SEC No Longer Believable When It Comes To Whistleblower Award Denials
March 2, 2023
SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-96970; Whistleblower Award Proc. File No. 2023-37)
https://www.sec.gov/rules/other/2023/34-96970.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
As an initial matter, the record shows that Claimant’s information did not cause Enforcement staff to open the Investigation, either directly or indirectly. Enforcement staff confirms, in a sworn declaration, which we credit, that the Investigation was opened in REDACTED following a referral from the Commission’s Division of Examinations (“Examinations”), not because of information from Claimant. Examinations staff began an examination of Respondents in REDACTED and the staff declaration also confirms that that the examination of Respondents was not initiated based on Claimant’s information. While one Examinations staff assigned to the examination of Respondents attended the REDACTED meeting with Claimant, the record shows that the information Claimant provided during the meeting was not new or helpful and did not cause Examinations staff to commence the examination of Respondents. In addition, while one attendee at the meeting (the “Attendee”) was the co-chief of the specialized Enforcement unit that opened the Investigation over one year later, staff assigned to the Investigation confirmed that they did not receive, review, or use information from the Attendee that caused or contributed to the opening of the Investigation.
Bill Singer's Comment: Sorry but I no longer believe the SEC when it comes to the purported rationale for many -- too many -- of the regulator's declinations of an Award.
Either there are a lot of morons and imbeciles filing TCRs with the SEC; or, in the alternative, SEC Staff is misleading many Claimants as to the impact that their disclosure had in instigating/furthering an investigation. Then again, there is another more troubling possibility that Staff is downplaying the substantive nature of many tips in an effort to misplace credit.
If the SEC/s denials of Awards were of a more isolated nature and the affected Claimants espoused a more measured tone on appeal, then I would likely not distrust the SEC and its CRS. On the other hand, as I have reported in recent years, there is a disquieting commonality among too many denials in recent years, which suggests a massive disconnect between what many Claimants believe was the value of their tips and what (often years later -- after fines have been paid) Staff/CRS subsequently claims was the inconsequential nature of those same tips.
Remembrances of Things Past (as in no recollection)
On February 28, 2023, I posted the following on the "Securities Industry Commentator" at https://www.rrbdlaw.com/6909/securities-industry-commentator/#wb39
SEC Denies Whistleblower Awards to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-96983; Whistleblower Award Proc. File No. 2023-39)
https://www.sec.gov/rules/other/2023/34-96983.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
[C]laimant asserts that while the Commission’s complaint was filed several months prior to Claimant’s initial contact with the Commission, Claimant provided information about a broader scheme involving additional entities and individuals, as well as attempts to thwart the Investigation. Claimant maintains that, after a meeting at REDACTED, Enforcement staff told Claimant that the Investigation had been stalled and without the information and knowledge provided by Claimant, staff “never would have known who the key players were, where to look, or how the business operated.” As stated under penalty of perjury in a supplemental declaration, Enforcement staff assigned to the Investigation has no recollection of having said this, and it is not consistent with the facts, given that the Commission had already filed its detailed complaint. As the record demonstrates, the documents provided by Claimant were largely redundant of materials already within the Commission’s possession, and staff did not view the new documents Claimant provided as materially helpful.
. . .
Finally, Claimant asserts that staff disclosed Claimant’s identity as a whistleblower to Defendants and their counsel and that such disclosure “is evidence that the information [Claimant] provided led to the cooperation, deal negotiation, and ultimately the SEC’s enforceable action.” According to Claimant, “the SEC’s exposure of my identity as a whistleblower, the information I provided, and the evidence I provided would have caused opposing counsel to consider and take into account those facts when deciding and weighing the option of going to trial or negotiating a deal with the SEC.” Claimant’s assertion is not supported by the record. In a supplemental declaration, Enforcement staff has confirmed that, although Claimant was identified as a potential witness in the Commission’s Rule 26(a) disclosures REDACTED, staff responsible for the Covered Action never disclosed to Defendants or their counsel that Claimant was an SEC Whistleblower.
Bill Singer's Comment: Yet again, according to the SEC, another Whistleblower Claimant is full of crap and totally misunderstood everything allegedly told to him by Staff, who, "stated under penalty of perjury in a supplemental declaration" that they had "no recollection of having said this, and it is not consistent with the facts . . ." A somewhat odd phrasing, no?
SEC Staff swears to not having any "recollection" about what Claimant alleges and Staff swears that Claimant's allegation "is not consistent" with what they . . . what they, what? . . . what they don't recollect? Not recollecting and finding something inconsistent doesn't quite amount to a declaration that "I never, ever said that." Maybe I've become too suspicious after some four decades of lawyering. On the other hand, maybe my instincts are spot on.
