As reported by Rachel Ensign of the Wall Street Journal, the Securities and Exchange Commission (“SEC”) recently denied a whistleblower-claimant a Commission enforcement action award where the claimant failed to file timely an award claim with the SEC’s Office of the Whistleblower.

Rule 21F-10(b) of the Securities Exchange Act requires that whistleblowers file award claims within ninety (90) calendar days of a Notice of Covered Action – notices posted by the SEC to alert claimants of enforcement actions that are eligible for whistleblower awards.  17 C.F.R. § 240.21F-10(b).  The SEC may waive the 90-day filing requirement if a claimant demonstrates that an untimely filing was the result of “extraordinary circumstances.”  17 C.F.R. § 240.21F-8(a).  The “extraordinary circumstances” exception has been narrowly defined by the SEC and applies in limited circumstances.  In the context of a late award claim filing, a claimant must demonstrate that the failure to file timely was the result of a circumstance beyond the claimant’s control, such as attorney misconduct or a serious illness.

The claimant in this instance alleged that extraordinary circumstances existed because (i) s/he provided information to the SEC that directly led to the enforcement action and (ii) s/he was unaware of the whistleblower program until shortly after charges were filed against the Defendants.  The SEC determined that claimant’s justifications failed to satisfy Rule 21F-8(a) because claimant did not demonstrate that providing the SEC with information that led to a monetary recovery caused the untimely award claim filing.  In addition, the SEC determined that reopening the claims process after the deadline to file a response to a Notice of Covered Action had passed would be unfair to other potential claimants with competing claims and would lead to an unworkable system.

The SEC also noted that, even where a claimant demonstrates that the failure to file timely was beyond his or her control, the claimant must file an award claim as soon as practicable.  Here, claimant did not provide any justification for failing to “prepare paperwork” promptly and file his or her claim after learning of the whistleblower program.  This failure was “fatal” to the claimant’s award claim.

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Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.