SEC Denies Whistleblower Claim

May 28, 2014

To be eligible for a whistleblower award, Rule 21F-10(b) of the Securities Exchange Act provides requires that you file by mail or fax a Form WB-APP  with the Securities and Exchange Commission's ("SEC's") Office of the Whistleblower  ("OWB")  within 90 calendar days of the date the SEC posts a Notice of Covered Action for the underlying matter.  In the event of an untimely filing, Rule 21F-8(a) provides that in its sole discretion the SEC may waive the 90-day deadline "upon a showing of extraordinary circumstances."  Inevitably, folks are gonna be late. It happens. Of course, we all know how flaky the exercise of "sole discretion" by any government agency can be -- particularly when it will be premised upon not merely a showing of meritorious circumstances but of the more limited "extraordinary" circumstances.

Case In Point

On May 16, 2014, the SEC's Claims Review Staff issued a Preliminary Determination recommending the denial of an untimely claim. In the Matter of the Claim for Awards in connection with [Redacted] Notice of Covered Action Redacted  (SEC, 1934 Act Release No. 72178 / May 16, 2014).

As best one can discern from the heavily redacted SEC Order, the straw that broke the SEC's back involved what would be charitably described as a "serial" claimant seeking an award pursuant to an SEC Complaint in federal District Court that resulted in the entry of a default judgment and an order to pay disgorgement,  interest, and a civil penalty. On an unstated date, OWB posted a Notice of Covered Action, and, thereafter, the Claimant submitted an award claim beyond the 90-day statutory period.  Although the Claimant conceded that her claim had been filed late, she sought an exemption for  "extraordinary circumstances" based upon her lack of knowledge about the SEC Whistleblower Program until shortly after the charges had been filed against the defendants in  District Court.

The PennMont Test

In denying Claimant's untimely claim, the SEC cited In the Matter of the Application of PennMont Securities et al., (Securities and Exchange Commission, 1934 Act Release No. 34-61967 / April 23, 2010) (aff'd 414 Fed. Appx. 465 , 3d. Cir. 2011) (Ed: footnotes omitted and highlighting added below): 

Pursuant to Rule 420(b), the Commission may, in the exercise of its discretion, hear an otherwise untimely application only if "extraordinary circumstances" are present. Courts have recognized that strict compliance with filing deadlines facilitates finality and encourages parties to act timely in seeking relief. As we have repeatedly stated, "parties to administrative proceedings have an interest in knowing when decisions are final and on which decisions their reliance can be placed." For this reason, the "extraordinary circumstances" exception is to be narrowly construed and applied only in limited circumstances. To do otherwise would thwart the very clear policies of finality and certainty underlying the thirty-day filing deadline set forth in Exchange Act Section 19(d) and Rule of Practice 420(b).

We believe that an extraordinary circumstance under Rule of Practice 420(b) may be shown where the reason for the failure timely to file was beyond the control of the applicant that causes the delay. In construing what constitutes extraordinary circumstances, we have looked to analogous areas of federal law involving deadlines, including the judicial doctrine of "equitable tolling" of filing deadlines. Under this doctrine, federal courts may excuse an untimely filing where the party has been pursuing his rights diligently but some extraordinary circumstance beyond the party's control -- such as attorney misconduct or mental incapacity -- prevented the party from making a timely filing. Even when circumstances beyond the applicant's control give rise to the delay, however, an applicant must also demonstrate that he or she promptly arranged for the filing of the appeal as soon as reasonably practicable thereafter. An applicant whose application is delayed as a result of extraordinary circumstances remains under an obligation to proceed promptly in pursuing appellate recourse.

It is undisputed that no circumstances beyond Applicants' control led to their failure to timely file an application for review. Applicants were notified of their right of appeal to the Commission four times by PHLX (including a response by PHLX on January 7, 2008 to a letter by Applicants' counsel asking for PHLX to provide "any rights of appeal, the time frames and how time is counted, and to which organization"). Despite this, Applicants elected to pursue their objections in the federal courts rather than filing an application for review with the Commission. Having made this election, Applicants cannot complain at this stage about the consequences of their choices.

PennMont at Pages 8-10 of the SEC Release.

The May 16, 2014 Denial

In considering the Claimant's appeal for consideration of her untimely claim as warranted under the "extraordinary circumstances" exception, the SEC noted in its May 16, 2014 Order that her petition failed to set forth extraordinary circumstances beyond her control. Moreover, the SEC admonished that the applicant failed to promptly arrange for her filing as reasonably as practicable . An interesting footnote, however, is offered:

5  If the Commission believes that an award is merited notwithstanding that the untimely filing was within the claimant's control, the Commission could still have recourse to its general exemptive authority under Section 36(a) of the Exchange Act. However, we do not find any evidence that would support the Commission exercising its authority to exempt Redacted from --- obligation to have timely filed.

Bill Singer's Comment

The following orders set forth the final disposition of applications for awards received by the OWB. Pursuant to its statutory obligation to preserve the confidentiality of whistleblowers, information that might directly or indirectly identify the claimants has been redacted from these orders.