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SEC Permanently Bars Frivolous Claimant from Whistleblower Program
September 15, 2021
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending the denial of three Whistleblower Awards involving three Notices of Covered Action ("NoCAs") as claimed by the same Claimant. In the Matter of the Claims for an Award in Connection with [three "redacted" Notices of Covered Action] Order Determining Whistleblower Award Claims ('34 Act Release No. 34-92969; Whistleblower Award Proc. File No. 2021-90)
https://www.sec.gov/rules/other/2021/34-92969.pdf Pointedly, the CRS recommended that:
[T]he Commission determine that Claimant's award applications were frivolous or lacking a colorable connection between the tip(s) and the Commission Covered Actions, and pursuant to Rule 21F-8(e), that the Commission permanently bar Claimant from participation in the Commission's Whistleblower Program.
In responding to CRS' Preliminary Determinations, the SEC took the extraordinary action of ordering that:
[C]laimant's award claims in the Covered Actions are denied and it is determined that the applications are frivolous or lacking a colorable connection between the tips and Covered Actions and that Claimant shall be permanently barred from participation in the Commission's Whistleblower Program.
Noteworthy in the SEC's Order is that it deemed the Claimant's Forms WB-APP to be frivolous or lacking any meaningful connection to the substance of the NoCAs. What should not be lost in the SEC's Order, however, is that the regulator's exasperation with the Claimant reached such an epic proportion that the remedy was to permanently bar that individual from further participation in the Commission's Whistleblower Program.
Personal Mortgage Foreclosure
As to the circumstances that purportedly prompted the SEC to ban Claimant for life, in part, the Order asserts that:
Claimant began submitting award applications to the Office of the Whistleblower ("OWB") in November 2017, and since then submitted hundreds of applications. Claimant bases the award claims in the Covered Actions on tips Claimant submitted involving Claimant's personal mortgage foreclosure. Claimant's tips were closed and do not on their face bear any relation to the charges in the Covered Actions.On January 25, 2021, pursuant to Exchange Act Rule 21F-8(e), OWB provided notice to Claimant that it had determined that the award applications for the Covered Actions were frivolous. OWB also informed Claimant that the Commission has the authority to bar permanently a claimant. Accordingly, OWB recommended that Claimant withdraw all frivolous or noncolorable claims that he/she had submitted.In response, Claimant withdrew all of his/her pending claims. However, a few days later, Claimant submitted a letter to OWB stating that he/she had reconsidered and did not wish to withdraw any of his/her award applications.
Lest We Forget
So . . . we got a Claimant who submitted hundreds of WB-APPs to the SEC within the space of about three years. In and of itself, that's a red flag, and all the more so because the underlying "tips" appeared to have emanated from a "personal mortgage foreclosure," which suggests that Claimant had some vendetta (understandable as it might be) against financial institutions involved in the referenced foreclosure. One might imagine in response to such a fact pattern that an irate homeowner would have filed so-called whistleblower tips against a bank(s) that originated his/her mortgage and believed that each and every instance of securities violations subsequently cited in a NoCA referencing said bank(s) somehow entitled the homeowner to "restitution."
Understandable Frustration
Frankly, I can appreciate the Claimant's mind-set because I recall the deprivations visited upon homeowners by several major banks and brokerage firms during the lending explosion that prompted, in part, the Great Recession. My appreciation for Claimant's anger notwithstanding, I also appreciate the SEC's frustration with having to field hundreds of Forms WB-APP that fail to present a colorable claim. Moreover, I also appreciate that forcing the SEC to process hundreds of frivolous claims exacerbates already unacceptable processing delays upon the non-frivolous WB-APPs that are floundering, as we speak, in the SEC's Whistleblower Program's pipeline.
Thrown Stones from the Glass House
The SEC's record for processing Forms WB-APP is abysmal and has been the subject of numerous complaints, litigation, and press coverage -- including by this author. Once a NoCA is published and a responsive Form WB-APP submitted, time stops, communication ceases, and whistleblower Claimants are effectively told to drop dead by the SEC's Office of the Whistleblower ("OWB"). As such, whistleblowers who had helped the SEC undertake successful investigations (which yielded millions in fines) are transmogrified by the federal regulator into something akin to a criminal defendant or a regulatory respondent. Having no further need of the whistleblower once the investigation concludes and the fines are paid, OWB refuses to provide substantive guidance as to just where in the SEC's processing pipeline a Form WB-APP has come to rest. It is a shameful practice that has been improvidently tolerated by the SEC for nearly a decade.
Among the explanations/excuses offered by OWB for the delays in processing Forms WB-APP is that the regulator's docket is rife with filings by folks such as the Claimant referenced in today's blog. If we buy into this narrative, the SEC would have us believe that these serial abusers crank out endless numbers of frivolous WB-APPs, which overwhelm the abilities of OWB to process, and, thereafter, inhibit the CRS' abilities to timely adjudicate the pending claims. Of course, one might fairly wonder just what managerial protocols are in place (if any) so as to tag such recidivist filers and to route their filings onto an administrative off-ramp, where they might be directed to an expedited review and effectively removed from jamming up the balance of the meritorious WB-APPs that are rotting away.
Hope Springs Eternal
One would hope that the SEC more frequently and more expeditiously resorts to permanently barring serial Claimants who flood the Whistleblower Program with frivolous applications. The sooner such deadweight is removed from the system, the sooner bona fide claims should be processed, and the sooner that deserving whistleblowers will enjoy their just rewards.