Securities Industry Commentator by Bill Singer Esq

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Opinion: As PGA execs collect millions, critics question its nonprofit status (Herald and News by Gregory Bresiger)

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

[B]ased on evidence in the record, that Claimant's information did not cause the Commission staff to commence an examination, as Commission staff had already begun examinations of the Company prior to the submission of Claimant's tip. Further, Claimant's information did not cause Enforcement staff to inquire into different conduct and did not make a substantial and important contribution to the success of the Covered Action, including by allowing the Commission to bring the action in significantly less time or with significantly fewer resources, or to bring additional successful claims or successful claims against additional individuals or entities. The Second Declaration confirms that Enforcement staff did not recall receiving Claimant's Redacted email. The record also reflects that Claimant's submission Redacted did not advance the Investigation. 

Claimant's attorney's argument based on the attorney's own pre-2010 conversations with one Commission staff member is unavailing and unhelpful to Claimant's award application. Anecdotes about conversations with a single Commission staff member do not constitute persuasive evidence of what an entire government agency may or may not have been investigating.

Markopolos tells NPR's Steve Inskeep that one of the problems with the SEC was "regional turf rivalries" between the Boston and New York offices that resulted in a lack of communication between the two: "They got along about as well as the Yankees and Red Sox did, unfortunately."

He also says the SEC is staffed by lawyers who don't understand the mathematically complex financial products that are traded on the markets these days.

Finally, Markopolos describes poor investigative ability at the SEC. One staffer at the agency wouldn't follow up on his tips because he wasn't an employee of Madoff's, and she therefore didn't consider Markopolos an insider.

[C]laimant argues that he/she provided information to a foreign regulator "as early as 2010," and that foreign regulator gave the information to the Commission, which in turn began the investigation that led to the Covered Action. A staff declaration establishes that Enforcement staff opened the investigation that led to the Covered Action on based upon a referral from the same foreign regulator. However, Claimant offers no evidence showing what information, if any, he/she provided to the foreign regulator before that date. Claimant's email exchange with the foreign regulator on Redacted after the Commission's investigation was already open, does not support his/her contention. Based upon the record before us, including the material provided in Claimant's Response, we find that there is insufficient evidence to conclude that Claimant's information caused the staff to open the Redacted investigation that led to the Covered Action. 

Second, because the evidence does not establish Claimant's information caused the staff to open the investigation, Claimant's information can only be deemed to have led to the success of the Covered Action if it caused the staff to inquire concerning different conduct as part of a current investigation or "significantly contributed to the success of the action." We find, based on evidence in the record, that although Claimant submitted multiple TCRs to the Commission from Redacted none of Claimant's information caused the staff to inquire into different conduct or made a substantial and important contribution to the success of the Covered Action. According to the staff declaration considered by the CRS, which we credit, Claimant's TCRs provided staff with very limited information relevant to the investigation. This information consisted of a Redacted Claimant received from a relevant entity. These Redacted were widely disseminated and publicly available. Claimant's other submissions included Redacted

about companies that later became defendants in the Covered Action, along with very limited information about some of the other defendants and their associates. The staff declaration reflects that Claimant's information was not helpful because the staff was already familiar with the material facts based on detailed information the staff had previously obtained during the investigation. Claimant's information was duplicative of information the staff had already received and did not advance the investigation that led to the Covered Action. Nothing in Claimant's Response demonstrates otherwise. Accordingly, based upon the record before us, we find that Claimant did not provide information to the Commission that led to the success of the Covered Action and, therefore, Claimant is not eligible to receive a whistleblower award.

Claimant also states that Commission staff did not provide Claimant with information about the NoCAs. To the extent that Claimant argues that the Commission should exercise its discretion to waive the ninety-day filing requirement because the Commission failed to alert Claimant to the NoCAs, we note that the Commission is not obligated to notify a claimant of the posting of a NoCA or the deadline for submitting an award application. As we have explained, our whistleblower rules provide "for constructive, not actual, notice of the posting of a covered action and of the deadline for submitting a claim. The NoCAs for the Covered Actions were clearly posted on the Commission's website, along with the requisite deadlines. Under our rules, that is all the notice that Claimant was due. Further, "a lack of awareness about the [whistleblower award] program does not . . . rise to the level of an extraordinary circumstance as a general matter [since] potential claimants bear the ultimate responsibility to learn about the program and to take the appropriate steps to perfect their award applications." "A potential claimant's responsibility includes the obligation to regularly monitor the Commission's web page for NoCA postings." Claimant's failure to regularly monitor the Commission's web page for NoCA postings is not an "extraordinary circumstance" that might trigger our discretion to excuse the fact that Claimant submitted the award applications months and years late.

Finally, Claimant states that the Commission failed to provide the materials on which the Preliminary Determinations were decided, harming Claimant's due process to obtain awards on the Covered Actions. Rule 21F-12 identifies the materials that may form the basis of an award determination and that may comprise the record on appeal, and the rule specifies that OWB may request an executed Confidentiality Agreement ("CA") as a precondition to providing these materials to a claimant. On Redacted, Claimant wrote to OWB, objecting to the request that Claimant execute the CA and informing OWB that Claimant would not execute the CA. OWB's request that Claimant sign a CA is consistent with OWB's practice. Moreover, Rule 21F-12(b), providing that OWB may require the execution of a CA, is reasonably designed to protect whistleblower confidentiality and the Commission's law enforcement interests. Accordingly, OWB's decision not to provide the materials to Claimant - because Claimant would not sign the CA - was warranted and consistent with Commission practice. 

• Securities Industry Commentator
• Bill Singer