There has been a lot going on with the U.S. Securities and Exchange Commission (SEC) whistleblower program lately, including even more record-setting awards and rule changes. As we reported last month, the news of the SEC’s banner year for whistleblower awards was somewhat overshadowed by whistleblower program rule amendments. By way of review, many whistleblower advocates were concerned that, in its September 24, 2020 Final Rule, the SEC asserted its “discretion” to take the amount of the monetary sanctions awarded in determining what percentage of the award the whistleblower should receive.
SEC Commissioner Allison Herren Lee, who voted against the rule amendments, explained the problems inherent in this broad discretion as it “is applicable to all awards, no matter their size” and results in “no transparency” in the use of that discretion.
The First Two Whistleblower Awards Since New Rule Provide Cautious Optimism
On October 22, 2020, we received the first glimpse into how the SEC would treat whistleblower awards under its newly-minted rules. The first burning question of whether the SEC would still pay out large whistleblower awards was answered with a resounding “yes.” This is because the whistleblower award in question was a record-breaking $114 million.
In addition to the sheer size of the award, the publicly-released final order for this award further comforts whistleblowers about the SEC’s commitment to paying out large awards. In the order, the SEC does not state that it made any reduction of the whistleblower’s percentage due to the award’s size. To the contrary, the order includes a list of factors the SEC considered in making its gargantuan award, including that the whistleblower “provided substantial and ongoing assistance to the Office staff throughout the investigation” and that the whistleblower “suffered serious personal and professional hardships as a result [whistleblowing activities].”
Another reassuring aspect of the $114 million award was that it included a “related action” award. The Dodd-Frank Act requires the SEC to pay a related action award when the SEC whistleblower’s information leads to another agency’s successful enforcement action. Many were concerned with September’s dramatic modification of the related action rule because it authorized the SEC itself to determine whether a “related action” existed, thus avoiding paying related action awards.
Ultimately, the SEC did pay the related action awards, which comprised over $62 million of the $114 million. The final order did not disclose the other agency that was part of the related action. However, it did state that, “the record further demonstrates that [the whistleblower] also voluntarily provided the original information that led to the successful enforcement of the Covered Action to the Other Agency, and that this information led to the successful enforcement of the Related Actions.”
On November 3, 2020, the SEC awarded $28 million to a whistleblower whose information prompted an internal investigation, thus helping the SEC with testimony and identification of a key witness.
Although these two whistleblower awards do not conclusively demonstrate that the SEC will never seek to reduce large whistleblower awards or deny related action awards, they do allow for cautious optimism. After the $28 million whistleblower award on November 3, 2020, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, bolstered this feeling by stating:
“In the past month alone, the Commission has awarded four whistleblowers over $150 million for their important contributions to the Commission’s efforts to detect wrongdoing and protect investors and the marketplace…I hope our recent awards will continue to incentivize whistleblowers to come forward to report potential fraud or other wrongdoing.”
Recently Published SEC Whistleblower Rule Changes Require Vigilance
On November 5, 2020, the Federal Register published rule changes to the SEC Whistleblower Program we discussed last month. The content of the rules was already known but Section III of the published rules first revealed the temporal reach of each rule change. Although the effective date of these rule changes is December 7, 2020, the new rules created many deadlines that apply retroactively, requiring SEC whistleblowers and their attorneys to be vigilant.
One of the most significant recent rule changes is that set forth in Rule 21F-9. This rule requires SEC whistleblowers to use the TCR form to qualify for a reward when filing a whistleblower action within 30 days from their initial contact with the SEC. This 30-day deadline is tolled until the whistleblower has actual or constructive knowledge that the TCR filing requirement exists.
That said, a whistleblower can trigger the 30-day deadline when they retain an attorney to file a whistleblower claim. The applicability of this rule is “to all award claims still pending” as of December 7, 2020, and all future filings. Thus, all SEC whistleblowers and their attorneys must be vigilant, especially in cases where the whistleblower contacted the SEC before retaining an attorney.