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From Securities Regulation Daily, March 11, 2015

SEC properly denied pre-Dodd-Frank whistleblower’s claim

By Amy Leisinger, J.D.

A Second Circuit panel has denied review of an SEC order denying a claim for a whistleblower award. According to the panel, the petitioner’s submission of information did not fall within the Dodd-Frank Act’s safe harbor and, even if the Act was ambiguous as to timing of the provision of information, the whistleblower was disqualified under Exchange Act Rule 21F-4, which excludes whistleblower information provided before July 21, 2010. The SEC’s interpretation of Exchange Act Sec. 21F in enacting the rule was reasonable and entitled to deference, the panel reasoned (Stryker v. SEC, March 11, 2015, Winter, R.).

Background. Between 2004 and July 2009, the petitioner submitted information to the SEC’s Division of Enforcement regarding alleged wrongdoing by Advanced Technologies Group LTD (ATG) and a related individual. The SEC opened an investigation and subsequently filed an enforcement action, which led to a settlement of over $19 million. In January 2011, the whistleblower submitted an application for an award under Sec. 21F based on the successful enforcement action. The SEC denied the claim, stating that the information provided to the Commission did not qualify as “original information” within the meaning of Sec. 21F(a)(1) and Rule 21F-4(b)(1)(iv) because it was not provided “for the first time after July 21, 2010.”

Petition for review. The panel noted that, when reviewing a rule promulgated by an agency pursuant to legislation, a court must consider whether Congress has directly spoken on the issue, either by unambiguous statutory text or, if necessary, canons of construction and legislative history. If these efforts fail, a court must defer to the agency's interpretation of the statute, so long as it is reasonable.

In the Dodd-Frank Act, Congress recognized that information might be volunteered to the SEC before promulgation of whistleblower rules and, thus, allowed whistleblower awards for information provided prior to the implementation of regulations, “if the information is provided by the whistleblower after July 21, 2010.” This demonstrates that Congress considered exceptions, the panel explained, and, as such, we can infer that its intent was limited to what was set forth.

In addition, the panel continued, Congress specifically provided that “original information” must be submitted in the form and manner required by SEC rules to qualify for an award, and Rule 21F-4(b)(1)(iv) provides that whistleblower awards may be made only for information provided after July 21, 2010. Even if the Dodd-Frank Act provision is ambiguous in some manner, according to the panel, the SEC's interpretation was reasonable and fully consistent with the legislation and, thus, entitled to deference.

Because the petitioner’s submission of information to did not conform to Rule 21F-4(b)(1)(iv) and did not fall within Congress’ safe harbor, the SEC’s denial of his petition for a whistleblower award was valid, the panel concluded.

The case is No. 13-4404-ag.

Attorneys: Karim H. Kamal (Law Office of Karim H. Kamal) for Larry Styker. William Kenneth Shirey for the SEC.

Companies: Advanced Technologies Group LTD

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