TheCorporateCounsel.net

Following up on the largest-ever award only a few months ago, the SEC announced on Friday that it bestowed $104 million upon 7 whistleblowers whose information and assistance led to a successful SEC enforcement action and related actions brought by another agency. The combined payout is the 4th largest bounty in the history of the Commission’s whistleblower program. Here’s more detail:

The seven whistleblowers were composed of two sets of joint claimants and three single claimants, and each provided information that either prompted the opening of or significantly contributed to an SEC investigation. The seven individuals’ assistance to the staff included providing documents supporting the allegations of misconduct, sitting for interviews, and identifying potential witnesses.

As usual, the order is full of redactions to protect the confidentiality of the whistleblowers. But this one does say that many of them are foreign nationals who shared info about misconduct in what were probably non-US territories, which is a reminder that the SEC’s whistleblower program applies to securities law violations and tips from anywhere in the world. The order also gives a peek into the jockeying amongst the whistleblowers for how the combined award would be divided, and explains why two other individuals were denied from sharing in the payment – including one of the company’s lawyers:

Claimant 8 does not qualify for a whistleblower award. Because significant portions of the information submitted by Claimant 8 appeared to be derived from his/her employment as an attorney for Subsidiary, the TCR and subsequent information Claimant 8 submitted was deemed potentially privileged by an Enforcement filter team and either redacted or withheld from investigative staff.

Accordingly, Claimant 8’s information did not cause the staff to open the Investigation or to inquire concerning different conduct, nor did it significantly contribute to the Investigation. Claimant 8’s contention in his/her response to the Preliminary Determinations that his/her information is not privileged is not relevant—the staff did not review significant portions of Claimant 8’s information and thus Claimant 8’s information did not lead to the success of the Covered Action.

As to Claimant 8’s contention in his/her response that staff said Claimant 8’s information was “highly relevant” and “valuable,” staff indicated in a supplemental declaration, which we credit, that while the staff spoke briefly with Claimant 8, the purpose of the conversation was to determine the nature of Claimant 8’s employment responsibilities at Subsidiary. When the staff learned of Claimant 8’s role as an in-house counsel, the staff ceased the conversation so as not to infringe upon any attorney-client communication. For these reasons, Claimant 8 is not eligible for an award.

Here’s a useful index of awards that a law firm has published in order to summarize what led the SEC to grant or deny each whistleblower claim through the program’s history. If you are reading this as a lawyer who has discovered questionable activity and you are daydreaming of retiring on a whistleblower award, I am sorry to remind you of these extra constraints on sharing information that would lead to a successful enforcement action. But don’t forget that you will still need to report “up the ladder” under SEC rules!

– Liz Dunshee