Does The SEC Give Sufficient Notice To Claim An SEC
Whistleblower Award?

— 2 Whistleblowers Ask The Second Circuit To Decide —

Under the
SEC whistleblower program, people who provide information about securities frauds to
the U.S. Securities and Exchange Commission can receive
monetary whistleblower awards.  Those awards can range from
10% – 30% of the amount of fines and penalties that the SEC
collects from the transgressors, so long as the SEC collects
more than $1 million from the perpetrators of the fraud.  In
some cases, the SEC has given out whistleblower awards of
millions or even tens of millions of dollars.  But there are a
lot of rules about what a whistleblower must do to be eligible
to
claim an SEC whistleblower award.

Last week, the U.S. Court of Appeals for the Second Circuit
heard oral arguments in a case challenging one of those
rules.  The rule being challenged has to do with the kind of
notice that the SEC must give to let people know that they
should file their applications to claim an SEC whistleblower
award in a particular case.

The 90-Day Window To Claim An SEC Whistleblower Award

As background, to claim an SEC whistleblower award, the
claimant must submit his or her application for an award
within 90 days of the date on which the SEC wins its monetary
judgment or order against the wrongdoers.

The order or judgment could be in the form of a court order
requiring the defendants to pay disgorgement, interest, and/or
penalties to the SEC.  It could be the result of an in-house
SEC administrative proceeding.  Or it could be the result of a
settlement between the alleged wrongdoers and the SEC.

Unless there are extenuating circumstances, if someone does
not submit his or her claim for an
SEC whistleblower reward
within the 90-day window, he or she will be barred from
receiving a reward.

The Commission has sole discretion to determine whether it
believes there are sufficient extenuating circumstances to
warrant an exception for someone who misses the 90-day
deadline.

In the case before the Second Circuit, the two whistleblowers
put in their claim for an SEC whistleblower award
approximately two years after the 90-day window had expired. 
The SEC did not grant them an exception to the filing deadline
and denied their award claims.

How Does Someone Find Out When Their Time To Claim An SEC
Whistleblower Award Has Begun To Run?

The current practice is that when the SEC collects over $1
million in a case, it posts the name of that case on a list on
the SEC’s website.  That list is called a Notice of Covered
Actions or “NoCA” list.

The SEC may not post a case on its NoCA list until a few days
or even weeks after it wins a judgment or order of over $1
million.  Recognizing this, the SEC has interpreted the 90-day
window for award applications to begin running from the date
when the case first appears on the NoCA list, not the earlier
date when the SEC actually got the order or judgment.  In some
cases, where the whistleblower learns of the order or judgment
in advance of the NoCA listing, this could give his or her
SEC whistleblower lawyer
some extra time in preparing the application for an award.

The NoCA list sets forth the case name, the date on which the
case was posted, and the date by which award claims are due. 
This is called “constructive notice” to the public.

The practice of giving “constructive notice” places the onus
on SEC whistleblowers to
monitor the NoCA list themselves so that they do not miss
their filing deadline to claim an SEC whistleblower award.

Some applicants in prior cases who were denied awards argued
that the Commission was either required to or should have
given them “actual notice” that their time to claim an SEC
whistleblower award had begun to run.  In those cases, the
Commission rejected the notion that it was required to provide
“actual notice” by calling, writing, or otherwise contacting
every (or any) potential award claimant directly.

The Second Circuit Case

The SEC’s practice of providing constructive notice through
its NoCA list is what is being challenged in the case
presently before the Second Circuit.

The SEC posted the case on the NoCA list on its website.  But
the two award claimants said that they never saw it or knew
about it, which is why they did not file their award claims
until approximately two years later.

NoCA listing for the case on the SEC’s website

The Second Circuit heard oral arguments in the case last
week.  During oral arguments, the two award claimants asked
the Second Circuit to rule that the SEC was either required to
or should have been required to provide them with actual
notice that an award had become available and that their time
to file for an award had begun to run.

The Second Circuit has posted an audio transcript of the oral
arguments in the case.  You can listen to the oral arguments
by going to the Second Circuit’s website
here
and searching for Cerny v. U.S. Securities and Exchange
Commission (docket #16-934, date argued:  August 30, 2017).

Update:  On
September 7, 2017, the day after this post, the Second
Circuit ruled that “the Commission is not required to
provide actual notice” to potential SEC whistleblower award
claimants.  (See Cerny v. SEC, Summary Order at 4, docket
#16-934-ag (2d. Cir., Sept. 7, 2017).)

* * *

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