Can A Government Employee Win An SEC Whistleblower Award?

One of the first questions that a potential
SEC whistleblower may ask an
SEC whistleblower lawyer
is whether he or she is eligible to
win an SEC whistleblower award.

Sometimes this question can be answered fairly easily. There
are some occasions, though, when the potential whistleblower
might be excluded from receiving an award under the
SEC whistleblower program. For example, an individual employed by one of the
government agencies listed in the SEC whistleblower statute
would typically be ineligible to win an SEC whistleblower
award.

However, yesterday the SEC announced that it granted an
award of nearly $2.5 million
to a domestic government employee.

The Commission’s Order granting the award will be significant
for both potential SEC whistleblowers and SEC whistleblower
lawyers, as it clarifies the range of individuals who are
eligible to win an
SEC whistleblower reward.

An Employee Of A Government Agency Is Generally Eligible To
Win An SEC Whistleblower Award

In its Order, the Commission noted that “Generally speaking,
an employee of a federal, state, or local government can … be
eligible for an award under our whistleblower program” unless
the employee is subject to one of two statutory exceptions.

The first exception is for employees of “an appropriate
regulatory agency”.  According to the Order, this means the
SEC and certain “banking agencies” listed in the statute.

The Order states, “This exception has no potential application
to Claimant given the governmental authority at which Claimant
worked”.  This language indicates that, in the Commission’s
view, an employee of a domestic government agency not listed
in the statute is eligible to win an SEC whistleblower reward.

An Employee Of A Hybrid “Law Enforcement Organization” Can
Also Win An SEC Whistleblower Award

The second exclusion is for employees of “a law enforcement
organization”.  Normally, this exclusion would seem to be
fairly straightforward.

However, as the Order points out, there may be times where a
domestic governmental agency may have both law enforcement
powers and other functions that have nothing to do with law
enforcement.

According to the Order, an employee of one of these hybrid
agencies is eligible to win an SEC whistleblower award,
provided that he or she is employed in a unit or division of
the agency that does not do law enforcement work.

The whistleblower in this case, who won an award, apparently
worked in a non-law enforcement unit or division of such a
hybrid agency.  The Commission explained:

… it is reasonable to interpret the exclusion flexibly and, in
appropriate cases such as this one, to apply it only to
employees of a clearly separate agency component that performs
law enforcement functions, rather than to all employees of an
entire agency that happens to have been granted law
enforcement powers among its many other separate
responsibilities and powers.

(Order
at p.2 n.2.)

Some Important Caveats To Keep In Mind

The Commission stated that “this is not a situation where a
claimant sought to circumvent potential responsibilities that
his or her government agency might have to investigate or
otherwise take action for the misconduct”.  (Order at pp. 2-3
n.3.)  However, the Commission added that it was not
expressing any view as to “how an award determination might
differ under that alternative circumstance”.

It should also be noted that the Order pertained only to
employees of U.S. domestic authorities.  While foreign
citizens and residents are eligible for and have been granted
SEC whistleblower rewards, employees of foreign governments or
foreign regulatory authorities are excluded from receiving SEC
awards.  (17 C.F.R. Pt. 240, §240.21F-8(c)(2).)

* * *

About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on
representing clients involved with investigations conducted by
the U.S. Securities and Exchange Commission, FINRA, and other
securities regulators.

The Pickholz Law Offices has represented employees, officers,
and others in SEC whistleblower cases involving financial
institutions and public companies listed in the Fortune Top
10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global
2000. We were the first law firm ever to win an SEC
whistleblower award for a client on appeal to the full
Commission in Washington. Inside Counsel magazine named this
achievement one of the five key events of the SEC
whistleblower program. Examples of the
Firm’s SEC whistleblower cases are available here.

In addition to representing SEC whistleblowers, since 1995 the
Firm’s founder, Jason R. Pickholz, has also represented many
clients in securities enforcement investigations conducted by
the SEC, FINRA, the U.S. Department of Justice and US
Attorney’s Offices, State authorities, and more. Examples of
some of the many
securities enforcement cases that Mr. Pickholz has been
involved with are available here.

You can see what actual clients have had to say about The
Pickholz Law Offices by going to the
Client Reviews page on our website or by clicking here.

How to Contact the Pickholz Law Offices LLC

If you would like to speak with a securities lawyer or SEC
whistleblower attorney, please feel free to call Jason R.
Pickholz at 347-746-1222.

The Pickholz Law Offices remains open and will be fully
operational through teleworking while we all grapple with this
terrible pandemic. We hope that all of our clients,
colleagues, friends, and their families remain safe and
healthy. Our thoughts and prayers go out to everyone who has
been affected by COVID-19.