On September 28, the U.S. Securities and Exchange Commission (SEC) announced it permanently barred two individuals from its whistleblower award program. Both individuals had submitted hundreds of award applications which the SEC deemed frivolous because they did not have any connection to the underlying enforcement actions.
The SEC barred the individuals under a 2020 amendment to the whistleblower program rules. This rule allows the agency to bar individuals who submit multiple frivolous or fraudulent claims. Frivolous claims are defined as “those that lack any reasonable or plausible connection to the covered or related action.” The rule aims to help the program operate more efficiently and focus on applications submitted by qualified and deserving whistleblowers.
“Frivolous award applications hamper our ability to efficiently process awards to meritorious whistleblowers who come forward with helpful information intended to assist law enforcement,” said Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower. “Today’s permanent bars send an important message that frivolous award filers will not be tolerated.”
According to the SEC’s orders determining the bars, the individuals began submitting award applications in November 2017 and have each submitted hundreds more over the following years. The award applications were based upon information submitted by the individuals about their personal mortgage foreclosures. According to the SEC, this information does not relate to any enforcement action taken by the SEC.
The orders note that each individual “engaged in a pattern of submitting award claims, then withdrawing the claims, and then resubmitting the claims.” According to the SEC, the frivolous claims “consumed considerable staff time and resources and… hindered the efficient operation of the Whistleblower Program.”
The individuals were repeatedly warned by the SEC to stop filing frivolous claims. The bars apply to all pending award claims submitted to the individuals as well as any future award claims.
This is the first publicized use of the 2020 rule. SEC Chair Gary Gensler recently announced that the agency will look into revising some other 2020 rule amendments which were seen as detrimental to the program. This announcement was applauded by whistleblower advocates.