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SEC issues two separate whistleblower awards totaling over $4.3 million
On November 5, the SEC announced two separate whistleblower awards totaling over $4.3 million. According to the first redacted order, the SEC awarded a whistleblower more than $3.6 million for (i) providing information that alerted enforcement staff to misconduct occurring abroad that would otherwise “have been difficult to detect”; (ii) providing “substantial and ongoing assistance” to enforcement staff, including traveling to another country to meet with staff in person at the whistleblower’s own expense and providing “extensive supporting documentation”; and (iii) suffering hardships due to the whistleblowing. The SEC further noted in the order that while the whistleblower’s “ministerial role in the underlying misconduct” was considered, the Commission did not reduce the award for culpability as the whistleblower “took exceptional steps to report the misconduct from abroad and provided extraordinary assistance.”
In the second redacted order, the SEC awarded $750,000 to a whistleblower for providing significant information that led to a successful enforcement action. According to the SEC, while the covered action was already open when the whistleblower provided the original information, the whistleblower’s information caused enforcement staff to investigate different conduct, which ultimately formed the basis for the covered action. The whistleblower also met with Commission staff in person and explained “the likely mechanics of the fraudulent scheme.”
The SEC has now paid approximately $719 million to 112 individuals since the inception of the program.
SEC issues two separate whistleblower awards totaling over $38 million
On November 3, the SEC announced a more than $28 million whistleblower award in connection with a successful enforcement action. According to the redacted order, the whistleblower (i) first reported the information internally, which prompted an internal investigation; (ii) saved the SEC time and resources; and (iii) assisted the SEC with testimony and provided identification of a key witness.
Earlier on October 29, the SEC announced an award of over $10 million to a whistleblower in connection with a successful enforcement action prompted and aided by the whistleblower. The SEC notes that the individual provided “substantial ongoing assistance to [the] SEC,” including “more than a dozen communications with the staff” that helped the SEC “decipher communications, and distill[] complex issues.” According to the redacted order, the individual first raised concerns about the conduct internally, but “after determining the [c]ompany would not remedy the problem,” the individual brought the information to the SEC. The SEC denied two other claimants related to the enforcement action, concluding that the other claimants were not eligible for the award because either (i) the information was not used in and had no impact on the enforcement action; or (ii) there was no record of communications with the claimant and the agency.
The SEC has now paid approximately $715 million to 110 individuals since the inception of the program.
Whistleblower receives record $114 million award
On October 22, the SEC announced a more than $114 million award to a whistleblower in connection with successful agency enforcement action. The SEC’s press release states that the award “consists of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another agency.” The award is the highest award issued to date by the SEC. The SEC also noted that, “[a]fter repeatedly reporting concerns internally, and despite personal and professional hardships, the whistleblower alerted the SEC and the other agency of the wrongdoing and provided substantial, ongoing assistance that proved critical to the success of the actions.” The redacted order determining the whistleblower award further states that the whistleblower voluntarily provided significant information. The SEC also denied award applications submitted by three other claimants, citing determinations made by the Claims Review Staff that “their information did not ‘lead to’ the success of the Covered Action,” and that, among other things, the submitted information did not relate to the SEC’s charges and was not used by staff in the enforcement action.
The SEC has now paid approximately $676 million to 108 individuals since the inception of the program.
SEC issues $800,000 whistleblower award after reconsideration
On October 15, the SEC announced a more than $800,000 award to a whistleblower in connection with two successful agency enforcement actions, after a request for reconsideration. According to the redacted order, the whistleblower contested a preliminary denial and after review, the SEC determined the whistleblower satisfied the program requirements by “author[ing] information containing a detailed analysis that alerted Commission staff to the underlying securities violations.” The order notes that the whistleblower did not provide any further assistance beyond the initial tips.
The SEC has now paid a total of $562 million to 107 individuals since the inception of the program.
Issuer pays $5 million penalty for unregistered digital offering
On October 21, the SEC announced the U.S. District Court for the Southern District of New York entered a final judgment against a tech company issuer that raised approximately $100 million through an unregistered initial coin offering. As previously covered by InfoBytes, the SEC filed an action alleging the issuer failed to provide required disclosures to investors and did not register the offer or sale of its digital tokens with the SEC, as required by Section 5 of the Securities Act of 1933 (the Act). The SEC argued that the issuer marketed the digital tokens as an investment opportunity and told investors that they could earn future profits from the issuer’s efforts to create, develop, and support a digital “ecosystem.”
The court granted summary judgment in favor of the SEC at the end of September, concluding, among other things, that the issuer violated Section 5 of the Act when it conducted an unregistered offering of securities that did not qualify for any exemption from registration requirements. The final judgment (i) requires the issuer to pay $5 million in a civil penalty; (ii) permanently enjoins the issuer from violating Section 5 of the Act; and (iii) requires the issuer, for a period of three years, to provide notice to the SEC before engaging in any “issuance, offer, sale or transfer” of specified assets.
