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Rowing on the SEC's Whistleblower River of Denial
February 23, 2021
Recently, the SEC issued: "SEC Awards Almost $3 Million Total in Separate Whistleblower Awards" (SEC Release / February 19, 2021) https://www.sec.gov/news/press-release/2021-30 (the "February 19th SEC Release"). Going by that February 19th SEC Release, we see that it "announced two separate whistleblower awards" for a $2.2 million award (Securities Exchange Act Releases 34-91163) and a $700,000 award (Securities Exchange Act Releases 34-91164). Under the release's side-heading of "Related Materials" you are provided with embedded links to the two awards.
Frankly, a busy February 19, 2021 for the SEC's Office of the Whistleblower ("OWB"). If you visit the SEC's "Press Releases" webpage, you will find the February 19th SEC Release atop the page (or at least as of the publication of this blog) at https://www.sec.gov/news/pressreleases
Then there's this oddity.
If you visit the SEC's "Other Commission Orders, Notices, and Information" webpage at https://www.sec.gov/rules/other.htm, you see that on February 19th, there were three -- count 'em -- three "Order Determining Whistleblower Award Claim" postings for Release numbers 34-91163, 34-91164, and 34-91165 at https://www.sec.gov/rules/other.htm.
How is it that the February 19th SEC Press Release only references two of that day's three published Orders?
How is it that the issued third Order for Securities Exchange Act Release 34-91165 didn't generate its own press release?
As to the two Orders that resulted in the $2.2 million and the $700,000 awards, I wrote about those on February 22, 2021 at http://www.rrbdlaw.com/5707/securities-industry-commentator/#wb Below is the reprint of that Securities Industry Commentator article:
https://www.sec.gov/news/press-release/2021-30In an Order Determining Whistleblower Award Claim (SEC, '34 Act Rel. No. 91163; Whistleblower Award Proc. File No. 2021-25) https://www.sec.gov/rules/other/2021/34-91163.pdf, the SEC awarded a whistleblower over $2.2 million. As asserted in part in the Order:
The information in Claimant's submission was of such high quality that staff was able to draft document requests based on Claimant's information without speaking with Claimant.In addition, Claimant took personal and professional risks by raising concerns internally in an effort to remedy the misconduct, and Claimant's information helped cause the return of millions of dollars to harmed clients. Redacted
In an Order Determining Whistleblower Award Claim (SEC, '34 Act Rel. No. 91164; Whistleblower Award Proc. File No. 2021-26) https://www.sec.gov/rules/other/2021/34-91164.pdf, the SEC awarded a whistleblower almost $750,000. As asserted in part in the Order:
Claimant alerted Commission staff to a fraudulent reporting scheme in the Covered Action, which prompted the opening of the investigation. Claimant provided additional critical documents and information to Commission staff and helped to identify key documents and witnesses and helped conserve Commission time and resources. Finally, Claimant internally raised concerns about the perceived misconduct in an effort to remedy the violations.
That's all nice and fine. As it should be.
Except, not every Order Determining Whistleblower Award Claims ends with an Award.
To the contrary, a lot of SEC Orders Determining Whistleblower Award Claims end with the denial of a claim. Which brings me to the orphan of the SEC's February 19, 2021 press releases. If we visit the OWB's "Final Orders of the Commission" webpage at https://www.sec.gov/whistleblower/final-orders-of-the-commission, we see that in January 2021, there were four Awards and two Denials; and in February 2021, there were two Awards and one Denial. For all of 2020, we see 117 posted Orders of which 50 involve awards and 67 involve denials (there are multiple denials/awards for some items, so this is just a rough eyeball count).
OWB's "Previous News and Release" page at https://www.sec.gov/whistleblower/
pressreleases displays each and every press release whereby OWB touted an Award. Note that the headlines of each SEC Press Releases tend to start with "SEC Awards . . . " or "SEC Issues . . . Award." Maybe it's me but, go ahead, you see if you can find anything about a denial.
pressreleases displays each and every press release whereby OWB touted an Award. Note that the headlines of each SEC Press Releases tend to start with "SEC Awards . . . " or "SEC Issues . . . Award." Maybe it's me but, go ahead, you see if you can find anything about a denial.
