SEC Orders Show Importance of Complying with Whistleblower Program Rules

As reported in the Wall Street Journal, the SEC recently denied two individuals’ applications for whistleblower awards because they had not met the requirements of the SEC Whistleblower Program rules. In the first case, an anonymous woman claimed that she had provided information that helped the SEC build its sub-prime mortgage fraud case against several former executives at Countrywide Financial and New Century Financial Corp., including former Countrywide CEO Angelo Mozilo, who reached a $67.5 million settlement with the SEC in 2010. The woman claimed that she had provided tips about the fraud to the U.S. Department of Housing and Human Development (or HUD) between 2008 and 2011, and that HUD had shared this information with the SEC. The SEC determined that, to the extent the woman was seeking an award for information provided to HUD prior to the official launch of the SEC Whistleblower Program in July 21, 2010, that information could not be the basis for an award. Additionally, the SEC determined that even if HUD had provided information to the SEC based on the woman’s tips after July 21, 2010, that information would not have been provided to the SEC in writing by the Claimant, as the rules of the SEC Whistleblower Program require.

In the second case, an unnamed person sought an award in connection with the SEC’s case against several defendants who had perpetrated a fraudulent penny stock offering scheme involving the stock of Anscott Industries, Inc. That case led to more than $21 million in sanctions being imposed against the defendants. The SEC denied that claimant’s application for an award because it found that he or she had not made the award application within 90 days of the time that the SEC posted its “Notice of Covered Action” – the official notice that alerts whistleblowers and others that a case involving more than $1 million in sanctions has been resolved and that any potentially eligible whistleblowers may seek an award. The SEC also found that the tips at issue did not constitute “original information,” as the rules require, because they were not provided to the SEC for the first time after July 21, 2010.

These cases show that, while whistleblowers with actionable information about wrongdoing have the opportunity to reap significant monetary awards, they must remain mindful of the rules of the SEC Whistleblower Program, both when initially submitting information to the SEC and when seeking an award (for more information about these rules, please see our SEC Whistleblower Program Handbook). That’s even more true for attorneys, accountants and auditors who may be considering blowing the whistle, since, although they can participate in the SEC program, they are subject to special rules and eligibility criteria. The rules of the SEC Whistleblower Program are not overly burdensome, but they are extremely important, especially given the high personal and financial stakes at issue in whistleblower cases. The moral of this story is that the more a potential whistleblower learns about the program before stepping in, the better experience and outcome he or she is likely to have.

By Jordan Thomas and Vanessa De Simone

Named one of the top whistleblower practices/attorneys in the country by The New York Times, Wall Street Journal, NPR and The New Yorker
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