CFTC charges cryptocurrency derivatives platform and owners with AML violations
On October 1, the CFTC filed charges against five entities and three individuals for allegedly owning and operating an unregistered cryptocurrency derivatives platform and failing to implement required anti-money laundering procedures. The complaint alleges that the platform “illegally offer[ed] leveraged retail commodity transactions, futures, options, and swaps” on cryptocurrencies without implementing key safeguards required by the Commodity Exchange Act and several CFTC regulations compliance measures, such as know-your-customer procedures or actions designed to detect and prevent illicit activities. The CFTC also claims that the exchange operated as an unregistered futures commission merchant and did not have CFTC approval to operate as a designated contract market or swap execution facility. The complaint requests civil monetary penalties and remedial ancillary relief in the form of (i) permanent trading and registration bans; (ii) disgorgement; (iii) restitution; (iv); pre- and post-judgment interest; and (v) a permanent injunction from future violations.
In a parallel action, the U.S. Attorney for the District of New York indicted the three individuals along with a fourth individual on federal charges of violating, and conspiring to violate, the Bank Secrecy Act “by willfully failing to establish, implement, and maintain an adequate anti-money laundering [] program” at the exchange.
SEC has “record-setting” whistleblower fiscal year
On September 30, the SEC announced six new whistleblower awards to finish a “record-setting” fiscal year. In the first announcement, the SEC details an award of nearly $30 million to two whistleblowers. The first, received approximately $22 million for providing information that led SEC staff to open and investigation and subsequently “provided substantial, ongoing assistance.” The second whistleblower received approximately $7 million for providing “additional valuable information” during the investigation.
In the second announcement, the SEC details four whistleblower awards totaling nearly $5 million. In the first order, the SEC awarded a whistleblower almost $2.9 million for alerting the agency of “alleged wrongdoing, which would have been difficult to detect in the absence of [the information.” The second order awards a whistleblower more than $1.7 million for providing “ongoing and extensive assistance” to SEC staff. And the third order, awards nearly $400,000 to two whistleblowers for providing a joint tip and “continu[ed] corporation and assistance, including having numerous meetings and discussions with staff.”
Earlier on September 28, the SEC announced an over $1.8 million award to a whistleblower in connection with a successful agency enforcement action. The whistleblower—an unaffiliated company outsider—“expeditiously reported significant information to the Commission about ongoing securities law violations.” According to the SEC, the award illustrates the important role company outsider intelligence can play in halting ongoing violations.
The SEC announced on September 25 two separate whistleblower awards, totaling over $2.5 million, for information regarding overseas conduct. The first, an award for over $1.8 million, was given to a whistleblower for taking “personal and professional risks” by using an internal compliance system at a company to report information. The tip resulted in an internal investigation, revealing overseas conduct that “would otherwise have been hard to detect.” The company then subsequently reported the findings to the SEC. The second whistleblower was awarded $750,000 for reporting concerns internally about securities violations occurring overseas that led to a successful enforcement action.
The SEC has now paid a total of $562 million to 106 individuals since the inception of the program.
SEC settles with ratings agency for $2 million over inadequate policies
On September 29, the SEC announced a credit ratings agency agreed to pay more than $2 million to resolve separate charges alleging the agency’s commercial mortgage-backed securities (CMBS) and collateralized loan obligation combination notes (CLO Combo Notes) policies and procedures were insufficient. According to the CMBS order, in violations of Section 15E(c)(3)(A) of the Securities Exchange Act, the agency allowed analysts to “use their professional judgment” to make adjustments, which had material effects on final CMBS ratings, without an analytical method to follow nor a requirement to document the rationale for the adjustments. Moreover, according to the CLO Combo Notes order, in violations of Rule 17g-8(b)(1) of the Exchange Act, the agency failed to establish and maintain policies and procedures that addressed the probability that CLO Combo Notes issuers may “default, fail to make timely payments, or otherwise not make payments to investors.”
Without admitting or denying the SEC’s allegations, the agency agreed to pay a civil penalty of $1.25 million in the CMBS action, a $600,000 civil penalty in the CLO Combo Notes action, and $160,000 in disgorgement and prejudgment interest into a Fair Fund for affected persons.
CFTC reaches $4.5 million settlement with bank over lost audio files
On September 28, the CFTC announced a $4.5 million settlement with a national bank and two affiliated entities to resolve allegations that they failed to preserve audio files, including trader recordings that were subpoenaed in 2017. According to the CFTC, in early 2018 the bank stated that it had directed staff to preserve the recordings and asked for an extension to turn over the requested audio files. The Commission granted the request. In late 2018, the bank, however, said the audio files had been deleted due to a design flaw in its audio preservation system. The CFTC claimed that the bank was aware of the audio-preservation issue as early as 2014. As such, according to the CFTC, the bank “did not maintain adequate internal controls with respect to its preservation of audio and thus failed to diligently supervise matters related to its business as a CFTC registrant.” The entities did not admit or deny the CFTC’s findings, but have agreed to pay the $4.5 million civil penalty plus post-judgment interest.
Massachusetts Securities Division extends relief from certain filing requirements
On September 30, the Massachusetts Securities Division issued an amended Emergency Notice extending temporary relief from signature and notarization requirements in corporate filings and for registered financial professional filings until October 31. As under previous iterations of the notice (covered here and here), the Division will allow electronic signatures or copies of signed documents for securities applications and securities notice filings among others. However, the temporary waiver of notarization requirements for certain corporate finance filings and the CORI form, and relief from annual update filings and document delivery requirements for investment advisers were not extended.