Tag: Dodd-Frank

Supreme Court Unanimously Holds that Whistleblowers Must First Report to the SEC Before Being Afforded Dodd-Frank Anti-Retaliation Protections

In a 9-0 opinion issued on Wednesday, February 21, in Digital Realty Trust v. Somers (2018), the Supreme Court resolved a circuit split by holding that Dodd-Frank’s anti-retaliation provision does not apply to an individual, like Somers, who reported a violation of the securities law internally at his company but did not report the violation to the SEC.

As we have previously written, this case came to the Supreme Court from the Ninth Circuit, affirming the District Court’s holding that Section 78u-6(h), Dodd-Frank’s anti-retaliation provision, did not necessitate reporting a potential violation to the SEC before gaining “whistleblower” status. Somers v. Digital Realty Trust Inc., 850 F.3d 1045 (9th Cir. 2016). The Fifth Circuit had previously come to the opposite holding. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013). The Supreme Court decided this circuit split and reversed the Ninth Circuit’s holding—taking a narrow view of the “whistleblower” definition and statutory construction.

Dodd-Frank defines a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” 15 U.S.C. § 78u-6(a)(6) (emphasis added). Somers and the Solicitor General argued that the “whistleblower” definition applies only to Dodd-Frank’s monetary reward program for whistleblowers and does not apply to its anti-retaliation provision. Further, the SEC itself advanced this view in its Rules. See 17 C.F.R. § 240.21F-2. The rule, as well as interpretative guidance released in 2015, explained that there were two definitions of “whistleblower”: one for the reward program, which required reporting to the SEC, and one only for the anti-retaliation provision, as long as the information is provided “in a manner described in Section 21F(h)(1)(A) of the Exchange Act,” which includes internal reporting. See id.; SEC Rel. No. 34-75592. The Rule further qualified that “[t]he anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award.” 17 C.F.R. § 240.21F-2(b)(1)(iii).

The Supreme Court, however, found this argument to be at odds with the “plain” language of the statute and the purpose of this portion of Dodd-Frank—to encourage individuals to report violations to the SEC. The Supreme Court reasoned that the SEC Rule should not be accorded deference because “Congress has directly spoken” on this issue in its unambiguous language in Dodd-Frank, and concluded that the language in Dodd-Frank was explicit in its exclusive inclusion of only those individuals who report securities complaints to the SEC.

While the Supreme Court’s decision limits the scope of potential “whistleblowers” who could seek the protection of the Dodd-Frank anti-retaliation provision, the decision may have another, less positive, collateral consequence. When the SEC promulgated the whistleblower rules, it received dozens of comments suggesting that the SEC require employees to report internally before reporting potential violations to the SEC. The SEC rejected that approach, but attempted to encourage internal reporting by including as a factor in deciding the amount of an award whether the whistleblower first reported the potential violation internally. In light of the Supreme Court’s decision, it is more likely that employees will forego reporting any potential violations internally and instead go straight to the SEC so as to not only qualify for an award, but also to seek the protection of the anti-retaliation provision.

Ninth Circuit: You Don’t Need to Report Securities Violations to the SEC to Be Protected by the Dodd-Frank Anti-Retaliation Provision

On March 8, 2017, a divided panel of the United States Court of Appeals for the Ninth Circuit held that the anti-retaliation provision of the Dodd-Frank Act protects individuals who make purely internal disclosures of alleged securities violations. The decision, Somers v. Digital Realty Trust, Inc., No. 15-17352 (9th Cir. March 8, 2017), aligns the Ninth Circuit with the Second Circuit, which reached the same result in Berman v. Neo@ogilvy, LLC, 801 F.3d 145 (2d Cir. 2015). These opinions stand in stark contrast to the position of the Fifth Circuit, which concluded in Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013), that in order to enjoy the protection of the anti-retaliation provision an individual must report the alleged securities violation to the SEC. While the Ninth Circuit’s decision is the latest entry in this evolving circuit split, it is unlikely to be the last—the Third Circuit is considering this very issue.

The Dodd-Frank Act defines a “whistleblower” as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a matter established by rule or regulation, by the Commission.” 15 U.S.C. § 78u-6(a)(6).

