Gov’t Employee Collects $2.5M Whistle-Blower Bounty

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By Antoinette Gartrell

An unidentified government employee was awarded nearly $2.5 million for tipping the Securities and Exchange Commission off to a company’s misconduct.

The award marks the first time a government employee has pocketed a whistle-blower award, former chief of the SEC whistle-blower office, Sean X. McKessy, told Bloomberg BNA.

“This could present some real opportunities for employees in government agencies that happen to run across information that isn’t public or that hasn’t been noticed. If your agency is diverse enough and you’re not in the enforcement section, then you can qualify for a whistle-blower award,” Annapolis, Md. whistle-blower attorney Daniel Hurson told Bloomberg BNA

The whistle-blower program, created by the Dodd-Frank Act, grants cash awards of between 10 percent and 30 percent of monetary sanctions collected to qualified individuals whose tips result in sanctions totaling at least $1 million. Employees of a government agency are eligible to receive a whistle-blower award, with two exceptions, one of which is employees of a “law enforcement organization.”

The term “law enforcement agency” isn’t defined by rule or statute, but is “generally understood as having to do with the detection, investigation, or prosecution of potential violations of law,” the commission said in approving the bounty award.

Interpretation Dilemma

The award order makes it clear that there was a significant interpretive issue regarding how “law enforcement organization” should be interpreted and whether the employee was eligible to receive the cash, McKessy said. Interpreting the phrase narrowly would have limited the pool of whistle-blowers, he said.

The takeaway from the award is that, “when given an opportunity to interpret a legal issue in a way that favors whistleblowers, the current Commission — with the new Chairman — has done just that. For people like me that represent whistleblowers before the SEC, that is highly encouraging,” McKessy, of Phillips & Cohen LLP, Washington, said.

Going forward, government employees seeking a whistle-blower award will probably require adequate legal representation as the commission “left open quite a bit of leeway to deny a claim if the person is too closely connected to the enforcement section of their agency,” said Dallas Hammer, of counsel at Zuckerman Law, Tysons Corner, Va.

By law, the SEC must protect the confidentiality of whistle-blowers. All awards are paid from an investor protection fund established by Congress.

To date, the agency’s bounty program has awarded approximately $156 million to 45 whistle-blowers, the SEC said in a July 25 release.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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