Una revisión de los últimos avances en materia de denuncia de irregularidades

Whistleblower Developments es un informe periódico que recoge casos, decisiones, propuestas y legislación significativos relacionados con las leyes de protección de los denunciantes y cómo pueden afectar a su negocio. Entre las novedades recientes se incluyen:

• Court Holds That the SEC’s Whistleblower Rule Bars Inclusion of Standard Confidentiality Language in Settlement Agreements with Investors
• SEC Whistleblower Program Continues Streak of Large Awards, with More Than $72 Million Awarded in the Fourth Quarter of 2021
• SEC Whistleblower Program’s FY 2021 Annual Report Boasts Record-Setting Year

Court Holds That the SEC’s Whistleblower Rule Bars Inclusion of Standard Confidentiality Language in Settlement Agreements with Investors

As noted in our most recent newsletter, in SEC v. Collector’s Coffee Inc., 19-Civ-4355 (S.D.N.Y. July 21, 2021), the United States District Court for the Southern District of New York in July 2021 rejected the defendants’ claim that SEC Rule 21F-17, which prohibits impeding individuals from communicating with the SEC regarding potential securities laws violations by relying on confidentiality agreements, violated the SEC’s rulemaking authority. On November 17, 2021, the court granted the SEC’s motion for summary judgment on the Rule 21F-17 count. The defendants had entered into settlement agreements with investors that provided that the investors would not initiate any communications with any regulatory agency, including the SEC. The defendants enforced these agreements, suing an investor for breach of the confidentiality provision after the investor communicated with the SEC. In its summary judgment opinion, the court first affirmed its prior conclusion that Rule 21F-17 was an appropriate exercise of the SEC’s rulemaking authority and does not violate the First Amendment. Second, the court found that the defendants’ conduct violated Rule 21F-17 and granted the SEC summary judgment on that claim. (See prior newsletters discussing risk of confidentiality provisions violating Rule 21F-17: click here, here, and here.)

SEC Whistleblower Program Continues Streak of Large Awards, with More Than $72 Million Awarded in the Fourth Quarter of 2021

Though falling short of the $160 million-plus awarded in the third quarter of 2021, the SEC Whistleblower Program began the SEC’s FY 2022 with over $72 million awarded in the fourth quarter of 2021. A few examples include:

• On December 7, 2021, the SEC announced an award of $5 million to a whistleblower who provided the SEC with critical information and assistance that led to the SEC’s successful enforcement of a covered action. In determining the award, the SEC considered the whistleblower’s prompt reporting of defendants’ suspected misuse of proceeds from a securities offering, as well as the whistleblower’s participation in interviews and provision of documents during the investigation.


• On November 23, 2021, the SEC awarded $400,000 to a whistleblower who alerted the SEC to a Ponzi-like scheme, despite also acknowledging that the whistleblower was culpable in the scheme. The whistleblower’s assistance ultimately helped the SEC to stop the scheme and obtain emergency relief. While not disclosing the extent of the whistleblower’s culpability, the SEC noted that the whistleblower was not charged and was unaware of at least some fraudulent aspects of the scheme. In determining the award, the SEC balanced the whistleblower’s contributions to the investigation and efforts to remediate the harm with the whistleblower’s level of culpability.


• On November 22, 2021, the SEC announced a total award of $10.4 million to seven whistleblowers in varying amounts across three separate actions.
  
  
  • In the first action, the SEC awarded $6.2 million to the first whistleblower and $1.3 million to the second whistleblower, both of whom provided new and significant information during an existing investigation. Specifically, the whistleblowers alerted the SEC to misconduct occurring in different geographic areas. The SEC recognized that the first whistleblower’s information was more significant than that provided by the second whistleblower and noted that the second waited more than one year before reporting. Further, the first whistleblower reported internally before reporting to the SEC and also provided information to another agency in a related action.
  
  
  • In the second action, the SEC awarded $2.4 million to two whistleblowers. The first whistleblower provided information that prompted the SEC to open the investigation and provided interviews and key evidence during the investigation. The second whistleblower provided new information that significantly contributed to the success of the action.
  
  
  • In the third action, the SEC awarded $435,000 to three whistleblowers — approximately $240,000 to the first two (jointly) and $195,000 to the third — for contributing to the success of both a covered action and related action. The first two whistleblowers jointly alerted the SEC to fraudulent conduct that prompted the SEC to open an investigation and provided assistance with the investigation throughout. The third whistleblower provided new, detailed, and highly valuable information early on that was key to assisting the SEC with developing its case. As to the covered action, the SEC split the award evenly between the first two whistleblowers (jointly) and the third. But as to the related action, the SEC awarded a higher percentage to the first two whistleblowers.


• On November 10, 2021, the SEC announced a total award of $15 million to two whistleblowers whose information and assistance led to a successful SEC enforcement action. The first whistleblower, who received $12.5 million, alerted the SEC to the fraudulent scheme and prompted the SEC to open the investigation. The second whistleblower’s information, while helpful, was more limited and had less of an impact than that of the first whistleblower, justifying a lower award of $2.5 million.


• On October 29, 2021, the SEC announced an award of $2 million to a whistleblower who, having been previously awarded for contributing to an SEC enforcement action, received this award for providing the same information that led to a successful related action by the DOJ. The whistleblower was eligible for this new award as a result of the December 2020 Whistleblower Rule Amendments (our summary of which can be found here), which clarified that a “related action” includes non-prosecution and deferred prosecution agreements entered into by the DOJ.


• On October 15, 2021, the SEC announced an award of $40 million to two whistleblowers whose information and assistance contributed to a successful SEC enforcement action. The first whistleblower received an award of $32 million, having provided information that caused the SEC to open the investigation and that exposed difficult-to-detect misconduct. The second whistleblower received a lower award of $8 million. Although the second whistleblower provided important information during the investigation and was a valuable firsthand witness, the whistleblower unreasonably delayed reporting the wrongdoing for several years after becoming aware of it.

SEC Whistleblower Program’s FY 2021 Annual Report Boasts Record-Setting Year

On November 15, 2021, the SEC released its FY 2021 annual report on the SEC Whistleblower Program (covering October 1, 2020 through September 30, 2021). It was a monumental year for the program, during which several records were broken. In FY 2021, the SEC awarded about $564 million to 108 individuals, establishing both the largest dollar amount and largest number of individuals awarded in a single year. To put this in perspective, from the program’s inception in FY 2011 through FY 2020, roughly a 10-year span, the SEC awarded about $562 million to 106 individuals, total. Notably, just two awards in FY 2021 amounted to nearly 40% of the year’s total amount awarded — $114 million to one whistleblower on October 22, 2020 and $110 million to one whistleblower on September 15, 2021. These were the two largest awards to date, the latter of which pushing the program’s total dollars awarded since inception to more than $1.1 billion. Further, in FY 2021, the SEC received over 12,200 whistleblower tips — a 76% increase from the previous fiscal year, and a more than 300% increase since the program began.

The annual report also made note of the Whistleblower Rule Amendments that became effective on December 7, 2020. The amendments, among other things, increased efficiencies around the review and processing of award claims and clarified the types of actions that are considered “related actions.” Our summary of these amendments can be found here.