April 21, 2020
During the COVID-19 pandemic, much (but not all) of Wall Street regulation has come to a grinding halt. In addition to self-, local-, and federal-regulatory staffs forced to work from their homes, many of their subjects and targets are similarly dislocated. The constraints of self quarantining and working from home make a whole host of difficulties in terms of initiating investigations, conducting them, and filing complaints -- on top of that, the demands of Due Process present further challenges in these plague times. See: "Personal note from Bill Singer -- Not the time for FINRA to ZOOM through witnesses' rights" (Securities Industry Commentator / April 7, 2020)
http://www.rrbdlaw.com/5153/securities-industry-commentator/#zoom One of the unforeseen consequences of this ongoing health crisis is that the Securities and Exchange Commission seems to be making an effort to clean up its reputed back-log of Whistleblower WB-APPs, which were filed by claimants seeking Awards for their successful tips. Perhaps unburdened by the typical daily workload of an active regulatory roster, the SEC appears to be working through the numerous claims stuffed in its pipeline, although, at best, the output has been a trickle -- but even that is a flood in comparison to what we are accustomed to see.
The SEC adopted the Preliminary Determination by the Claims Review Staff ("CRS") to award $5 million to Claimant, who voluntarily provided original information that led to the successful enforcement of a covered action. As set forth in part in the SEC Order:
In reaching that determination, we positively assessed the following facts: (i) Claimant's information prompted staff in the Commission's Office of Compliance Inspections and Examinations to open an examination into the alleged violations which were subsequently referred to staff in the Division of Enforcement for further action; (ii) Claimant provided a critical document to staff Redacted that evidenced possible wrongdoing and helped save time and resources in the Commission's investigation; (iii) Claimant promptly reported the information to the Commission after learning of it; and (iv) Claimant suffered a unique hardship as Claimant was terminated soon after raising concerns internally about the conduct in question with Claimant's supervisor.
Bill Singer's Comment: Noteworthy in this Award is the SEC's acknowledgement that the Claimant had "suffered a unique hardship" in the form of job termination, and the SEC deemed that there was a connection between the two. Given its sensitivity to the negative financial consequences that befall many whistleblowers, hopefully, the SEC will now accelerate the CRS reviews of pending claims, and the Commission itself will promptly approve the determinations.
The SEC adopted the Preliminary Determination by the CRS to award an amount of money (redacted in the Order) to Claimant, who voluntarily provided original information that led to the successful enforcement of a covered action. In recommending said Award, CRS requested that the SEC waive the "in writing" requirement of Rule 21F-9(d) "given the highly unusual facts and circumstances in this matter." Additionally, the CRS issued a Preliminary Determination to deny an Award to second Claimant, who did not request reconsideration. As set forth in part in the SEC Order [Ed: footnotes omitted]:
Claimant reported the information internally [Redacted], who, in turn, submitted a written tip to the Commission relaying the Claimant's information. Enforcement staff opened the investigation after receiving the written tip and phone call with [Redacted], and the Commission brought the Covered Action based, in part, on the information provided by [Redacted] tip, in satisfaction of Rule 21F-4(c)(1). In a phone interview with Enforcement staff the next day, Claimant relayed the same information Claimant reported to [Redacted].
Although Claimant did not provide the same information to the Commission in writing as required by Rule 21F-9(d), we have determined that it is appropriate in the public interest and consistent with the protection of investors that we exercise our discretionary authority under Section 36(a) of the Exchange Act to waive this requirement of Rule 21F-9(d) in light of the unique facts and circumstances of this case. . . .
Bill Singer's Comment: Frankly, a somewhat stunning concession by the SEC that the submitted tip need not have been a written one that complied with the mechanical requirements set forth in the Dodd Frank Act.
As best we can infer facts and conduct from the blanks created by the SEC's redaction of same, it appears that the Claimant had complained to a third party (whose name and title is redacted in the Order), and that third party submitted a written tip to the SEC. Moreover, SEC Enforcement Staff seems to have spoken to the third party, who seems to have relayed Staff's interest to the Claimant, who, in turn, seems to have participated in a phone interview and reiterated the information that had been submitted to the third party. As such, the SEC did not so much waive the written requirement for the submission of a Dodd Frank tip as perhaps deemed it submitted by an agent of the Claimant.
Hauling out its potent "public interest" and "investor protection" mandate, the SEC exalted substance over form and did the right thing by rendering an Award in favor of the Claimant. One problem with the SEC Order is that it inexplicably redacts the dollar amount of the Award. That's a baffling fact (or non-fact). If there are sound reasons to redact the dollar amount of a Whistleblower Award, I would urge the SEC to offer some explanation as to this bit of prestidigitation. On the other hand, if this is a mechanical error and the dollar amount should have been disclosed, I urge the SEC to promptly amend the Order.