Law360 (March 11, 2022, 8:49 PM EST) — The U.S. Securities and Exchange Commission said Friday that it has awarded $14 million to a whistleblower who published an online report exposing “ongoing fraud” at an undisclosed company, siding with the tipster’s rebuttal of a preliminary staff determination to deny their claim.
The SEC claims review staff had sought to deny the tipster’s claim because they did not provide original information to the agency, the claim was not submitted timely on a required form, and the information came only after the commission requested it, according to Friday’s order.
But the tipster argued that even if they fell short on “certain procedural requirements” — including the submission of the claim on the Form TCR — the agency should exercise its discretion and award the claim due to the “extraordinary assistance that the [whistleblower] program was designed to reward.”
The agency did just that, noting, “We have determined that it would be in the public interest and consistent with the protection of investors for the commission to exercise our discretionary authority” to award the claim and waive the Form TCR requirements.
The partially redacted order notes that the tipster filed the Form TCR more than four years after they had released a report online exposing the company’s wrongdoing, and two months after the agency’s whistleblower office posted a notice about its related action against the company.
The order notes that the undisclosed company and its CEO, without admitting or denying the findings, consented to pay different amounts as a result of the SEC actions against them. The agency does not name this or another whistleblower who filed a claim, or specify additional details on related actions, including fine amounts.
As part of the tipster’s rebuttal to the initial denial determination, they noted that the Form TCR containing the allegations about the company was ultimately submitted to the agency, and that it was “immaterial under the rules when he/she submitted the Form TCR.”
They also argued that claims staff was wrong in finding that the information came only upon request from the commission. They had emailed an attorney in the SEC’s enforcement division just three days after the online report was published and before agency staff reached out, the tipster claimed.
The SEC confirmed that the whistleblower did in fact email a copy of their online report to an attorney in its enforcement division just three days after posting it on the internet. It chose to make the award “in light of the unusual facts and circumstances present here.”
The information in the online report was “credible and of high quality,” and got enforcement staff to open the investigation that ultimately resulted in the successful action and returned millions of dollars to harmed investors, the SEC noted.
However, a second claimant who was purportedly a principal author of the same online report was not successful. The commission upheld its claims review staff’s preliminary determination denying their claim, noting that they never submitted a tip to the commission.
Like the successful tipster, the second claimant had asked the SEC to use its “discretionary authority” to hand out an award, contending that they “directly notified” the commission, including through tweets and significant media coverage of the online report.
But the commission wasn’t having it. “Even if an individual was the original source of a report that the commission staff discovered during an online search, in order to be eligible for an award, the individual would still need to demonstrate that he or she provided the report to the commission,” the order states.
Whistleblower awards can range from 10% and 30% of the money collected when the monetary sanctions exceed $1 million. The SEC has awarded approximately $1.2 billion to 249 individuals since issuing its first award in 2012, according to an announcement Friday about the $14 million award.
–By Al Barbarino. Editing by Adam LoBelia.
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