Circling back to the orphaned February 19, 2021 Order Determining Whistleblower Award Claim ('34 Act Rel. No. 91165; Whistleblower Award Proc. File No. 2021-27 / February 19, 2021) (the "Denial Order"), we are informed that the Claims Review Staff ("CRS") recommended that the claim for an award be denied, that the Claimant timely appealed that denial, and, ultimately, the Commission agreed with CRS and denied the claim. The Denial Order asserts that Claimant submitted two tips to the SEC and, thereafter, submitted applications for awards three times. The Order explains in part that:
at Page 2 of the February 19th OrderThe Office of the Whistleblower ("OWB") informed Claimant each time that Claimant had not submitted a properly filed whistleblower award application because the matters Claimant had identified were not Covered Actions as defined by Section 21F(a)(1) of the Exchange Act. Section D of Form WB-APP requires whistleblowers to identify 1) the "Date of Notice of Covered Action to which claim relates," 2) the "Notice Number," 3) "Case Name," and 4) "Case Number." The Claimant provided a "Date of Notice of Covered Action" of REDACTED and the "Case Name" REDACTED Settlement," while leaving the "Notice Number" and "Case Number" sections blank. The Claimant listed similar information in Section E of the Form WB-APP for a Related Action award. OWB staff searched the Commission's records of posted Covered Actions using both the case name and Covered Action date provided by Claimant. OWB staff were unable to identify any Covered Action brought by the Commission related to . . .
The Denial Order asserts that CRS issued a Preliminary Determination recommending the denial of Claimant's claim, largely predicated upon a finding that Claimant:
was ineligible for an award under Section 21F(b)(1) of the Exchange Act and Rule 21F-10 thereunder because Claimant's award application failed to identify any Covered Action brought by the Commission as the basis of an award. The CRS further preliminarily found that Claimant was ineligible for an award for a Related Action under Section 21F(b)(l) and Rule 21F-11 because Claimant had not demonstrated eligibility for an award for a Commission Covered Action. Such eligibility is a necessary precondition for eligibility for a Related Action award. Claimant subsequently filed a Redacted request for reconsideration . . .
at Page 2 - 3 of the February 19th Order
In a well-presented and well-reasoned rationale, the SEC concludes that Claimant never demonstrated that a Covered Action or Related Action existed against which Claimant proved he was eligible for an award. As set forth in Footnote 3:
Bill Singer's CommentClaimant also asserts that Claimant was improperly denied an award in the Preliminary Determination because the Commission had not posted a notice of Covered Action. Claimant argues that the Commission cannot deny Claimant an award by failing to post a notice of what should otherwise be recognized as a Covered Action because the act of posting a notice is neither necessary nor consistent with the statute. Request for Reconsideration at 8. However, the denial of an award to Claimant was not based on the act of not posting a Covered Action but based on the fact that no Covered Action was ever identified by Claimant - to the contrary, as mentioned above, after a search of Commission records, we found no action that corresponded to the same nucleus of facts as described in the information provided by Claimant.
I successfully represented the first in-house compliance officer to receive an SEC whistleblower award, which was for about $1.6 million. I presently have numerous pending WB-APPs lost somewhere in the SEC's processing continuum for which the regulator assessed and was paid millions of dollars in fines. My clients await word. I await word. We hear nothing. We have no idea where the claims have come to rest.
As I have long noted in my blogs and pubic comments, I am a fervent supporter of whistleblowers and an ardent advocate for enhancing Wall Street reform via tips to the industry's regulators. Unfortunately, the SEC's whistleblower program takes on the trappings of a public relations ploy rather than an effective regulatory mechanism. For too long, we have heard mounting complaints about delayed processing of whistleblower claims and the untimely processing of the payments of previously rendered Awards. In response, the SEC continues to dawdle and delay and deflect. When it comes to issuing press releases, however, there's always enough staffing and budget. Without question, the SEC's Whistleblower Program is worthwhile and incredibly promising. As with far too many matters involving government bureaucracies, the good gets chewed up in make-work, endless layers of management, and a frustrating refusal to engage in substantive, timely communication.
Also read: "SEC Reforms Its Whistleblower Program" (BrokeAndBroker.com Blog / September 24, 2020 at http://www.brokeandbroker.com/5449/sec-whistleblower/