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.
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).)
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As an SEC whistleblower law firm, 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 reward for a client on appeal to the full Commission in Washington, an achievement that Inside Counsel magazine named one of the five milestones of the SEC whistleblower program.
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If you would like to speak with an SEC whistleblower attorney, please feel free to call Jason R. Pickholz at 347-746-1222.
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