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Court of Appeals Upholds SEC Denial of Whistleblower Award

Posted  February 18, 2021

A whistleblower who was denied an award by the SEC lost his appeal to the Court of Appeals for the D.C. Circuit, resulting in a rare court opinion addressing the SEC Whistleblower Reward Program. The court agreed with the SEC that the whistleblower, who had reported information regarding Bank of America and argued that he had worked extensively with DOJ, had not shown that he was entitled to a whistleblower award from the SEC.  The court’s opinion offers some valuable lessons for whistleblowers.

The Bank of America Settlement and Whistleblower Award Claims

In August, 2014, Bank of America agreed to pay $16.65 billion in a global settlement with the SEC, DOJ, and other federal and state law enforcement agencies for claims arising out of the 2008 financial crisis.  BofA and its subsidiaries were alleged to have engaged in fraud with respect to the packaging, marketing, and issuance of residential mortgage backed securities (RMBS) and collateralized debt obligations (CDOs), as well as with respect to underwriting and originating mortgage loans.  Further, the SEC alleged that BofA filed to inform its investors of its risk exposure from bad loans.

In briefing before the DC court, the SEC stated that the two investigations that led to this global settlement were opened in 2010, the first before the Dodd-Frank Act was passed in July of that year.  The whistleblower in this case, identified as John Doe, submitted a TCR to the SEC in December, 2011, and, according to his brief, met with SEC attorneys in April, 2012.

After that first meeting with the SEC, Doe and his attorney followed up with DOJ attorneys identified by the SEC as being involved in the federal government’s Financial Fraud Enforcement Task Force RMBS Working Group.  According to Doe, the SEC attorneys stated that DOJ would be “taking the lead” in the investigation of BofA.

After meeting with the SEC, Doe filed a complaint under the False Claims Act, which he says was based on the same allegations he had presented to the SEC.  In 2012, Doe and his counsel met with DOJ attorneys regarding that filing and provided additional supporting evidence.  According to Doe, his contacts with DOJ attorneys continued over “the next several years” and he produced additional documents and reviewed evidence for DOJ. The August 2014 global settlement resulted in dismissal of Doe’s qui tam complaint, although it is not clear if Doe received a whistleblower award under the FCA.

After the SEC issued notices of covered actions with respect to BofA’s settlement of the SEC’s claims, Doe filed applications for whistleblower awards.  Fourteen individuals claimed whistleblower awards with respect to one portion of the settlement, and eight individuals claimed whistleblower awards with respect to the second portion of the settlement.

The SEC denied all claims for whistleblower awards with respect to the BofA settlements.  Doe and others, according to the SEC, had not provided information that led to recovery in a covered action; they had neither caused the Commission to open or expand an investigation, or significantly contributed to an existing investigation.

With respect to Doe’s work with DOJ, the SEC noted that no argument was made that the DOJ recovery was a “related action” for award purposes.  And, while Doe may have provided additional information and assistance to DOJ, he had not provided that information and assistance directly to the SEC, and it therefore could not support an SEC whistleblower award.

The SEC’s order became final in 2019, eight years after Doe first submitted his TCR and five years after the settlement with BofA. Doe appealed from the SEC order.

SEC Whistleblowers Must Provide Evidence Directly to the SEC

The rules of the SEC Whistleblower Program provide that “to be eligible for a whistleblower award, you must give the Commission information in the form and manner that the Commission requires.”  As the Doe decision makes clear, giving information to another agency, including DOJ, does not suffice.

This is true even if a whistleblower has submitted a TCR to the SEC.  The SEC argued that it has no obligation to “figure out whether any information it receives from another government entity originally came from a potential whistleblower.”  The court concluded that “Doe had an obligation to provide the Commission with all of the information he provided to DOJ. Because he failed to meet that obligation, Doe is ineligible for an award based on the DOJ materials.”

It is common for multiple agencies to be involved in investigations and recoveries.  Here, for example, Doe had submitted a TCR to the SEC Whistleblower Program and filed an action under the False Claims Act.  In other situations, agency civil investigations may overlap with criminal investigations led by DOJ – including in cases involving the FCPA, which is jointly enforced by the SEC and DOJ – or SEC jurisdiction may overlap with investigations by the CFTC, FinCEN, or others.

The SEC’s position in the Doe case makes it clear that where a whistleblower is working with multiple agencies, the whistleblower must keep the SEC informed of those efforts with other agencies and provide all additional evidence produced to those agencies to the SEC as well.  Such steps may seem unnecessary or duplicative, but it would be unfortunate to lose the right to an award based on a failure to “copy the SEC.”

Doe may take some comfort from the fact that the SEC denied all BofA whistleblower award claims, and argued that Doe’s information and evidence did not substantially contribute to the BofA recovery.  Given this, Doe may have had no road to a whistleblower reward even if he had provided his information directly to the SEC.  In the face of a denial based on a failure to provide evidence directly to the SEC, this may be only cold comfort.

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Tagged in: Court Decision, Financial and Investment Fraud, Government Investigation, Housing and Mortgage Fraud, Reporting to Government, SEC Whistleblower Reward Program,


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