SEC Awards Total Of $50 Million To Two Whistleblowers In A Single Action, While Denying Five Other Claimants
04/09/2019On March 26, 2019, the SEC announced two multi-million dollar awards to whistleblowers who made reports of misconduct that led to a successful enforcement action after denying claims of five other whistleblowers in the same case (only two appealed the preliminary determination denying their application). SEC Press Release, SEC Awards $50 Million to Two Whistleblowers, No. 2019-42 (Mar. 26, 2019). One whistleblower received $37 million, which represents the third-largest SEC whistleblower award in history, while the other whistleblower received a $13 million award, a difference apparently based on the speed with which each reported the misconduct to the SEC and the relative value of their information. These significant awards continue a trend of rising awards by the SEC, and the number of whistleblowers in the action highlights the degree to which the SEC has successfully incentivized whistleblowers. Since 2012, the SEC has now awarded approximately $376 million to 61 whistleblowers, with an average award of over $6 million.
In its Order Determining Whistleblower Award Claims (the “Order”), the SEC described the contribution of each claimant.
First, with respect to the whistleblower who was awarded $13 million, the Order credited the whistleblower with initiating a meeting with SEC staff that prompted the SEC to open a Matter Under Inquiry, and with later meeting with the staff again to provide information and assistance. But the SEC awarded a lesser percentage to this whistleblower because it concluded that the whistleblower “unreasonably delayed” in reporting the information to the Commission, which led to investors continuing to suffer harm; that in turn increased the ultimate disgorgement, and the SEC thus concluded that whistleblower “passively financially benefited” from the misconduct during a portion of the delay.
Second, with respect to the whistleblower who received $37 million, the SEC emphasized that the claimant provided a submission that was accompanied by a number of key documents that were akin to “smoking gun” evidence. Whistleblower Award Proceeding, File No. 2019-4 (March 26, 2019). And the SEC emphasized that the whistleblower had “acted swiftly” in reporting the alleged misconduct. But significantly, in comparing the speed with which each whistleblower acted, the SEC did not indicate whether either whistleblower had – or had not – sought to blow the whistle internally. That calculus appears to have had no impact on the SEC’s analysis.
Finally, the Order addressed the requests for reconsideration submitted by two purported whistleblowers who appealed the preliminary determination denying their applications. One of the purported whistleblowers (who received a whistleblower award for a related matter) argued that he or she should be credited with causing the SEC to commence an examination because the information was first in time and provided to the SEC before it opened the Matter Under Inquiry. However, the SEC rejected this argument, finding that regardless of whether the SEC staff erred in processing the information, the fact that the information was first in time did not in fact cause the staff to open an investigation because it was not considered prior to opening the Matter Under Inquiry. The other purported whistleblower filed a submission for an award in connection with seven different actions, but the submission was approximately fifteen months after the 90-day deadline for submissions. The SEC did not find that “extraordinary circumstances” existed to waive the 90-day requirement where the purported whistleblower argued that the he or she was under the impression that the SEC would contact claimants about filing an award application.
 The SEC has made similar comments in prior awards. See, e.g., Whistleblower Award Proceeding, File No. 2018-12 (Sep. 14, 2018); Whistleblower Award Proceeding, File No. 2017-7 (Feb. 28, 2017).CATEGORY: Whistleblower