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Did SEC Permanently Bar Twice The Same Frivolous Whistleblower Claimant?
September 29, 2021
In "SEC Permanently Bars Frivolous Claimant From Whistleblower Program" (BrokeAndBroker.com Blog / September 15, 2021) http://www.brokeandbroker.com/6062/sec-frivolous-whistleblower/ we reported that 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 / the "September 14th Order")
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 September 14th 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 September 14th 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 September 14th 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.
"Frivolous" Hope Springs Again
On September 28, 2021, CRS issued Preliminary Determinations recommending the denial of 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. 34-93145; Whistleblower Award Proc. File No. 2021-98 / September 28, 2021) https://www.sec.gov/rules/other/2021/34-93145.pdf (the "September 28th Order")
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 September 28th 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 September 28th 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.
A Familiar Refrain: Personal Mortgage Foreclosure
As to the circumstances that purportedly prompted the SEC to ban Claimant for life, in part, the September 28th Order asserts that:
Claimant began submitting award applications to the Office of the Whistleblower ("OWB") in November 2017, and since then has 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 March 25, 2021, pursuant to Exchange Act Rule 21F-8(e), OWB provided notice to Claimant that it had determined that the award applications for four 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 to include the four Covered Actions identified in the notice. On March 26, 2021, Claimant withdrew one application. However, the 30-day deadline for Claimant to withdraw the remaining three award claims expired on April 26, 2021.
at Page 2 of the 34-93145 Order
The Second Time Around?
Gotta tell ya -- I'm not quite sure what the hell is going on with the double, permanent bars. This is what the SEC just posted "SEC Bars Two Individuals from Whistleblower Award Program" (SEC Release / September 28, 2021) at https://www.sec.gov/news/press-release/2021-199. In part the September 28, 2021. SEC Release asserts:
The Securities and Exchange Commission today announced that it has barred two individuals from the SEC's whistleblower award program, each of whom filed hundreds of frivolous award applications. The bars were issued pursuant to the 2020 amendments to the Whistleblower Program Rules, which were designed to allow the whistleblower program to operate more effectively and efficiently and to focus on good faith whistleblower submissions.Over the years, these individuals submitted award applications to the SEC that bore no relation to the underlying enforcement action for which they were applying. The filing of these applications consumed considerable staff time and resources, hindered the efficient operation of the program, and did not contribute to any successful enforcement action. The individuals were repeatedly warned to stop submitting the abusive filings, but refused to do so.
Okay, sure -- except -- it sure as hell seems that the federal regulator permanently barred the same Claimant twice -- once on September 14th and then again on September 28th.
If you compare the September 14th Order with the September 28th Order, you will note that the pertinent dates cited are the same. The hundreds of frivolous filings are the same. The personal mortgage foreclosure thing is the same. All of which suggests that in a metaphorical sense, after they executed the tipster by electrocution, the SEC came back and did it again by hanging.
Could it be that two different Claimants each filed hundreds of Forms TCR and Forms WB-APPs and both were riled up about personal mortgage foreclosures? Sure, that's possible. Could it be that two people living in the same house and subjected to same foreclosure each submitted hundreds of filings to the SEC? Sure, that's possible too. Could it be that two unrelated people were each victimized by foreclosures and each went on a filing rampage? Sure, that's also possible. The thing is, however, that it might have been nice for the SEC to have clarified whether we're talking about multiple persons or not -- or, in the alternative, have presented some differentiating issues in the September 14th and the September 28th Orders because the inference that I'm drawing is that the same person was permanently barred twice. See what you think. The one material difference that I detect in the two Orders is in these assertions [Ed: emphasis supplied]:
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.
in the September 14th Order
On March 25, 2021, pursuant to Exchange Act Rule 21F-8(e), OWB provided notice to Claimant that it had determined that the award applications for four Covered Actions were frivolous.
SEC Denies Two Claims -- Finds Information Not Mishandled by Staff
On the same September 28th that they permanently barred what looks like the same Claimant, the SEC also denied awards to two different whistleblower Claimants after CRS issued Preliminary Determinations recommending the denial of Whistleblower Awards involving two Notices of Covered Action ("NoCAs") as claimed by the Claimant 1 and Claimant 2. In the Matter of the Claims for an Award in Connection with [two "redacted" Notices of Covered Action] Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93142; Whistleblower Award Proc. File No. 2021-97)
https://www.sec.gov/rules/other/2021/34-93142.pdf (the "2021-97 Order")
In recommending denial of Awards, CRS noted in part that:
In ordering the denials, the 2021-97 Order asserts in part that [Ed: footnotes omitted]: :[C]laimants' award claims be denied because the information that the Claimants submitted to the Commission did not lead to the successful enforcement of the Covered Actions under Exchange Act Rules 21F-4(c)(1) and (2)7 since none of the information Claimants submitted was received by or forwarded to the staffs handling the Investigations, nor did either staff have any contact with them or use any of their information in the Commission's successful enforcement of the Covered Actions.
None of the information that Claimants submitted led to the successful enforcement of either Covered Action, in that their information did not cause either staff to commence an examination, open an investigation, or inquire concerning different conduct as part of a current investigation, nor did it contribute in any way to the success of these actions. We find, based on the evidence in the record, including declarations which we credit from the investigative staffs and another staff attorney who participated in the REDACTED examination that was referred to the REDACTED investigative staff, that Claimants' information played no part in the opening of the REDACTED examination or either Investigation nor was their information received, considered or used by either investigative staff during the course of their Investigations. As noted, Claimants do not dispute this. In addition to the staff declarations from the examination and investigative staffs, the record also includes a declaration from one of the MAU attorneys that Claimants asserted possessed relevant information about Claimants' interactions with Commission staff. This declaration states that the Enforcement attorneys who met with Claimants as part of a separate investigation did not share the information they received from Claimants with any other investigative team, except for two emails that contained minimal information and related to a different matter under investigation.Finally, Claimants assert that the staff mishandled their information and that they should be entitled to discovery to ascertain why it was not handled differently. Claimants recently raised this very same objection in another matter for which they had applied for a whistleblower award. Our response to that objection is equally applicable here:
In essence, Claimants argue that their information would have led to the success of the Covered Action had it been handled differently. But the standard for award eligibility is not what the staff would have, or could have done in hypothetical circumstances but, rather, what impact the whistleblower's information actually had on the investigation. Here, the [staff] [d]eclarations are clear that Claimants' information neither caused the staff to open its investigation nor significantly contributed to the success of the Covered Action, and thus we need not consider Claimants' request for discovery of additional information.
Pondering the Imponderable
Maybe someone conflated the two September 28th SEC Orders? Maybe someone cut and pasted the permanently barred whistleblower case with the two-claimants-denied case? I dunno. And with everything going on these days, I'm not going to waste my time pondering the imponderable.