As I have said before and I will say it again: "Sorry but I no longer believe the SEC when it comes to the purported rationale for many -- too many -- of the regulator's declinations of an Award." See: "Securities Industry Commentator" at https://www.rrbdlaw.com/6899/securities-industry-commentator/#wb37
Before You Filed The Tips, We Knew It All (But Just Didn't Tell You)
On March 2, 2023, I posted the following on the "Securities Industry Commentator" at https://www.rrbdlaw.com/6911/securities-industry-commentator/#wb40
SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97015; Whistleblower Award Proc. File No. 2023-40)
https://www.sec.gov/rules/other/2023/34-97015.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
Claimant does not qualify for an award. First, the record demonstrates that the Investigation was opened based upon a self-report in REDACTED approximately two months before Claimant submitted his/her TCR. Accordingly, Claimant’s information did not cause the staff to open the Investigation.
Second, the record shows that Claimant’s information did not significantly contribute to the success of the Covered Action or cause the staff to inquire into different conduct as part of a current investigation. Claimant submitted his/her initial tip to the Commission approximately two months after the Investigation began. By this time, the staff had already gathered information from other sources, including from the self-report and Claimant’s information was duplicative of what the staff already knew. In addition, a former supervisory attorney confirms, in a supplemental declaration, which we credit, that the Commission was not a party to the actions brought by the Firm, and any information Claimant provided to the Firm did not advance the Investigation. The supplemental declaration also confirms that Claimant’s communications with the staff after the filing of the Covered Action did not advance the Investigation or contribute to the charges in the Covered Action. Similarly, Claimant’s REDACTED TCR did not contribute to the Investigation or the charges in the Covered Action because the Commission had already brought the settled Covered Action over a year earlier. Accordingly, Claimant’s information did not significantly contribute to the Investigation or cause staff to inquire into different conduct.
Bill Singer's Comment: So, lemme see if I got this -- Claimant submitted a Form TCR "two months" after a so-called "self-report" opened the investigation and by the time the TCR was filed "staff had already gathered information from other sources." So, like, what the hell happened? Staff just jerked the Claimant around, let the tipster waste his/her time submitting information and documents despite the Staff knowing that it already had it? And just when did Staff inform the Claimant of any of this? Apparently, not until after the Claimant filed a WB-APP seeking an Award. Sorry yet again, things are just not making sense. Something isn't adding up.
The SEC's Unnamed SEC Ombudsman's Misconduct
Not all whistleblower Claimants present a compelling case for an Award, and in such circumstances, the SEC is justified in denying such claims. Without question, when submitting a Form WB-APP, some Claimants do, in fact, make frivolous claims. Notwithstanding that concession, there is no excuse for the SEC's often combative and dismissive tone in its orders dismissing claims for an award.
In contrast to the SEC's abrasive dismissals of whistleblower Claimants seeking an award, when confronted with false claims and statements made by one of its own, the federal regulator doesn't quite haul out the same barbs and dismissive fillips. For example, consider:
- "SEC Buries The Lede About Stunning Misconduct In Its Office Of The Ombudsman" (BrokeAndBroker.com Blog / September 19, 2022) at https://www.brokeandbroker.com/6673/sec-owb-oig/
- "SEC Investigative Summary" (August 29, 2022)
https://www.sec.gov/files/findings-related-former-sec-ombudsman.pdf
In the August 2022 SEC Investigative Summary, the SEC's Office of Inspector General ("OIG) found in pertinent part that the SEC's:
The OIG's Investigative Summary never, ever mentions the former Ombudsman by name. Worse, OIG never blames:
- the Office of the Ombudsman,
- any senior SEC Staff,
- any SEC Chair, or
- any SEC Commissioners
for their apparent missing-in-action oversight of the Ombudsman's Office. Regardless of whose hand directed the evasive copywriting in the published OIG Investigative Summary, the omission of the former Ombudsman's name was asinine in light of online references such as: "Tracey L. McNeil Named as SEC's First Ombudsman" (SEC Press Release 2014-186 / September 5, 2014)"
https://www.sec.gov/news/press-release/2014-186
The failure of the Investigative Summary to point a direct finger at specific persons for their failed oversight suggests a cover-up. The Summary alleges that many whistleblower tips and Forms TCR were prepared in an "inaccurate and misleading" manner, yet no one other than a so-called "former" Ombudsman is blamed. Tipsters seeking to alert the SEC to investment fraud were apparently left to figure out the Form TCR process on their own. Despite all of that nonfeasance and malfeasance by some unnamed someone, apparently no one on the SEC Staff or among SEC's senior levels of management knew of this inappropriate lack of service and effort by the Office of the Ombudsman. Perhaps many Staffers knew but either chose to look the other way and keep silent out of fear for their regulatory careers? The more frightening prospect is that the "word" came down from above to bury the mess and do so quickly.
