The SEC announced an expected award of more than $30 million to a foreign whistleblower who provided “key original information” that led to a successful enforcement action by the agency. The award will be the largest made by the SEC’s whistleblower program and the fourth award to a whistleblower living abroad.
The SEC’s Order states that, even though the whistleblower is a foreign resident, the award payment is “appropriate” because, in the SEC’s view, “there is a sufficient U.S. territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of U.S. securities laws.” The SEC distinguished its decision to award a bounty payout to a foreign resident with the Second Circuit’s recent opinion Liu v. Siemens, where the court held that Dodd-Frank’s anti-retaliation provision does not apply extraterritorially. The SEC notes in its Order that the agency does not regard the Liu holding as “controlling” because the Dodd-Frank whistleblower award provisions “have a different Congressional focus than the anti-retaliation provisions.”
Steve Pearlman, Co-Head of Proskauer’s Whistleblower and Retaliation Group, noted that this Order is a “wakeup call for employers” who will have to “wake up to the fact that tips are going to come in from overseas.” Indeed, Sean McKessy, Chief of the SEC’s Office of the Whistleblower, touted the importance of awarding payouts to whistleblowers abroad, commenting that the award “shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice” and that “[w]histleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
Since the inception of the SEC’s whistleblower bounty program in 2012, the SEC has issued awards to more than a dozen whistleblowers. The $30 million-plus award is more than double the previous record of $14 million, which the SEC awarded in October 2013. Notably, the award could have been even higher had the claimant not delayed in reporting the securities violations to the SEC.
Until recently, some have questioned the success of the SEC’s bounty program, given that thousands of complaints yielded only a few relatively small payouts. However, in light of the most recent well-publicized massive bounty payouts, we expect that the number of whistleblower complaints filed with the SEC will continue to increase. Indeed, as Lloyd Chinn, co-head of Proskauer’s Whistleblowing and Retaliation Group commented, any skeptics of the SEC’s whistleblower program “should be swayed by a $30 million award.” Mr. Pearlman agreed, noting that the “sheer enormity of this award is likely to lead to an influx of tips, as some may be inclined to treat the SEC whistleblower program as a lottery.”