On October 17, a former executive of the Royal Bank of Scotland (RBS) filed an appeal to the U.S. Supreme Court in a case over the denial of their U.S. Securities and Exchange Commission (SEC) whistleblower award claim. Victor Hong, who served as the managing director of RBS, argues that his whistleblower disclosure to the SEC helped U.S. authorities collect more than $10 billion in settlements with RBS in 2017 and 2018.
Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily disclose original information that contributes to a successful enforcement action, are entitled to monetary awards of 10-30% of the funds collected by the government. The program’s related action provisions entitle whistleblowers to awards when the information they disclose to the SEC is used by other federal agencies in successful enforcement actions.
In 2014, Hong made voluntary disclosures to the SEC documenting alleged misconduct related to RBS’s valuation of mortgage-backed securities. The SEC in turn shared Hong’s information with the Department of Justice (DOJ). Eventually, federal prosecutors and the Federal Housing Finance Agency (FHFA) secured multi-billion dollar settlements with RBS.
The SEC denied Hong’s whistleblower award claim because the agency did not file a successful enforcement action of its own. Under the Dodd-Frank Act, the SEC must file an enforcement action of its own with at least $1 million in sanctions in order for the related action provisions to apply to a whistleblower disclosure. In July, the 2nd U.S. Circuit Court of Appeals upheld the SEC’s denial.
According to Reuters, Hong’s petition to the Supreme Court asks them to define what constitutes an “action” under the SEC Whistleblower Program and argues that “the current scheme is strongly discouraging to potential whistleblowers with significant information of violations, because there is no predictability of payout.”
In August, the SEC voted to amend its rules governing the payment of related action awards in order to better incentivize whistleblowing. The new rule allows the SEC to pay related action awards even if the other federal agency which carried out the related action has its own whistleblower program, as long as the other agency’s program is not comparable to the SEC’s.
In announcing the rule amendments, SEC Chair Gary Gensler praised the whistleblower program noting that it “has greatly aided the Commission’s work to protect investors.” Gensler went on to explain that “in the years since the program was established, the SEC has used whistleblower information to obtain sanctions of over $5 billion from securities law violators, return over $1.3 billion to harmed investors, and award over $1.3 billion to whistleblowers for their service.”
Further Reading:
RBS ex-banker takes whistleblower award fight to U.S. Supreme Court | Reuters