The Securities and Exchange Commission on Friday announced an award of $3.5 million to a whistleblower that bolstered an existing investigation. The government has now paid $62 million to 28 whistleblowers since the SEC whistleblower program was opened in 2011.
The government’s press release encouraged individuals to come forward “even if they think the SEC may already be looking into it.” The Director of Enforcement, Andrew Ceresney, indicated that the tip from the company’s employee increased their leverage during settlement negotiations.
The claims review staff at the SEC initially recommended that the claim for an award be denied. The claimant challenged the preliminary determination in writing and the whistleblower office received additional factual information from the enforcement staff which led to the award announcement. This is, I believe, the second or third time that the government has reversed the initial position from the preliminary determination.
The award determination opinion clarifies the difference between Rule 21F-4(c)(1) and (c)(2). The “different conduct” of Rule 21F-4(c)(1) is generally limited to where staff has an open investigation into one type of misconduct and the tip relates to a substantially different conduct. It is not satisfied, according to the opinion, where the misconduct is already under investigation even if it causes the government to elevate its inquiry into that area.
Instead, the opinion analyzes whether the information “significantly contributed” to the success of the enforcement action under the standard of Rule 21F-4(c)(2). The government had already generally become aware of the company’s conduct in this case because of media reports regarding it. However, the individual provided supporting documentation and certain new information which helped the SEC during settlement negotiations.
The opinion ultimately issued an award of $3.5 million based on this significant contribution.
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