The Securities and Exchange Commission (SEC) recently agreed to provide approximately $2.5 million to a SEC whistleblower that worked for a government agency. The SEC whistleblower both provided the initial information that led to the opening of the case but also provided critical documents and testimony that accelerated the pace of the enforcement action. The SEC, per its policy, did not identify the whistleblower, the defendant or identifying details.
A footnote in the order explains generally that there are two exceptions which would allow the SEC to deny an award to a federal, state, or local government agency employee. The first is that no awards can be paid to an employee of the SEC, the Comptroller of the Currency, the Board of Governors of the Federal Reverse System, or the Federal Deposit Insurance Corporation. The second prohibits awards to an employee of “a law enforcement organization.” Although this term is not defined, the Order says it is generally defined as “having to do with the detection, investigation, or prosecution of potential violations of law.” The agency where the individual worked did perform law enforcement responsibilities, but the subagency where the whistleblower was staffed did not.
The SEC also made clear in a footnote to the Order that the claimant did not seek “to circumvent the potential responsibilities that his or her government agency might have to investigate or otherwise take action for the misconduct.” The SEC reserved judgment on whether a different award determination would have happened under those circumstances.
This is not the first time that a government employee has been a whistleblower. The situation has arose several times under the False Claims Act. Under that law, there is also no per se rule against paying government employees a reward. However, there are some procedural hurdles, since a government employee may have a difficult time qualifying as an original source (depending on the facts).
Nevertheless, the fact that the SEC decided to award the whistleblower with a bounty is a good sign that the new regime is not taking an excessively restrictive approach to interpreting the whistleblower rules. The SEC took a similar approach in another award issued last week – the July 27, 2017 award of $1.7 million to a whistleblower that was assisting the government prior to Dodd-Frank and provided valuable information to the SEC after Dodd-Frank passed but before the final regulations were issued for the SEC whistleblower program. The SEC waived procedural issues that happened in this interim period and rewarded the whistleblower with a bounty anyway.