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SEC strict on deadlines, CFTC Pays $240K in First Whistleblower Award

Whistleblowers must strictly comply with regulations and legal procedures in order to receive compensation awards. In a recent ruling, the SEC held that a whistleblower who failed to file a claim for an award on time was ineligible for compensation. In other words, if you miss the deadline, you are out of luck.

In this recent ruling, the whistleblower who filed a late claim argued that the SEC should excuse the untimely filing due to “extraordinary circumstances.” The whistleblower claimed that the information he or she offered led directly to the prosecution of fraud and that the whistleblower “lacked knowledge about the whistleblower program.” Although the SEC may waive statutory filing deadlines, it opted to hold firm and deny the whistleblower a chance to claim an award.

SEC waives filing deadlines in extraordinary circumstances

In some cases, the SEC may waive the filing deadline under extraordinary circumstances. The “extraordinary circumstances” exception to the SEC’s filing deadlines is challenging to satisfy and only applies in limited circumstances. Among other factors, the whistleblower must demonstrate that the late filing was caused by circumstances beyond his or her control. Even if there were circumstances beyond the whistleblower’s control that caused the late filing, the whistleblower must demonstrate that the whistleblower promptly arranged for the filing as soon as possible afterward.

The ruling explained that even if a whistleblower is unaware of the filing deadline, this lack of awareness does not constitute an “extraordinary circumstance” sufficient to waive the filing deadline. The SEC held that the whistleblower’s failure to promptly file the paperwork was fatal to the claim. According to the SEC, the policy behind these strict deadlines is fairness to all potential whistleblowers eligible for awards and finality for the claims process. For potential whistleblowers, this ruling means that in order to successfully claim a compensation award, the SEC’s rules must be strictly complied with and the Commission will not be lenient toward whistleblowers who do not comply with the statutory regulations.

Under Rule 21F-10(b) of the Securities Exchange Act, whistleblowers must fill out a special form, sign it, and submit it to the SEC’s Office of the Whistleblower within 90 days of the SEC posting a so-called “Notice of Covered Action.” These notices are posted by the SEC when a final judgment or order in a case results in sanctions exceeding $1 million. The $1 million calculation may include prior judgments or orders in the same case. Individuals who voluntarily offer original information to the SEC that led to the success are eligible to apply for a whistleblower compensation award.

In addition to the SEC ruling, the Commodity Futures Trading Commission (CFTC) recently paid $240,000 to a whistleblower in its first whistleblower compensation award. The CFTC’s whistleblower program and the SEC’s equivalent program were both established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFTC kept the whistleblower’s identity confidential. According to Gretchen Lowe, the CFTC’s Acting Director of the Division of Enforcement, the whistleblower offered specific, timely, and credible information that led to a successful CFTC enforcement action.

Compensation for Whistleblowers

Under the CFTC whistleblower program, whistleblowers who provide information leading to a successful enforcement sanction of $1 million or more can receive between 10% and 30% of the funds collected. The whistleblower’s percentage is based upon a number of factors, such as:

  • The significance of the information provided to the enforcement action
  • Whether the information was timely and credible
  • The amount of assistance provided by the whistleblower
  • The CFTC resources were conserved due to the whistleblower’s help
  • Hardships suffered by the whistleblower due to the whistleblower’s assistance to the CFTC
  • If the award encourages other whistleblowers to come forward

Under its whistleblower program, the CFTC may also pay awards based on monetary sanctions collected by other government authorities in actions that are associated with a successful CFTC enforcement action. This award of almost a quarter-million dollars to the CFTC whistleblower demonstrates the viability of this important program in the quest to stamp out fraud.


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