As even the Ninth Circuit acknowledged, the definition above describes only those who report information to the SEC. But the Ninth Circuit did not regard this as determinative of the issue. Instead, the court analyzed both the purpose of the Dodd-Frank Act and the scope of the activities specifically covered by the anti-retaliation provision to reach its ultimate conclusion. In particular, the anti-retaliation provision protects those who engage in lawful activities “in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 . . . and any other law, rule, or regulation subject to the jurisdiction of the Commission.” 15 U.S.C. § 78u-6(h)(1)(A)(iii). The Ninth Circuit, like the Second Circuit, noted that Sarbanes-Oxley requires both accountants and lawyers to report internally before they report to the SEC. Thus, using the “whistleblower” definition from Section 78u-6(a)(6) for purposes of the anti-retaliation provision would provide almost no protection to such lawyers and accountants—they would be forced to report internally first, and could legally be subject to retaliation in the period between their mandatory internal reporting and the time they made the report to the SEC. The Ninth Circuit concluded that such an approach “would make little practical sense and undercut congressional intent.”

The Ninth Circuit also agreed with the Second Circuit that the SEC regulation promulgated to implement anti-retaliation provision is entitled to deference. That regulation, Exchange Act Rule 21F-2, 17 C.F.R. § 240.21F-2, makes clear that the anti-retaliation provision protects anyone who engages in activities protected by 15 U.S.C. § 78u-6(h)(1)(A), including those who make internal disclosures under Sarbanes-Oxley.

Continuing its trend in Court of Appeals cases on this issue, the SEC appeared and argued as amicus in favor of expansive coverage of the anti-retaliation provision.

District Court Invalidates Tolling Agreements in Criminal Securities Fraud Prosecution Case Due to Misunderstanding of Applicable Statute of Limitations

On January 30, 2017, the United States District Court for the District of New Jersey dismissed the government’s indictment against Guy Gentile for a pump-and-dump securities fraud scheme. After his arrest Gentile admitted to having engaged in the scheme and agreed to cooperate, which included signing two tolling agreements, each extending the statute of limitations for one year. In dismissing the indictments, the court held that the tolling agreements were invalid and the applicable statute of limitations for securities fraud was five years, not six years.

According to the opinion, Gentile engaged in a securities fraud scheme that indisputably ended in June 2008, at which time the statute of limitations for securities fraud was five years. In 2010, however, the Dodd-Frank Wall Street Reform and Consumer Protection Act extended the statute of limitations to six years for certain criminal securities fraud violations. Gentile was charged on June 25, 2012 and arrested on July 13, 2012, i.e. four years after the criminal conduct. Under interrogation, Gentile admitted to the fraud and agreed to cooperate with the government. Gentile entered into a tolling agreement with the government that tolled the limitations period from July 31, 2012 through July 31, 2013. Gentile subsequently signed a second tolling agreement, tolling the limitations period from July 31, 2013 through July 31, 2014. Gentile, however, refused to sign a third tolling agreement because he wanted all cooperation and criminal actions to be concluded by June 30, 2015. Critically, when entering the tolling agreements, both the government and Gentile assumed the statute of limitations was five years (the limitations period in effect at the time of the criminal conduct) and not six years (the limitations period in effect at the time of the arrest). Accordingly, at the time that the second tolling agreement expired, the government would have had to indict Gentile prior to July 31, 2015.

Unable to reach a plea deal, the government indicted Gentile in March 2016 and Gentile moved to dismiss. If the statute of limitations had been six years, the second tolling agreement would have presumably given the government until July 31, 2016 to indict. The court, however, disagreed. The court first found that, “limited to the specific facts of this case,” the tolling agreements were invalid because Gentile did not have a full understanding of the waiver. Slip Op. at 6. The court reasoned that “the waivers were executed unknowingly since Defendant clearly thought he was extending his exposure to criminal prosecution by two years when in fact, if the statute of limitations was six years, he was extending the period of exposure by three years.” Slip Op. at 7. That misunderstanding rendered the waivers invalid, with the effect that the statute of limitations was not tolled. Without a toll, the government’s deadline to indict was either June 30, 2013 (under the five-year limitations period) or June 30, 2014 (under the six-year limitations period). In either event, the March 2016 indictment was untimely.

