The Securities and Exchange Commission on Tuesday awarded nearly $2.5 million to a government worker who helped regulators launch an investigation and eventually crack down on a company's misconduct, the first such whistleblower bounty issued to an employee of a government agency.
As is typical in these cases, the SEC offered no identifying details about the employee, the government agency, or the company the individual blew the whistle on.
But in an unusual move, the commission offered a detailed discussion in the order s footnotes of when a government employee can and cannot receive a whistleblower award under the Dodd-Frank Act. And this one appears to have been a somewhat close call.
Generally, government employees can receive the whistleblower awards, unless they work at a financial regulatory agency or at a law enforcement agency. Neither of the two exceptions prevents an award here, the footnote said. But the law enforcement exception raised a question of interpretation that was settled in the tipster s favor.
Phillips & Cohen partner Sean McKessy, who served as the first director of the SEC s whistleblower office and now represents whistleblower clients, said that the commission s determination signals a continued interest in maximizing opportunities to receive tips.
The first tea leaf we re reading is that, when given the opportunity to interpret something as pro-whistleblower, the current commission with the new chairman has signed off on that, McKessy said. For people in my shoes, that s encouraging.
The footnote described the two exceptions in more detail. The first exception prohibits paying a whistleblower award to an employee of an appropriate regulatory agency. It then goes on to cite a statutory definition of an appropriate regulatory agency as the SEC and various banking agencies listed in the definition, including the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation.
This exception had no application to the whistleblower, the SEC said.
The second exception prohibits an award to an employee of a law enforcement organization, the footnote stated. This exception came closer to applying in this case.
To be sure, certain components of claimant s governmental employer have law enforcement responsibilities, but those responsibilities are housed in a separate, different component of the agency at which claimant works, the footnote explained.
It added that the case raises an interpretive question about whether the exclusion for employees of a law enforcement organization applies to the whole agency, or just the sections of the agency with law enforcement responsibilities. The footnote, however, clarifies that it has not answered this question for all cases in deeming that the whistleblower fell outside the exclusion here.