SEC Denies Whistleblower Award Claim Because Disclosure was Not Voluntary

Protect the SEC

On July 5, the U.S. Securities and Exchange Commission (SEC) issued a whistleblower award claim denial. The SEC based its denial on the fact that the individual’s disclosure to the SEC was not made voluntarily.

Through the SEC Whistleblower Program, qualified whistleblowers are entitled to monetary awards of 10-30% of the funds recovered by the government in an enforcement action. In order to qualify for an award, a whistleblower must voluntarily provide original information that leads to a successful enforcement action.

Under the SEC Whistleblower Program rules, a whistleblower’s disclosure is voluntary if it is made “before a request, inquiry, or demand that relates to the subject matter of [their] submission is directed to [the whistleblower] or anyone representing [the whistleblower] by the Commission.”

In this case, the SEC issued a Preliminary Determination denying a whistleblower award claim because the Claimant provided information “after Enforcement staff had already subpoenaed Claimant and taken Claimant’s testimony in the Investigation on a subject matter related to his/her information.”

The Claimant appealed the denial arguing that “‘the information that [Claimant] provided to the Commission was the catalyst for reopening and creating a new direction of inquiry for a case that had been closed,’” according to the SEC’s order. The Claimant further argued that the information they provided in the disclosure was not available to them until after their previous testimony. The Claimant thus contends their disclosure was voluntary because it contained new, original information unrelated to the information available to them when they were subpoenaed by the SEC.

The SEC, however, affirmed the denial of the award application. According to the order, “the staff’s inquiries during Claimant’s Testimony were closely related to the subject matter of Claimant’s later submission.” Thus, the SEC concluded that “Claimant’s submission of information was not made voluntarily within the meaning of Exchange Act Rule 21F-4(a).”

Overall, the SEC has awarded large sums of money to eligible whistleblowers. Since issuing its first award in 2012, the SEC has awarded approximately $1.2 billion to 268 whistleblowers.


The Award Denial

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