After holding that the defendant’s ignorance of the potential six-year limitations period rendered the tolling agreements invalid, the court then held that the applicable statute of limitations is in fact five years, i.e., exactly what the Gentile had thought when he entered the tolling agreements. The court relied on the presumption against retroactivity absent express congressional intent. Since the applicable section of the Dodd-Frank act “contains no discussion nor mention of retroactivity, let alone clear intent that Congress intended th[e] section to apply to crimes committed prior to its enactment[,]” the six-year limitations period is not retroactive. Because the applicable statute of limitations was five years, even if the tolling agreements were valid, the indictment was untimely, as the tolling agreements would have only extended the statute of limitations until June 30, 2015.

The SEC’s First Risk Alert of Fiscal Year 2017 Targets Registrant Rule 21F-17 Compliance

The Securities and Exchange Commission (SEC or Commission) Office of Compliance Inspections and Examination (OCIE) issued a Risk Alert on October 24, 2016, titled “Examining Whistleblower Rule Compliance.” This recent Risk Alert continues the SEC’s aggressive efforts to compel Rule 21F-17 compliance and puts the investment management and broker-dealer industries on formal notice that OCIE intends to scrutinize registrants’ compliance with the whistleblower provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). By way of background, Dodd–Frank established a whistleblower protection program to encourage individuals to report possible violations of securities laws. Importantly, in addition to providing whistleblowers with financial incentives, Rule 21F-17 provides that no person may take action to impede a whistleblower from communicating directly with the SEC about potential securities law violations, including by enforcing or threatening to enforce a severance agreement or a confidentiality agreement related to such communications. As discussed in our prior publications, the SEC’s Division of Enforcement (Enforcement) has instituted several settled actions against public companies for violating the “chilling effect” provisions of Rule 21F-17. During the past two months, the SEC has filed two additional settled enforcement actions, as summarized below. Thus, as the SEC embarks on the start of its 2017 fiscal year (FY2017), Rule 21F-17 remains an agency-wide priority, and issuers, investment management firms, and broker-dealers—if they have not done so already—need to take heed and proactively remediate any vulnerabilities that they may have regarding their Rule 21F-17 compliance.

OCIE Alerts Registrants

As described previously, the SEC’s most recent annual report stated that assessing confidentiality terms and language for compliance with Rule 21F-17 was a top priority for fiscal year 2016 and that staff had started the practice of examining company documents for such compliance. Now, less than one month into FY2017, OCIE has formalized this practice and notified the registrant community accordingly.

The Risk Alert spells out how OCIE plans to examine documents for these compliance issues. First, OCIE staff will examine whether any terms that are contained in company documents “(a) purport to limit the types of information that an employee may convey to the Commission or other authorities; and (b) require departing employees to waive their rights to any individual monetary recovery in connection with reporting information to the government.” Second, regarding the books and records to be examined, staff will analyze the following types of documents: compliance manuals; codes of ethics; employment agreements; and severance agreements. Finally, the Risk Alert identifies provisions that may contribute to violations of Rule 21F-17 or may impede employees or former employees from communicating with the Commission, such as provisions that:

  1. require an employee to represent that he or she has not assisted in any investigation involving the registrant;
  2.  prohibit any and all disclosures of confidential information, without any exception for voluntary communications with the Commission concerning possible securities laws violations;
  3. require an employee to notify and/or obtain consent from the registrant prior to disclosing confidential information, without any exception for voluntary communications with the Commission concerning possible securities laws violations; or
  4. purport to permit disclosures of confidential information only as required by law, without any  exception for voluntary communications with the Commission concerning possible securities laws violations.

Enforcement Update

Since August 16, 2016, the SEC has instituted two additional enforcement actions for violations of Rule 21F-17 based on prohibitions contained in severance agreements. First, in the Health Net, Inc., matter, the relevant violations involved release language in severance agreements that required employees to waive their right to any monetary recovery resulting from participating in a whistleblower program, among other issues. As part of the settlement, Health Net agreed to pay a $340,000 civil penalty and to engage in undertakings similar to those in the prior Rule 21F-17 cases. A review of the SEC’s Rule 21F-17 stand-alone cases reveals that the penalties have increased with each matter and that Health Net payed the largest fine to date. More recently, and within a month of OCIE’s Risk Alert, an international beverage conglomerate agreed to pay a civil penalty for violations of Rule 21F-17, among other charges. The Rule 21F-17 violations were related to a liquidated damages provision in the company’s separation agreement that did in fact cause an employee to stop communicating with the SEC until he received a subpoena. In this case, the primary charges involved books and records violations and internal control infractions that arose under the terms of the Foreign Corrupt Practices Act of 1977. Consistent with one other Rule 21F-17 case, the SEC appears to routinely investigate possible Rule 21F-17 violations while investigating other charges.

