September 3, 2023

Whistleblower awarded more than $18 million by the SEC

On August 25, 2023, the Securities and Exchange Commission awarded a whistleblower more than $18 million for voluntarily providing original information that led to a successful enforcement action.  According to the SEC, the claimant met the award criteria in Rule 21F-6 of the Securities Exchange Act of 1934 because he/she (i) submitted the Form TCR that prompted the SEC to open its investigation; (ii) provided information to the SEC that was substantial, helpful, and continued throughout the investigation saving the SEC time and resources; (iii) provided information that was closely related to the charges in the SEC’s enforcement action; and (iv) provided the information internally within the company as well.

The SEC denied an award to a second claimant whose application for an award was initially denied because (i) his/her information was received by the SEC after the Covered Action had been filed and settled, (ii) investigative staff could not recall ever communicating with the claimant or receiving information from the claimant, and (iii) the claimant failed to submit his/her information to the Office of the Whistleblower within 90 days of the date of the Notice of Covered Action, as required under Rule 21F-10 of the Exchange Act.  However, this claimant argued that he/she was the source of the information provided by the first claimant and appeared to assert eligibility for the award based on internal reporting under Rule 21F-4(c)(3), which enables claimants to submit information to the SEC through an entity’s legal or compliance program.  In order to qualify for an award under Rule 21F-4(c)(3), the information submitted to the entity must have been submitted to the SEC before or at the same as the internal reporting, or, in its dealings with the SEC, the entity can submit the claimant’s information to the SEC or present the SEC with the results of an internal audit or investigation conducted in response to the claimant’s information.  The Rule also requires that the claimant’s information must have contributed to the success of a new or existing enforcement action, and the information must be provided to the SEC within 120 days of its submission to the entity.

The second claimant’s award petition was denied for several reasons.  The SEC indicated that there was insufficient evidence that the company ever forwarded the second claimant’s information to the SEC, and, even if the claimant had caused the company to launch its internal investigation, the company’s counsel never provided the SEC with a report based on that investigation or any witness summaries or notes compiled during the investigation.  SEC staff could also not recall the company ever referencing the claimant’s information in any of its presentations.  In addition, the claimant did not submit information to the Commission within 120 days of reporting it to the company, as the rule requires.

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