Consumer Fraud

SEC Attempts To Fend Off Award Applications From Zombie Whistleblowers

SEC Office of the Whistleblower wikipedia image 342x210 SEC Attempts To Fend Off Award Applications From Zombie WhistleblowersThe Securities and Exchange Commission (SEC) has been fending off complaints filed by “zombie whistleblowers” – tipsters who provided the regulatory agency with information about securities violations or fraud before its whistleblower program was established under 2010’s Wall Street reform laws.

According to The National Law Journal, the SEC considers award applications filed by whistleblowers before the Dodd-Frank Act was enacted as “dead on arrival.” But that hasn’t stopped some past tipsters from pressing their claims in court.

One such zombie whistleblower took his dispute for an award to the U.S. Court of Appeals for the D.C. Circuit earlier this month for at least the second time, The National Law Journal reports. The unidentified whistleblower argues his claim was “timely filed.”

The SEC says in its denial that the whistleblower provided some tips before July 21, 2010, the day Dodd-Frank was enacted, and that other information provided after that date did not lead to a successful enforcement action.

In another case, a whistleblower argued that tips predating Dodd-Frank should be eligible for an award. The whistleblower provided the agency with tips about Advanced Technologies Group LLC between 2004 and 2009, which helped it take an enforcement action resulting in a $19-million action in late 2010.

The whistleblower, whose case was denied on appeal, argued the SEC had exceeded its authority by disqualifying tips received before Dodd-Frank. That disqualification, he said, was ‘not included in the explicit Congressional definition of ‘original information,’ ” The National Law Journal reported.

According to The National Law Journal, “Congress provided a safe harbor that allowed tips to be eligible for an award if they came between the enactment of Dodd-Frank and the finalization of the SEC’s rules for the whistleblower program. But it did not specify how the SEC should treat tips that predated Dodd-Frank. The agency, believing the program was designed to incentive new tips rather than reward old ones, disqualified information received before Dodd-Frank.”

A lawyer for the Advanced Technologies Group indicated to The National Law Journal that while some whistleblower award denials may be justified, others are unjust.

“If the enforcement action took place before Dodd-Frank was enacted, that’s off the board. But if you’re in a situation where you gave information and they took action after Dodd-Frank, that should be allowed … They just took a very bright line, requiring the information to be provided to the commission after the enactment of Dodd-Frank.”

Source: The National Law Journal