebody who had directly witnessed the misconduct, and provided documents and other testimony to the SEC. Also telling: at some point, Claimant 2 passed along information about the misconduct to Claimant 1, apparently by email. The SEC order also identified Claimant 2 as a “percipient witness” and “a recent insider.”

So it seems that Claimant 2 was an operating unit employee who communicated the misconduct to Claimant 1. Claimant 1 tried to raise alarms and resolve the misconduct, suffered retaliation for doing so, and then took his concerns directly to the SEC. Which also sounds suspiciously like an ordeal that a compliance officer would endure.

Enter the Disputes Over Money

Anyway, the tips from both whistleblowers lead to the SEC settlement and the subsequent $22 million whistleblower award. The SEC staff proposed the split of $18 million and $4 million, and per agency policy, each whistleblower had a chance to respond to that proposal.

Claimant 1 promptly said he should receive the maximum potential payout of 30 percent of the settlement, and that Claimant 2 should get zilch. Why? Because, Claimant 1 told the SEC, his rival Claimant 2 hadn’t provided the SEC with any new and original information; that should leave Claimant 2 ineligible.

Claimant 1 also cited some other reason that we don’t get to see; it’s redacted in the SEC award order. The specific language is, “Claimant 1 asserts that Claimant 2’s award recommendation should be reduced because Claimant 2—” and then the redaction follows. Did Claimant 1 make some accusation about Claimant 2? We can only wonder.

Back to Claimant 2. He told the SEC that he should receive a larger share of the $22 million, because he provided lots of information to Claimant 1, and then Claimant 1 turned around and gave that information to the SEC. Claimant 2 also said he had provided a tip directly to the SEC before Claimant 1, and that the information from Claimant 2 was way more crucial to the investigation than Claimant 1’s tip anyway.

How the SEC Resolved the Issue

As you might guess, the SEC sided more with Claimant 1 than with Claimant 2; hence the former got $18 million while the latter got only $4 million. 

In the SEC’s analysis, Claimant 1 deserved more money because he worked with the agency for years and provided extensive practical assistance: identifying witnesses, explaining fact patterns, and so forth. Plus, there’s that line in the award order that just sounds so compliance-ish: “Claimant 1 made persistent efforts to remedy the issues, while suffering hardships.” 

Claimant 2, in contrast, did provide critical information, but only at a much later point in time. And the SEC couldn’t confirm Claimant 2’s contention that he was the original source of Claimant 1’s information in the first place. 

The bottom line: Claimant 1 tried to do the right thing inside his company, and worked for years with the SEC to get the misconduct resolved — so he took home 81 percent of that $22 million. Sometimes, persistence at ethical conduct pays off.

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