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Whistleblower Is Awarded $2.2M Under Dodd-Frank Safe Harbor Rule

On April 5, 2018, the Securities and Exchange Commission ("SEC") announced that it has awarded $2.2 million to a whistleblower whose initial tip to another federal agency led to an SEC enforcement action. This marks the first instance in which the SEC has awarded a whistleblower for information from a tip that was previously reported to a different federal agency.

SEC Regulation 21F, which serves as its interpretation of Section 21F of the Securities Exchange Act of 1934, which was amended by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), states that whistleblowers who first report a complaint to another entity, such as through a company's internal compliance procedures or through a securities regulatory authority other than the SEC (at the state level, for example), can still be eligible for an SEC award if they take the same complaint to the SEC within 120 days (known as the safe harbor period) of the initial report. The SEC will consider the information to have been reported to it on the date it was reported to the other entity.

In February, the Supreme Court ruled[1] that whistleblowers who do not take their complaints to the SEC first are not eligible for the expanded anti-retaliation measures provided under Dodd-Frank. However, the ruling in that case only applied to anti-retaliation protections, not award eligibility requirements.

The SEC stated that the report that resulted in the award announced on April 5 was made voluntarily by a "former company insider" to another federal agency, which then referred the complaint to the SEC. Based on the referral from the other agency, the SEC said it began its own investigation. The whistleblower also later reported the information to the SEC directly, and "provided substantial cooperation in the investigation." Although the whistleblower's report to the SEC came after the SEC had already opened an investigation, the safe harbor rules allowed the agency to treat the complaint as if it had been made to the SEC when the whistleblower provided the information to the other federal authority.

Citing confidentiality laws, the SEC did not identify the whistleblower or the enforcement action that resulted from the complaint.

The legal team at SFMS has significant experience litigating securities matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.


[1] Digital Realty Trust, Inc. v. Somers, 850 F.3d 1045 (9th Cir. 2017).

Sources

Prial, Dunstan. "SEC Awards $2.2M To Whistleblower Under 'Safe Harbor' Rule." Law 360. Last modified on April 5, 2018.

https://www.sec.gov/whistleblower/frequently-asked-questions

https://www.sec.gov/about/offices/owb/reg-21f.pdf#nameddest=21F-4

https://www.sec.gov/about/offices/owb/dodd-frank-sec-922.pdf

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