The "Retirement" of the SEC Inspector General
Unfortunately, the OIG report lambasting the former SEC Ombudsman is, at best (or worst) a cynical exercise when we recall this tawdry episode:
In part, the above February 2022 Reuters story asserted that:
The government investigation into Hoecker was led from 2017 to 2019 by the Integrity Committee, a federal panel that examines allegations of wrongdoing against inspectors general, after two whistleblowers alleged that he conducted a substandard investigation. Inspectors general are government watchdogs who guard against the misuse of taxpayer dollars.
The previously unreported documents show that the SEC, which received the Integrity Committee's report on Hoecker in 2019, also concluded wrongdoing by Hoecker. He failed "to avoid the appearance of" bias and exercised "poor judgment when contacting a witness during an active investigation."
The SEC concluded that Hoecker failed "to report allegations of improper conduct pursuant to the SEC's policy of preventing harassment," according to the documents, which include Hoecker's time-sheets.
While the Integrity Committee recommended the SEC consider firing Hoecker, its Commissioners voted instead on May 8 to suspend him without pay from May 24-June 2, 2020, the records show. At the time, Hoecker earned nearly $277,000 a year.
Also read: "Inspector General Carl W. Hoecker to Retire from SEC" (SEC Release / April 27, 2022)
https://www.sec.gov/news/press-release/2022-71
Consequently, we need to take the OIG investigation's findings about the former Ombudsman with several large bags of salt because OIG itself was found to have been led by a now-former Inspector General, who the Integrity Committee recommended be fired (but, instead, the Commission merely suspended him without pay), In its findings, the Integrity Committee found that IG Hoecker had failed to avoid the appearance of bias and exercised poor judgment when contacting a witness during an active investigation, and had failed to report allegations of improper conduct. Talk about the OIG pot calling the Ombudsman's kettle black! Irony piled on irony steeped in irony!
Time for Congress to Clean the SEC's House
After the filing by Claimants of Forms WB-APP seeking a Whistleblower Award, the SEC may abruptly (and for the first time) assert that the information set out in the Form TCR was already known to Staff when it was first provided (often years earlier). Except no Staffer made such a declaration to any denied Claimant during the years after the filing of the TCR when the Claimant was interacting with Staff. We knew it all before you filed the TCR. We found it all on our own. You didn't give us anything we needed. We already had it. But where were these words of disinterest during the months/years of interactions between Claimant and Staff -- and why were they not voiced in a more contemporaneous fashion? How is it that the first time the rebuff is voiced is when a Claimant is asking to be rewarded?
The most benign explanation is that OWB and Staff have decided that it's easier to just "play along" and pretend that a given tip is fascinating and of interest when, in fact, it's neither. That's not how a federal regulator ought to conduct its business and build confidence among those seeking to provide tips about fraud.
The less benign explanation is that something is seriously amiss at OWB and among some SEC Staff; and the most frightening aspect of this scenario is that those charged with regulating our markets are either pursuing personal glory at the expense of whistleblowers, or, worse, that credit is being taken away from whistleblowers who deserve it and given to those on Staff who don't.
I do not doubt that many claims for whistleblower awards are likely made by undeserving Claimants, who provided no substantive tips. Such claims should be denied. On the other hand, there are too many vehement, appellate arguments by angry Claimants responding to the Preliminary Determinations recommending denial by the SEC's Claims Review Staff. The sheer volume of complaints and the intensity of the protestations is troubling.
When it comes to looking into rumors of misconduct or incompetency among its own Staff, the SEC stumbles, fumbles, and equivocates. That's manifest in the OIG Investigative Summary and in the Integrity Committee's report. The record shows a shocking disdain by the SEC when it comes to keeping its own house clean. Making matters worse, when the SEC is confronted with indications of in-house misconduct or incompetency, the SEC feeds Congress and the public a steady diet of evasiveness, half-truths, and misdirections.
It's time --- well past time, in fact -- for Congress to investigate the rotting-from-within SEC Whistleblower Program and demand explanations about the years of inept internal oversight. Congress must put an end to the disconcerting cover-ups by the SEC when it comes to cleaning its own house and disclosing same to the public.
It is long past time for former and current employees of OWB or Staff to step forward, clear the air, and set the record straight. Someone knows what's going on and why.