Securities Law News

Deutsche Bank Whistleblowers Lose Bid to Force SEC Awards (2)

Nov. 8, 2019, 4:14 PMUpdated: Nov. 8, 2019, 7:40 PM

Whistleblowers who provided information on Deutsche Bank AG during an SEC investigation of the bank’s financial statements can’t force the agency to issue them awards for their help, the Second Circuit said Nov. 8.

The appellants, one of whom is anonymous, went to court after the Securities and Exchange Commission denied their requests for whistleblower awards following the agency’s 2015 settlement with Deutsche Bank. But the information they provided didn’t lead to the $55 million settlement, the U.S. Court of Appeals for the Second Circuit said.

The SEC ultimately paid out around $16 million to two other whistleblowers in 2017, Judge Robert D. Sack’s opinion said. Colin Kilgour, Daniel Williams, and “John Doe” sued the agency after it rejected their award claims.

Doe met with SEC enforcement staff in 2010, but wasn’t considered a credible source of information, the opinion said. The team Doe met with didn’t pass his messages along to the group working on the Deutsche Bank investigation until August 2011—after another whistleblower had already provided similar information to the agency. Doe made additional submissions in 2013, but the information was “largely duplicative” of what the SEC had already learned from others, the opinion said.

Kilgour and Williams prepared an expert report for another whistleblower through their consulting firm in 2013. That whistleblower authorized them to submit a report in their own names with the same information so they could also try to claim an SEC award.

SEC Balancing Act

Only whistleblowers who voluntarily provide original information that leads to a successful enforcement action are eligible for SEC awards. Duplicative submissions—even of useful information—don’t support an award, Sack said. And information needs to be in a usable form to count, he added.

The SEC’s process for handing out whistleblower awards “strikes a sensible balance between care and timeliness,” the opinion said. “A whistleblower might still be rewarded for being the first to bring incriminating information to the SECʹs attention, but only if that information is contained in a credible, and ultimately useful submission.”

The court’s opinion underscores the importance of tipsters giving the commission information that’s clear, compelling, and timely, said Erika Kelton, a Phillips & Cohen LLP partner who represents whistleblowers.

“The SEC receives thousands of submissions from whistleblowers annually and has limited resources, so the more detailed and organized the whistleblower information is, the more likely the SEC is to use it,” she told Bloomberg Law.

Tipsters receive 10% to 30% of the money garnered from cases that bring at least $1 million in sanctions against a company under the program created by the Dodd-Frank Act.

The program has brought about $387 million to more than five dozen tipsters since its first award in 2012, according to the SEC.

Judges Amalya L. Kearse and Debra Ann Livingston joined Sack’s opinion.

Kilgour and Williams represented themselves. Kirby McInerney LLP represented the anonymous whistleblower.

The case is Kilgour v. SEC, 2d Cir., No. 18-01124, petitions denied 11/8/19.

(Adds Erika Kelton's comments in eighth and ninth paragraphs)

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com; Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com

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