September 17, 2021

SEC awards whistleblower $3.5 million for help in ongoing investigation

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SP-CeresneyBy C. Ryan Barber, From The National Law Journal
Before being awarded more than $3.5 million on Friday, the latest tipster to benefit from the Securities and Exchange Commission’s whistleblower program was rebuffed.
In January, the agency officials denied the whistleblower’s award application on the grounds that the tip did not lead the SEC to initiate an investigation or inquire into different conduct. Rather, the company employee’s information came in the midst of an ongoing investigation — and it initially did not “appear to have significantly contributed to the success” of the enforcement action, according to the final order approving the award.
That was before SEC enforcement staff went to bat for the whistleblower. After the tipster appealed, the staff provided “certain additional factual information” that underscored the whistleblower’s significance to the investigation, according to the final order released Friday.
According to the order, the whistleblower argued that the information caused the staff to open a “new line of inquiry” — a contribution that the SEC treats as similar to opening an investigation. But the SEC ultimately reversed course and awarded the whistleblower based on a separate justification: providing information that “significantly contributes to the success of a commission judicial or administrative enforcement action.”
“What the whistleblower initially argued was his or her information caused the commission to inquire into different conduct. The commission interpreted that provision and said no, that doesn’t fit here. But what it does fit is the significant contribution prong,” said Phillips & Cohen partner Erika Kelton, who represented a tipster who received $30 million from the SEC, the largest whistleblower award in the program’s history.
At the end of Friday’s final order, the SEC noted that it also weighed “certain unique hardships” that the whistleblower suffered, such as being “unable to find employment since reporting the misconduct.” The final order was heavily-redacted to conceal the whistleblower’s identity.
The SEC previously reversed a denial in July 2014, issuing an award to a whistleblower initially rejected over questions surrounding whether information was provided “voluntarily.”
The agency noted Friday that whistleblowers should come forward to report misconduct even if they believe it is already under investigation.
“Whistleblowers can receive an award not only when their tip initiates an investigation, but also when they provide new information or documentation that advances an existing inquiry,” said Andrew Ceresney, director of the SEC’s enforcement division, in a prepared release. “This particular whistleblower’s tip substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company.”
In March, the SEC awarded about $65,000 each to two tipsters who also bolstered an ongoing inquiry. But the SEC, which often uses award announcements to send broader messages about its whistleblower program, did not emphasize in a statement released at that time that whistleblowers can receive awards for reporting misconduct that is already under investigation.
The SEC has awarded more than $62 million to 28 whistleblowers since 2011, when the program was created under the Dodd-Frank financial reform law. Under the whistleblower program, a tipster can receive between 10 percent and 30 percent of a sanction that exceeds $1 million.
IMAGE: Andrew Ceresney, director of the SEC’s Division of Enforcement. Photo: Diego M. Radzinschi/ The National Law Journal
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