United States: SEC Affirms Denial Of Bounties To Three Purported Whistleblowers

On July 19, 2016, the SEC issued an order upholding the SEC Claims Review Staff's ("CRS") Preliminary Determination denying three claims for whistleblower awards. The SEC's order explains how the claimants' bounty requests were properly denied for failing to meet the SEC's eligibility requirements. As we have previously discussed here, all but a few whistleblower tips fail to lead to any award; this order serves as a reminder that a whistleblower's information must have, in the SEC's view, "significantly contributed to the success of [its] action." 17 C.F.R. § 240.21F-4(c).

Background

The "Covered Action" addressed in the SEC's order "arose out of two separate investigations, one by Enforcement staff in the Commission's Home Office and the other by Enforcement staff in the Denver Regional Office ("DRO") into" unidentified conduct. (Order at 2.) These two investigations were opened "in response to media reports and inquiries made by investigative staff, and not in response to any tip or complaint submitted by any of the Claimants." (Id.) Although the order is heavily redacted, it states that "media reports led DRO staff to shift the focus of its investigation entirely to" other unidentified conduct. (Id.) The two investigations then concluded but the order does not disclose the details.

The SEC's Denial of Claimants' Claims

Although sixteen claimants initially sought awards relating to the Covered Action, only three individuals timely filed appeals of the denial of their claims. The SEC's order first addressed Claimant 13 and explained that although the DRO investigative staff received and reviewed information from this claimant, the information "was not used in and did not contribute to the investigation." The DRO staff had already opened the investigation at the time this claimant provided information, so the claimant did not provide information that caused the SEC to "commence an investigation." See 17 C.F.R. § 240.21F-4(c)(1). Further, the order states that the DRO's investigation shifted its focus based on media reports, and it appears the claimant's information related to the conduct at issue in the old investigation, not the new investigation that in led to the Covered Action. The SEC notes that the claimant's submission "fails to identify any communications with Enforcement staff responsible for the underlying investigation that led to the Covered Action." Thus, Claimant's request for an award was properly denied.

The SEC also ruled that the CRS properly denied the claims of two other whistleblowers because there was no evidence that the information they provided was sent to the investigators responsible for the Covered Action.

Implications

This serves as reminder that the SEC will continue to analyze critically all requests for whistleblower awards under the program. In situations where an investigation is already underway, claimants must provide evidence that their information significantly contributed to the success of the action to obtain an award. Merely alleging that some information was provided to an SEC office, as occurred here, is plainly insufficient, in the SEC's view, to warrant a whistleblower bounty payout.

SEC Affirms Denial of Bounties to Three Purported Whistleblowers

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