Takeaways

OCIE’s first Risk Alert of FY2017 puts the investment management and broker-dealer industries on notice that OCIE staff will examine and scrutinizing company documents for Rule 21F-17 compliance. More importantly and not stated in the Risk Alert—when coupled with Enforcement’s ongoing and aggressive interest—this combination indicates that OCIE staff will be looking to refer violations of Rule 21F-17 to their receptive Enforcement colleagues. Thus, investment management and broker-dealer registrants need to be proactive in assessing their risks and in reviewing all agreements, policies and procedures that may create exposure to SEC Rule 21F-17 violations. If there are any potential violations, Registrants should then execute a remediation plan. Cleary, this Risk Alert serves as a “notice,” and registrants who fail to act will likely be subjected to an OCIE referral to Enforcement.

SEC Uses Its Powers under the Dodd-Frank Whistleblower Provisions to Warn Employers Against Attempting to Restrict Employees’ Ability to Report Potential Violations

On April 1, 2015, the SEC announced a settled enforcement proceeding against KBR, Inc., a publicly traded, Houston-based technology and engineering company, for including “restrictive language” in confidentiality agreements used in the course of internal investigations. This is the first time the SEC has used its enforcement powers under Rule 21F-17 of the Whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Rule 21F-17 provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communication.”

The language to which the SEC took exception appeared in confidentiality agreements KBR used in connection with internal investigations. The statement, which investigators required employees to sign before the interview, was included in the Company’s Code of Business Conduct Investigations Procedures manual. The statement read:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during this interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be the grounds for disciplinary action up to and including termination of employment.

It does not appear that the policy specifically referenced reporting to the SEC or any governmental authority. Moreover, it seems likely that the Company’s intent was to prevent employees from discussing the matter with each other. The SEC admitted that it had no evidence KBR ever prevented an employee from communication with the SEC staff or that KBR took any action to enforce the confidentiality provision. Nevertheless, the SEC posited that the language undermined the purpose of Section 21F and Rule 21F-17(a), which is to “encourage individuals to report to the” SEC.

The SEC indicated its approval of KBR’s amended policy by quoting it in the Order. The new policy provides:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

While the Order imposes a modest civil penalty of $130,000, KBR is also required to contact KBR employees who signed confidentiality statements from August 21, 2011, to the present and to provide them with a copy of the Order and a statement that they do not need permission from KBR to communicate with any governmental entity.

This case of first impression underscores the SEC’s commitment to the Whistleblower program and its intent to punish employers that, intentionally or not, restrict an employee’s ability to report potential violations to the SEC. There has been much press about such restrictive language in employment agreements, not just related to the SEC, but also related to the National Labor Relations Board and other federal agencies. It is clear the SEC will consider such restrictive language wherever it may be found. By virtue of this Order, companies will have to manage protecting the integrity of internal investigations and avoiding accusations that it discouraged employees from going to the SEC. It also remains to be seen whether the SEC will take the position that companies are required to affirmatively inform employees of their ability to make reports to the SEC or other governmental bodies or whether employees must merely refrain from discouraging such activity. Because the Whistleblower provisions apply to both private and public companies, it seems a prudent course of action for all employers to review employment and confidentiality agreements.

UPDATE: Third Circuit Affirms Arbitrability of Dodd-Frank Retaliation Claim in Khazin v. TD Ameritrade Holding Corp., ___ F.3d ___, No. 14-1689, 2014 WL 6871393 (3d Cir. Dec. 8, 2014).

In March, we wrote about a ruling out of the District of New Jersey enforcing an arbitration provision contained in an employment agreement that pre-dated Dodd-Frank.  The court reasoned that to disregard a pre-Dodd-Frank arbitration provision “would fundamentally interfere with the parties’ contractual rights and would impair the predictability and stability of their earlier agreement.” Khazin v. TD Ameritrade Holding Corp., Civil Action No. 13-4149 (SDW)(MCA), 2014 U.S. Dist. LEXIS 31142 (D.N.J. Mar. 11, 2014). The court also emphasized the “strong federal policy in favor of the resolution of disputes through arbitration” and cited a number of other federal courts that have reached a similar result. Id.

