SEC Denies Enforcement Action Award for Failure to Timely File Claim; Narrowly Defines “Extraordinary Circumstances” Exception

As reported by Rachel Ensign of the Wall Street Journal, the Securities and Exchange Commission (“SEC”) recently denied a whistleblower-claimant a Commission enforcement action award where the claimant failed to file timely an award claim with the SEC’s Office of the Whistleblower.

Rule 21F-10(b) of the Securities Exchange Act requires that whistleblowers file award claims within ninety (90) calendar days of a Notice of Covered Action – notices posted by the SEC to alert claimants of enforcement actions that are eligible for whistleblower awards. 17 C.F.R. § 240.21F-10(b). The SEC may waive the 90-day filing requirement if a claimant demonstrates that an untimely filing was the result of “extraordinary circumstances.” 17 C.F.R. § 240.21F-8(a). The “extraordinary circumstances” exception has been narrowly defined by the SEC and applies in limited circumstances. In the context of a late award claim filing, a claimant must demonstrate that the failure to file timely was the result of a circumstance beyond the claimant’s control, such as attorney misconduct or a serious illness.

The claimant in this instance alleged that extraordinary circumstances existed because (i) s/he provided information to the SEC that directly led to the enforcement action and (ii) s/he was unaware of the whistleblower program until shortly after charges were filed against the Defendants. The SEC determined that claimant’s justifications failed to satisfy Rule 21F-8(a) because claimant did not demonstrate that providing the SEC with information that led to a monetary recovery caused the untimely award claim filing. In addition, the SEC determined that reopening the claims process after the deadline to file a response to a Notice of Covered Action had passed would be unfair to other potential claimants with competing claims and would lead to an unworkable system.

The SEC also noted that, even where a claimant demonstrates that the failure to file timely was beyond his or her control, the claimant must file an award claim as soon as practicable. Here, claimant did not provide any justification for failing to “prepare paperwork” promptly and file his or her claim after learning of the whistleblower program. This failure was “fatal” to the claimant’s award claim.

 

Topics:  Compliance, Enforcement, Enforcement Actions, Filing Deadlines, Filing Requirements, SEC

Published In: Civil Procedure Updates, Civil Remedies Updates, Labor & Employment Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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