DB Whistleblower Award Denial Highlights The Importance Of
Having Good Counsel At The Start
Last week, in a full written Opinion, a U.S. Court of Appeals
upheld the U.S. Securities and Exchange Commission’s 2017
decision to deny three claimants a share of an SEC
whistleblower award related to Deutsche Bank (the “DB whistleblower award”).
One of the unsuccessful claimants was an individual identified
in court papers as “John Doe”. The SEC lawyers who interacted
with Doe described him as disjointed and incoherent, and
stated that they did not use his information in initiating or
investigating their case against Deutsche Bank. (Court Opinion
at 5-6.)
The other two unsuccessful claimants were outside experts.
Their firm was hired by a whistleblower to assist him in
preparing his SEC whistleblower tip, in which he informed the
SEC about securities law violations involving misstatements in
Deutsche Bank’s financial statements. That whistleblower won
an SEC whistleblower award. But when the two experts
submitted their own claims for their own awards, the SEC
denied them any share of the DB whistleblower award.
All three of the unsuccessful claimants appealed the SEC’s
decision to the U.S. Court of Appeals for the Second Circuit.
The case was called
Kilgour, Williams, and John Doe v. U.S. Securities and
Exchange Commission, Nos. 18-1124, 18-1127 (2d. Cir., filed Apr. 18, 2018). Oral
arguments in the case were heard on January 22, 2019.
John Doe & The Dangers Of Not Hiring An Experienced SEC
Whistleblower Attorney Before Reporting To The SEC
According to the Court’s Opinion, the SEC opened its
investigation into Deutsche Bank in or around June 2010 (the
“SEC’s DB Team”). Approximately three months later, John Doe
met with enforcement staff in the SEC’s Complex Financial
Instruments Unit (“CFIU”). This team was different from the
SEC’s DB Team.
The Deputy Chief of the CFIU stated that Doe “appeared to be
very disjointed and had difficulty articulating credible and
coherent information concerning any potential violation of the
federal securities laws”. The Deputy Chief further stated
that when the SEC met with Doe, Doe brought what he claimed to
be evidence in “a wet brown bag”. (Court Opinion at 5.) The
CIFU team “concluded that Doe was ‘not a credible source of
information’”, and did not forward e-mails that Doe provided
to the SEC’s DB Team. (Court Opinion at 6.)
Two and one-half years later, Doe met with the SEC’s DB Team.
According to the SEC’s DB Team, during that April 2013 meeting
Doe was “very difficult to follow, as [he] jumped from topic
to topic”. The SEC’s DB Team also found that most of the
information that Doe provided during that meeting was
duplicative of information that it had already received from
other sources. (Court Opinion at 8.)
The Court Opinion
According to the SEC, it did not use Doe’s information, and
Doe’s information did not contribute to the success of its
enforcement action against Deutsche Bank.
Deutsche Bank settled the case with the SEC, and an SEC
whistleblower award became available in the case. Doe’s
application for part of that DB whistleblower award was
denied.
On appeal, the Court of Appeals found that “It was reasonable
for the SEC to credit its staff’s informed determination that
Doe had not provided a credible submission”. (Court Opinion
at 25-26.) For this reason as well as other reasons stated in
its Opinion, the Court denied Doe’s petition to compel the SEC
to grant him a share of the DB whistleblower award. (Court
Opinion at 28.)
John Doe’s case illustrates some of the possible dangers faced
by a whistleblower who decides to submit his or her
information to the SEC alone, rather than hiring an
experienced SEC whistleblower law firm at the
very beginning before submitting anything to the SEC.
As a former SEC Director of Enforcement explained, an experienced
SEC whistleblower attorney
can help to curate the whistleblower’s information, and
present it in a compelling way that will have a better chance
of resonating with the SEC. A knowledgeable
SEC whistleblower lawyer, especially one who has spent decades representing
clients in
SEC investigations, can prepare a whistleblower for his or her meetings with
the SEC, so that the whistleblower can make a coherent
presentation that the SEC will be able to follow and
understand. During meetings, a seasoned lawyer can help the
whistleblower stay focused, and can help to clarify any
misunderstandings or miscommunications as they occur. In
these and other ways, an experienced SEC whistleblower
attorney can help increase the whistleblower’s chances of
becoming eligible to receive an
SEC whistleblower reward
and hopefully avoid a fate similar to John Doe.
Retained Experts Also Denied Part Of The DB Whistleblower
Award
One of the successful
SEC whistleblowers, identified in the SEC’s
Award Order
as “Claimant #2”, hired the two outside experts to help him
prepare his SEC whistleblower submission about Deutsche Bank’s
financial misstatements. The two experts prepared an expert
report for Claimant #2 to use. Claimant #2 submitted the
expert report to the SEC.
In his award application, Claimant #2 informed the SEC that he
was waiving any claim for his own award based on the expert
report, so that the two experts could apply for their own
share of the DB whistleblower award.
Nevertheless, the SEC denied the experts a share of the DB
whistleblower award. In doing so, the SEC appears to have
adapted certain agency principles to its rules governing the
SEC whistleblower program.
The SEC’s Order
According to the SEC, because the experts were hired by the
whistleblower to help him to develop his information and to
make his own presentation to the SEC, the experts were not the
“original source” of the information presented to the SEC.
The whistleblower who hired them and who provided the tip to
the SEC was the “original source” of the information under SEC
whistleblower rule 21F-4(b)(5).
In the SEC’s Order, it stated that when a whistleblower hires
an expert to provide him or her with information and analysis
to submit to the SEC on the whistleblower’s own behalf, and
the whistleblower does so, “the retained expert should be
deemed to have forfeited and waived any subsequent claim to
being the original source of that information”.
Furthermore, because Claimant #2 had already submitted the
expert report, which he had hired the two experts to create
for him, when the experts later submitted the report to the
SEC themselves, it was duplicative of what Claimant #2 had
already provided and therefore was not “original information”.
On appeal, the Court stated that the two experts’ “submission
did not significantly contribute to the success of the
[Deutsche Bank] action; Claimant 2’s submission did”. (Court
Opinion at 26.) The Court therefore denied the experts’
petition to compel the SEC to grant them a share of the DB
whistleblower award. (Court Opinion at 28.)
* * *
About the Pickholz Law Offices LLC
The Pickholz Law Offices LLC is a law firm that focuses on
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The Pickholz Law Offices represents U.S. and international clients in securities and white collar cases. The Firm has helped whistleblowers report frauds to the SEC, CFTC, and IRS, and has defended clients in investigations by the SEC, CFTC, DOJ, FINRA, and other financial and securities enforcement regulators.
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Mr. Pickholz has been counsel in many high-profile cases. He was the first attorney ever to win an SEC whistleblower award on appeal to the Commission, which Inside Counsel magazine called one of the five key events in the history of the SEC whistleblower program. On the defense side, Mr. Pickholz has defended clients in the SEC’s COVID-19 investigations, the CFTC’s cryptocurrency cases, and a former US Senator, among others.
If you want to speak with a CFTC, IRS, or SEC whistleblower lawyer, or with a white collar defense lawyer, you can call the Firm at 347-746-1222.
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