Pre-Dodd Frank Whistleblower Denied Reward by Second Circuit.


The Second Circuit upheld the Securities and Exchange Commission’s denial of a reward to a pre-Dodd Frank whistleblower yesterday in Stryker v. SEC, No. 13-cv-4404 (2d. Cir. Mar 11, 2015).

The whistleblower provided information to the SEC’s enforcement division between 2004 and 2009. The SEC opened an investigation in 2009 and interviewed him a month later. The SEC settled the enforcement action in November 2010 for $24 million.

Prior to the settlement, on July 21, 2010, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation authorized the whistleblower programs at the SEC and the Commodity Futures Trading Commission.

The whistleblower submitted an application for a reward. In Dodd-Frank, Congress did not explicitly address whether information submitted prior to July 21, 2010 could qualify for an award. However, Rule 21F-4(b)(1)(iv) allows for rewards only when the information is provided for the first time after July 21, 2010. The SEC denied the reward on that basis. The decision was appealed to the Second Circuit.

In denying an award, the Second Circuit deferred to the SEC’s rules. It relied on the language of Dodd-Frank requiring information to be submitted pursuant to the SEC’s rules and regulations, as well as Supreme Court’s opinion in Chevron requiring deference to reasonable agency interpretations of ambiguous statutory language.

The media has referred to individuals submitting tips prior to Dodd-Frank as “zombie” whistleblowers. It looks like these individuals will continue to be the walking dead to the SEC program unless another appellate court chooses to bail them out.