Whistleblowers Battle Over How To Slice the SEC Award Pie

May 12, 2021

We got one pie. We got two hungry whistleblowers eager to cut into that pie. But they have to wait. The SEC's Claims Review Staff ("CRS") needs to issue the all important Preliminary Determination. Oh my . . . CRS recommended that Claimant 1 be awarded $18 million and Claimant 2, $4 million. And now we got a battle over how the SEC sliced the pie!

In response to Notices of Covered Action ("NoCAs"), Claimant 1 and Claimant 2 submitted claims for an award.  In the Matter of the Claims for an Award (SEC Order Determining Whistleblower Award Claims; '34 Act Rel. No. 91808; Whistleblower Award Proc. File No. 2021-45 / May 10, 2021)
https://www.sec.gov/rules/other/2021/34-91808.pdfAs explained in part in the SEC Order:

[I]n recommending that Claimant 1 receive a significantly larger award than Claimant 2, the CRS determined that Claimant 1's information was more important to the investigation because Claimant 1's information was received by the Commission several years before Claimant 2's information. The CRS also recommended that Claimant 2's award be reduced for unreasonable reporting delay. 

Sometime, no matter how you slice it, folks are unhappy. Notwithstanding his larger share, Claimant 1 asserted that Claimant 2 should not receive ANY award. You notice how I bold-faced, underlined, and italicized that word "any?" Okay, just want to make sure you understood that Claimant 1 didn't want even a sliver of the pie to go to Claimant 2. As Claimant 1 argued it, Claimant 2 didn't provide new, original information but, to the contrary, only told the SEC stuff that Claimant 1 had already provided. You know how that goes: He was a day late and a dollar short.

Claimant 2 tells a different tale. Claimant 2 argues that much of Claimant 1's information was obtained from Claimant 2, and, even more to the point, Claimant 2's information was more valuable than Claimant 1's because Claimant 2 had first-hand knowledge of the facts at issue. Oh, and by the way, Claimant 2 denies that there was any unreasonable delay in reporting to the SEC.

Upon review of CRS's Preliminary Determinations, the SEC found that Claimant 1's tip was the initial source of the underlying investigation; and, further, that Claimant 1 provided Staff with extensive and ongoing assistance during the investigation. In citing said assistance, the SEC Order characterizes it as "including identifying witnesses and helping staff understand complex fact patterns and issues related to the matters under investigation." Although the SEC conceded that Claimant 2 "was a valuable first-hand witness," the tips were characterized as having been provided "several years after the Commission had received Claimant 1's information." On the other hand, the SEC admitted that "Claimant 2's information gave the staff a more complete picture of how events from an earlier period impacted the respondents' practices . . ."

There is so much back-and-forth in the SEC Order that it tends to read like an intense ping-pong game. Clearly, the SEC struggled with the many "yes, buts" and "on the other hands," and the final Order does evidence a weighing of many pros, cons, and nuances. In the end, two Claimants split some $22 million, although Claimant 2 only got to eat slightly less than 1/5th of an expensive pie. Oh well, perhaps they both bought ice cream and enjoyed their pie a la mode.