FINRA Lawyer Blog
On January 14, 2021, the SEC issued an Order Determining Whistleblower Award Claims (the “Order”). The Order grants “Claimant 1” a $600,000 award while completely denying any award to “Claimant 2.” The heavily-redacted Order makes it impossible to determine what Covered Action and monetary sanction triggered the claims for a Whistleblower Award. You can quickly tell when reading the Order, however, that things are not going to go well for Claimant 2 when the commission notes early on in the Order that:
“Enforcement staff responsible for the Covered Action confirmed that they did not receive any information from Claimant 2, nor did they have any communications with Claimant 2, before or during the investigation.”
Claimant 2’s theory, we learn, is that his tip did not have to be communicated directly to the Enforcement Staff responsible for the Covered Action. It turns out that Claimant 2 provided information about a company to Enforcement Staff in an entirely different regional office. An investigation was commenced and Enforcement Staff was unable to substantiate Claimant 2’s claims. The investigation was closed without commencement of an enforcement action. The Commission pointedly defines the redacted company as the (“Unrelated Company”) and the investigation as the (“Unrelated Investigation”).
To qualify for an award under Section 21F of the Securities Exchange Act of 1934 (“Exchange Act”), a whistleblower must voluntarily provide the Commission with original information that leads to the successful enforcement of a covered action. See Exchange Act Section 21F(b)(1), 15 U.S.C. § 78u-6(b)(1).6. Alternatively, if an investigation is already underway a Whistleblower can be eligible for an award where their information “significantly contributed to the success of the action.” Exchange Act Rule 21F-4(c)(2).
It the took the Commission little effort to deny a Whistleblower Award to a claimant who provided a tip about an entirely different company and a different investigation that never led to an enforcement action. As the Commission succinctly concluded.
That Claimant 2 made allegations with respect to the Unrelated Company does not mean that Claimant 2 is then eligible for every future enforcement action involving similar securities laws violations.
Herskovits PLLC has an active whistleblower practice and is one of a small number of law firm that have recovered a whistleblower bounty from the SEC. Feel free to call at 212-897-5410 for a consultation.