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From Securities Regulation Daily, September 22, 2014

SEC awards highest whistleblower award to date to a foreign resident

By Jacquelyn Lumb

The SEC today announced that it will pay its largest whistleblower award to date — over $30 million — based on a tip from a foreign resident. In a news release announcing the award, Enforcement Director Andrew Ceresney said the whistleblower’s information brought to light an ongoing fraud that would have been hard to detect. Sean McKessy, the chief of the SEC’s Office of the Whistleblower, said the award also reflects the international reach of the whistleblower program, and he urged whistleblowers from all over the world to come forward with credible tips about potential violations of the U.S. securities laws. The highest award previously paid to a whistleblower was $14 million, last October.

Extraterritorial considerations. In its order determining the award claim, the SEC noted the existence of certain extraterritorial aspects of the claimant’s application. The SEC concluded that the matter had a sufficient U.S. territorial nexus because the information led to the successful enforcement of a covered SEC action brought in the U.S. relating to violations of the U.S. securities laws. Where this key territorial connection exists, the SEC said it makes no difference whether the claimant is a foreign national, whether the claimant resides overseas, whether the information was submitted from overseas, or whether the misconduct giving rise to the U.S. securities law violation occurred entirely overseas.

The SEC recognized that the Second Circuit recently held that there was an insufficient territorial nexus for the anti-retaliation protections to apply to a foreign whistleblower who experiences employment retaliation overseas after reporting information about his or her foreign employer, but concluded that the decision was not controlling here. The SEC said the whistleblower provisions have a different Congressional focus than the anti-retaliation provisions, which are aimed at preventing retaliatory employment actions and protecting the employment relationship.

Delay in reporting. The SEC’s order also noted that the claimant delayed reporting the violations for a period of time, during which investors continued to suffer significant monetary injury that could have been avoided. The SEC disagreed with the claimant’s view that the delay was reasonable under the circumstances. The claimant expressed doubt about whether the SEC would respond to the tip. The claimant’s explanation did not mitigate a downward adjustment of the award due to the reporting delay, according to the SEC.

The claimant noted that the award was below the average percentage awarded to other successful claimants to date, but the SEC found the argument irrelevant. The SEC acknowledged that some of the delay’s time period occurred before the whistleblower award program was established. However, the SEC applied the unreasonable delay consideration as severely as it might have if the delay had occurred entirely after the program’s creation.

Every enforcement action is unique and every award involves a highly individualized review of the facts and circumstances of the case, according to the SEC. The SEC noted that no award determination to date has involved a similar reporting delay.

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