SEC Awards Maximum 30% Whistleblower Bounty

June 5, 2014

It hasn't even been two years since the Securities and Exchange Commission ("SEC") announced its first Whistleblower Award, but its Office of the Whistleblower ("OWB") has clearly been busy and the announced denials and recommendations of awards are beginning to build.  No -- we don't yet have enough of a track record to permit reliable inferences about too many aspects of the developing process. On the other hand, each new announcement provides a bit more data for the statistical analyses and a bit more fodder for inference. Today's BrokeAndBroker Blog discusses the most recent Order of payment of a Whistleblower Award.

Getting The Max

On April 7, 2014, the SEC's Claims Review Staff ("CRS") issued a Preliminary Determination related to a Notice of Covered Action ("NoCa") referenced in redacted form to maintain confidentiality. The Preliminary Determination recommended that Claimant #1 and Claimant #2 receive a Whistleblower Award in the amount of 30% of the monetary sanctions collected or to be collected in the Covered Action, to be divided evenly between the two claimants for a net award to each of 15%. In the Matter of the Claim for Award [REDACTED] (Securities And Exchange Commission, Release No. 34-72301; File No. 2014-5 / June 3, 2014).

No Contest

On April 7, 2014, Claimant #1 and Claimant #2 provided written notice to the SEC of their decisions not to contest the Preliminary Determination within the applicable  60-day deadline and, pursuant to Rule 21F-10(f), the Preliminary Determination became the CRS's Proposed Final Determination.  

The Order

On June 3, 2014, the SEC ordered the payment of the awards for monetary sanctions collected in the Covered Action and as may be collected after the date of the Order.  As set forth in the Order in footnote 1:

A portion of the disgorgement and prejudgment interest ordered to be paid in the Covered Action was "deemed satisfied" by Respondents' payment of that amount pursuant to a civil action brought by Redacted Redacted and shall be included in our calculation of the award payment to the claimants here. We interpret Section 21 F(b)(l) of the Exchange Act, which provides for payment of awards based on "what has been collected of the monetary sanctions" imposed in a Commission Covered Action, to include amounts that are deemed satisfied when collected in actions brought by other governmental authorities.

Bill Singer's Comment

Given the relative newness of the SEC's Whistleblower Program, there just isn't much of a track record by which participants can gauge how long things  are taking or whether there are any developing "understandings" pertaining to the process.  

In the award at issue in today's BrokeAndBroker Blog we still have no idea as to how long it took to get from the NoCA to the Preliminary Determination.  From my personal experience, that uncertainty is often perplexing because a whistleblower eligible for an award is understandably anxious about whether his or her claim will be approved (and in what amount).  That client anxiety often results in pressures upon counsel to contact the OWB for a status update and, unfortunately, OWB's response is generally of the ilk that we're working on it and will let you know.  

I would certainly urge OWB to implement guidelines that would, at a minimum, communicate to whistleblowers and/or their lawyers where in the processing pipeline a given matter is and to similarly communicate "anticipated" timeframes for the remaining phases. Notwithstanding the impatience of claimants and counsel, OWB likely views these issues as part of the "work in progress" nature of its mandate and as more feedback emanates from the caseflow, hopefully the protocol will be tweaked accordingly.

A takeaway from today's covered action is that OWB may well have a useful negotiating ploy or tactic (as you prefer) in that claimants who decline to contest a Preliminary Determination may well see a benefit in the form of a same-day advancement of their claim from a Preliminary Determination to a Proposed Final Determination -- and if we extrapolate from the reported matter, an SEC Order of payment of the Whistleblower Award within the following month.  

If you are faced with a Preliminary Determination recommending, say, 15% to your client but you expected 30%, there may be a developing understanding that the Whistleblower's consent to a no-contest will move the payment along on an accelerated basis of about one month -- which now enables some weighing of the benefits of contesting.  If you opt to contest (and there will likely be many such appeals) you obviously delay the payment date of award and incur the risk of incurring a lengthy appeal process yielding the same percentage.   
In some cases, it may simply make sense to go along with the CRS's preliminary recommendation of a disappointing percentage rather than expose the Whistleblower to the further uncertainty of time; in other cases, an insistence on a higher percentage may prompt a counter-offer. Ultimately, if the circumstances commend an appeal, your efforts may well be rewarded with a higher percentage -- or you may simply have wasted time and, as the saying goes, time is money.  All of which entitles you to either pick up your winnings and go home, or place let your bet ride and trust in Lady Luck. Only further data will provide meaningful insight into this aspect.