The Third Circuit, though, declined to reach this issue. Instead, it determined that Khazin’s claim, which was brought under Dodd-Frank, was not subject to the Anti-Arbitration Provision at all. 2014 WL 6871393, at *2. Dodd-Frank’s Anti-Retaliation Provision states: “Predispute Arbitration Agreements.—No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” Although the Anti-Arbitration Provision was included in Dodd-Frank, it followed language that said, “Section 1514A(a) of title 18, United States Code [Sarbanes-Oxley], is amended ….” The Dodd-Frank retaliation cause of action, on the other hand, was added to the Securities Exchange Act of 1934 located at 15 U.S.C. § 78a et seq. The court explained, “[i]t would be nonsensical for the word ‘section’ in the Anti-Arbitration Provision to refer to Section 922 of the Act [the whistleblower protection section of Dodd-Frank] when Section 922 expressly places its constituent parts in separate “sections” of the Code.” 2014 WL 6871393, at *3 n.3.

In light of this interpretation, the court did not express any opinion on whether the district court properly determined that Dodd-Frank’s Anti-Arbitration Provision did not invalidate the arbitration clause in his pre-Dodd-Frank employment agreement.

SEC Announces Highest Whistleblower Award to Date

The SEC recently announced a record-breaking whistleblower award of $30-35 million, which shattered the previous high award of $14 million. See SEC Awards More Than $14 Million to Whistleblower. Not only is this award noteworthy for its size, but also because it was made to a foreign resident and it could have been even higher if the whistleblower did not unreasonably delay in reporting the violations.

This was not the first award made to foreign residents, but it was the first award made to a foreign resident since the Court of Appeals for the Second Circuit found that the anti-retaliation protections of Section 21F(h) of the Dodd-Frank Act do not apply to foreign whistleblowers who experience retaliation overseas from foreign employers. Liu v. Siemens, __ F.3d __, 2014 WL 3953672 (2d Cir. Aug. 14, 2014); see also Made for the U.S.A. Only: Second Circuit Holds That the Dodd-Frank Act’s Antiretaliation Provision Applies Only Domestically. In making this award, the SEC reiterated that any extraterritorial aspects of tips, such as a whistleblower’s foreign residency or alleged misconduct that occurs abroad, do not matter when there is a “sufficient U.S. territorial nexus”—i.e., “whenever a claimant’s information leads to a successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations.” Order Determining Whistleblower Award Claim, Whistleblower Award Proceeding, File No. 2014-10 (Sept. 22, 2014). It found that the Second Court’s holding in Liu v. Siemens, __ F.3d __, 2014 WL 3953672 (2d Cir. Aug. 14, 2014), was not controlling and that “the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”

In announcing the award Sean McKessy, Chief of the Office of the Whistleblower, underscored the extraterritorial reach of the program: “This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice. Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.” See SEC Press Release: “SEC Announces Largest-Ever Whistleblower Award.”

Further, this already staggering award amount had the potential to be even higher if the whistleblower did not unreasonably delay in reporting to the SEC. The whistleblower delayed for an undisclosed period of time after first learning of the violations, which the SEC said caused investors to suffer significant losses that might have been avoided. The SEC found that the whistlblower’s delay was unreasonable under the circumstances and reduced the award from the maximum percentage allowed under the statute. It rejected the whistleblower’s argument that the percentage awarded was below the average percentage awarded to other whistleblowers as irrelevant. The SEC, however, did not apply the unreasonable delay consideration as severely as it otherwise might have done because a period of the delay occurred before the implementation of the whistleblower program established by the Dodd-Frank Act.

This latest award shows the SEC’s willingness to make awards to whistleblowers across the globe.

