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From Securities Regulation Daily, December 14, 2015

Whistleblower urges D.C. Circuit to light a fire under SEC on awards

By Lene Powell, J.D.

A petitioner whose SEC whistleblower award application has been pending for more than three years asked the D.C. Circuit to direct the SEC to make a preliminary determination on the application within 60 days. The petitioner argued that the SEC’s failure to act on the application constitutes unreasonable delay and reflects a large and growing backlog of applications that threatens to undercut the effectiveness of the SEC whistleblower program (In re John Doe, December 10, 2015).

Unreasonable delay. In 2011, the anonymous petitioner voluntarily disclosed information to the SEC about securities violations by a well-known publicly-traded corporation. The SEC entered a consent order requiring the company to pay more than $1 million in disgorgement, and subsequently published a Notice of Covered Action establishing that the action was eligible for monetary awards under the whistleblower program established by the Dodd-Frank Act. The petitioner submitted a claim in October 2012.

According to the petitioner, the SEC has resolved a number of claims filed after the petitioner’s, because the SEC is not operating the program on a first-in, first-out basis. The petitioner has been waiting longer than 96 percent of applications, and has no assurance that the claim will be given priority over later-filed claims. The petitioner said that in response to multiple requests for information, the SEC has responded only that the claim is “still under consideration.”

Growing backlog. The delay in acting on the petitioner’s application is “just the tip of the iceberg” and highlights the larger problem that the SEC has a “substantial” backlog of unresolved claims, said the petitioner. According to a May 2015 news article, of the 297 applicants who submitted whistleblower claims since the program’s inception, only about 50 had received a decision. So far in 2015, the Commission has issued 20 decisions, putting it on track to issue 22 decisions before the end of the year. At that rate, it would take a whopping 11 years to resolve the backlog of existing claims—during which time new claims will be filed. And, there is an upward trend in the number of claims, which will only exacerbate the situation, the petitioner said.

The longer it takes the SEC to decide on award claims, the less attractive the whistleblower program is to potential whistleblowers, observed the petitioner. A writ of mandamus directing the SEC to make a preliminary determination on the application within 60 days would be appropriate not only to resolve the petitioner’s claim, but also to “instill in the Commission a sense of urgency about the problem it faces.” Because the petition involves a claim of unreasonable agency delay, the petitioner asserted that the D.C. Circuit has jurisdiction to hear an interlocutory appeal.

“Given how quickly it has dug the hole in which it now finds itself, the SEC is unlikely to be able to climb out of it if left to its own devices. Rather, it needs to be motivated by something from outside the Commission,” argued the petitioner.

The case is No. 15-1444.

Attorneys: Max Francis Maccoby (Butzel Long, PC) for John Doe.

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