In a heavily redacted decision issued on April 5, 2016, the SEC approved the claim of one whistleblower and denied the claim of another for providing information related to an unidentified enforcement action. The SEC awarded $275,000 to the primary claimant (Claimant 1) but offset that amount by the monetary obligations due related to a separate Final Judgment. Although the April 5 order was heavily redacted, the publicly available information confirms that the $275,000 award was based on a percentage of the monetary sanctions from both the SEC case and a related criminal action. This is the first time an SEC order has required a tipster to spend whistleblower proceeds to settle a court-ordered debt.
As has been frequently discussed in this space, the rules around whistleblowers create incentives for individuals to provide information to the SEC that might lead to enforcement actions. Under Dodd-Frank, an officer, director, trustee, or partner must provide the SEC with “original information” that leads to sanctions in order to be eligible for an award. If the sanctions in those actions exceed $1 million, the original informant may be eligible for a whistleblower award. Even those who learn of fraud from another employee may be eligible. Awards have ranged from as much as $30 million to the more nominal amount awarded here.
The SEC also denied an award to a second claimant (Claimant 2) in the same matter, finding that Claimant 2 had not provided any information that led to the successful enforcement of the action at issue. The SEC found that none of the tips identified by Claimant 2 had been provided to the staff responsible for the action and further that each of Claimant 2’s tips had been designated for “no further action” by the Office of Market Intelligence, the initial reviewer of this kind of information. The record also demonstrated that Claimant 2 had not been in contact with or provided any information to the team responsible for the action at issue. Claimant 2 initially challenged the decision and requested the record materials underlying the preliminary determination. However, Claimant 2 failed to sign the confidentiality agreement required before receiving the materials and then, when Claimant 2 did finally return the agreement, made substantial objectionable modifications to the agreement before signing. The Office of the Whistleblower therefore declined to provide the record and, on review, the SEC found the denial was appropriate.
The order highlights the SEC’s willingness to accept tips even from those who may have been convicted of wrongdoing in the past. It seems that, even in cases where the whistleblower does not present a neat and tidy situation of a complete innocent pointing the finger at a bad actor or action, the SEC is still comfortable with providing incentives for individuals to come forward if they see violations.