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Financial Services Law Insights and Observations

2nd Circuit: Convicted SEC whistleblower cannot claim award

Courts Appellate Second Circuit SEC Whistleblower

Courts

On November 15, the U.S. Court of Appeals for the Second Circuit denied a petition from a plaintiff to review a decision by the SEC to not grant him his whistleblower award because he pled guilty to participating in the crime he reported. According to the order, the plaintiff provided information to the SEC that assisted in a successful agency enforcement action with respect to an international bribery scheme. The plaintiff timely filed an application for a whistleblower award in connection with both the action for which he had provided information and another related action. He pled guilty to bribery charges but had not yet been sentenced. The order further noted that because of the guilty plea, the SEC determined that the plaintiff had been “convicted of a criminal violation related to” the bribery scheme that was at issue in both actions. The order noted that, generally, the SEC is required under federal law to pay a monetary award to a whistleblower when that whistleblower “voluntarily provided original information to the Commission that led to the successful enforcement” of “any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000.” The order further noted that the SEC may not make an award "to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award.”

On appeal, the plaintiff argued that he was not “convicted” under 15 U.S.C. § 78u-6(c)(2)(B). The plaintiff also claimed that the fact that he had not yet been sentenced—even though a court has accepted his guilty plea—means that he had not been “convicted.” The appellate court found that he did not raise this issue before the agency and therefore it need not address the plaintiff’s argument about the meaning of “convicted.” But even if it were to excuse the forfeiture, the plaintiff’s argument would fail, the appellate court concluded. The plaintiff also argued that the bribery charges to which he pled guilty were not connected to the actions he was a whistleblower on, and that the SEC did not support its finding of a connection with any substantial evidence. The appellate court disagreed with this argument as well, stating the SEC and the plaintiff interpret the meaning of “related to” differently. The appellate court further explained that “[t]he SEC interprets the term to mean that 'the conduct underlying the criminal conviction must be connected to or stand in some relation to the Covered Action.'" The order stated, “[the plaintiff] suggests that the term requires the whistleblower to have been 'a part of the conduct underlying the ... enforcement action' and to have known about the conduct during its occurrence.’”

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