Quarterly Whistleblower Award Update

Since our last quarterly update, the SEC’s Office of the Whistleblower (“OWB”) has issued four denial orders and three award orders. Here are some lessons learned from this activity:

• The SEC Will Not Award Whistleblowers Who Provide Frivolous Information. The SEC determined that a claimant (who submitted “tips” relating to almost every single Notice of Covered Action”) was ineligible for awards because he/she “has knowingly and willfully made false, fictitious, or fraudulent statements and representations to the Commission over a course of years and continues to do so.” Under Rule 21F-8, persons are not eligible for an award if they “knowingly and willfully make any false, fictitious, or fraudulent statement or representation, or use any false writing or document knowing that it contains any false, fictitious, or fraudulent statement or entry with intent to mislead or otherwise hinder the Commission or another authority.” 17 C.F.R. § 240.21F-8(c)(7). The OWB found that a number of passages submitted by the claimant were patently false or fictitious and that the person had the requisite intent because of the (1) incredible nature of the statements, (2) continued submissions that lack any factual nexus to the overall actions, and (3) refusal to withdraw unsupported claims at the request of the OWB. (May 12, 2104.)

• The SEC Will Enforce the Time Frames Set Forth in the Statue. The OWB denied two awards because the claimants did not submit an award claim within the 90-day period established by Rule 21F-10(b). The claimants argued that OWB should waive the 90-day period due to extraordinary circumstances. See 17 C.F.R. § 240.21F-8(a). The OWB determined that neither a lack of awareness that the information that the whistleblower had shared would lead to a successful enforcement action nor the lack of awareness that the Commission posted Notices of Covered Actions on its website constitutes an extraordinary circumstance to waive the timing requirement. See SEC Release No. 72178 (May 16, 2014) and SEC Release No. 72659 (July 23, 2014).

• Whistleblowers are Not Eligible for an Award Unless the Information Leads to a Successful Enforcement Action. The OWB denied an award to a claimant because the provided information did not lead to a “successful enforcement by the Commission of a federal court or administrative action, as required by Rules 21F-3(a)(3) and 21F-4(c) of the Exchange Act.” OWB also noted that the claimant did not submit information in the form and manner required by Rules 21F-2(a)(2), 21F-8(a), and 21F-9(a) & (b) of the Exchange Act. See In the Matter of Harbinger Capital Partners, LLC, File No. 3-14928 (July 4, 2014).

• The OWB Can Be Persuaded to Change Its Preliminary Determination. Although the OWB initially denied the whistleblower’s award claim on the basis that the information did not appear to have been voluntarily submitted within Rule 21F-4(a)(ii) because it was submitted in response to a prior inquiry conducted bya self-regulatory organization (“SRO”). In a Final Determination issued on July 31, 2014, however, the OWB determined that claimant was entitled to more than $400,000. OWB noted that a submission is voluntary if it is provided before a request, inquiry, or demand for information by the SEC in connection with an investigation by the Public Company Accounting Oversight Board, any self-regulatory organization, Congress, the federal government, or any state Attorney General.

On the basis of the unique circumstances of this case, the OWB decided to waive the voluntary requirement of Rule 21F-4(a) for this claimant. The SEC noted that the claimant “worked aggressively … to bring the securities law violations to the attention of appropriate personnel,” the SRO inquiry originated from information that in part described claimant’s role, claimant believed that the company had provided the SRO with all the materials that claimant developed during his/her own internal efforts, and claimant promptly reporting to the SEC that the company’s internal efforts as a result of the SRO inquiry would not protect investors from future harm. Sean McKessy, chief of the SEC’s Office of the Whistleblower, remarked that “[t]he whistleblower did everything feasible to correct the issue internally. When it became apparent that the company would not address the issue, the whistleblower came to the SEC in a final effort to correct the fraud and prevent investors from being harmed. This award recognizes the significance of the information that the whistleblower provided us and the balanced efforts made by the whistleblower to protect investors and report the violation internally.” See SEC Release No. 72727 (July 31, 2014); SEC Press Release, “SEC Announces Award for Whistleblower Who Reported Fraud to SEC After Company Failed to Address Issue Internally,” (July 31, 2014).

• SEC Continues to Make Awards to Qualified Claimants. On June 3, 2014, the SEC awarded two claimants 15% each for a total of 30% percent of the monetary sanctions collected in the covered action. See SEC Release No. 72301 (June 3, 2014). On July 22, 2014, the SEC awarded three claimants 15%, 10%, and 5% respectively (for a total of 30%) of the monetary sanctions collected in the Covered Action. See SEC Release No. 72652 (July 22, 2014).

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