U.S. Securities and Exchange Commission building. (Photo: Diego M. Radzinschi/NLJ)
From the earliest days of its whistleblower program, the U.S. Securities and Exchange Commission made clear that a phone call is not enough.
In its first set of rules for the program, created by the 2010 Dodd-Frank reform laws, the SEC said tips must be faxed, filed through the agency’s website or mailed to be eligible for an award. Those rules took effect in August 2011. In that interim year, between when the law was passed and when the SEC implemented new rules, tipsters were only required to provide information “in writing.”
But the SEC is not always a stickler.
On Friday, the agency made an exception for a whistleblower who, in that one-year interim period, didn’t provide the SEC with information in a written format. The whistleblower had begun working with the agency before the tip could be eligible for an award under Dodd-Frank.
After the law was enacted, the whistleblower continued to help the SEC and provided new information contributed to an enforcement action. But it was not provided in writing—“an omission which might normally require an award denial,” the agency said Friday in awarding more than $5.5 million.
The SEC cited “highly unusual circumstances.” The whistleblower, the agency said, provided the new information “in the format that the enforcement staff expressly requested.” It’s unclear how the tipster provided this information—but it apparently wasn’t “in writing.”
Sean McKessy, who stepped down in July as the whistleblower office’s first chief, said Friday’s award marks the second time the SEC has deemed it appropriate to waive a procedural requirement.
“The big picture message that this sends is the commission is a body that has discretionary authority to do what justice requires,” said McKessy, who represents whistleblowers as a partner at Phillips & Cohen. He added: “If the equities determine it, or if the equities demand it, the commission can be persuaded to waive the requirements to get to a just result.”
The whistleblower program has been widely hailed, so much so that it is considered relatively safe from President-elect Donald Trump’s calls to “dismantle” Dodd-Frank. When total whistleblower bounties topped the $100 million mark in late August, SEC chairwoman Mary Jo White described the program as a “game changer” for the agency’s enforcement efforts.
With Friday’s award, the SEC has now doled out about $142 million in awards to a total of 38 whistleblowers.
“Whistleblowers play a key role in bringing wrongdoing to the SEC’s attention, and this whistleblower helped prevent further harm to a vulnerable investor community by boldly stepping forward while still employed at the company,” Jane Norberg, chief of the SEC’s whistleblower office, said in a prepared statement.
The recipient of Friday’s award is a rarity in the ranks of awarded whistleblowers.
In recent years, the SEC has been challenged at least twice in federal appeals courts for rejecting whistleblowers who initiated contact with regulators before Dodd-Frank was enacted in 2010. Last month, a rejected whistleblower—identified as “John Doe”—went to the U.S. Court of Appeals for the D.C. Circuit to fight the denial of award claim. The SEC noted the whistleblower based his claim, in part, on information provided before July 21, 2010—the day Dodd-Frank was enacted.
The SEC said in its denial order that “none of the original” information provided after Dodd-Frank’s enactment led to the successful enforcement action at issue.