Securities Regulation Daily SEC awards record payout just shy of $50M, rejects second claimant’s request
Thursday, June 4, 2020

SEC awards record payout just shy of $50M, rejects second claimant’s request

By Amy Leisinger, J.D.

According to the Commission, the award to the first claimant was commensurate with the information provided, but the second claimant failed to meet the requirements of the whistleblower provisions.

The SEC has announced a nearly $50 million whistleblower award to an individual who provided detailed observations of misconduct that resulted in a successful enforcement action, which, in turn, reimbursed a significant amount of money to harmed investors. The news comes as the SEC’s whistleblower program tops $500 million in total awards to 83 individuals since issuing its first award in 2012.

"This award is the largest individual whistleblower award announced by the SEC since the inception of the program, and brings the total awarded to whistleblowers by the SEC to over $500 million, including over $100 million in this fiscal year alone," said SEC Office of the Whistleblower Chief Jane Norberg.

Whistleblower requirements. Whistleblowers may be eligible for awards when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action, and the SEC protects the confidentiality of whistleblowers. Whistleblower payments are made from an investor protection fund established by Congress financed by sanctions paid by violators to the SEC.

Specific filing. The first claimant filed a timely whistleblower award claim, and the second claimant filed a claim nearly 10 months after the posted deadline, the Commission noted. The original recommendation stated that the first claimant should receive an award of the sanctions collected but that the second claimant’s request should be denied because the claimant was not a "whistleblower," as there was no evidence showing that the claimant provided information to the SEC relating to the covered action and failed to submit a claim for award on Form WB-APP within 90 days of notice. The second claimant also did not demonstrate that the Commission should waive the filing deadline based on "extraordinary circumstances," the SEC explained. The second claimant argued that the first claimant filed the application on Form WB-APP for both of them, as there was no space for both of them to sign, and that the Commission should excuse the failure to file before the posted deadline because the claimant lacked the resources (i.e. computer or internet access) to monitor the SEC’s website for notices.

However, the SEC explained, the first claimant voluntarily provided original information to the Commission that led to the successful enforcement of the covered action. The information provided by the claimant was "highly significant" and provided first-hand observations of misconduct previously unknown to the SEC staff. This claimant laid out in detail substantial aspects of the scheme and provided a roadmap for investigation, according to the Commission. There is no evidence that the second claimant submitted any information to the Commission pursuant to required procedures or was a participant in the first claimant’s tip.

"Moreover, we note that Claimant 2 filed an online tip with the Commission in—eight months before Claimant 2’s award application was filed," the SEC stated. For these reasons, the second claimant has not met the heavy burden of demonstrating that extraordinary circumstances prevented timely submission of an application for an award in connection with the covered action, the Commission concluded.

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