TSN joins partner organizations in pushing the SEC to accept more whistleblower filings, including those without legal counsel’s support and shared with the press
By Zeke Rogers, Legal Fellow at TSN
Over a decade ago, Congress passed the Dodd-Frank Act to prevent another financial crisis from happening after 2008. One such mechanism was the whistleblower rewards program, which allowed the Securities and Exchange Commission (SEC) to offer financial rewards to those who bring inside knowledge of securities fraud to the agency and, as a result, stop the fraud from happening. Unfortunately, the SEC has interpreted this program narrowly, establishing strict procedural requirements. This is why The Signals Network (TSN) has joined partner organizations like The Government Accountability Project (GAP) and others in filing supporting briefs in the Fifth and 11th Circuit Courts aimed at improving the SEC’s whistleblower reporting rules to better support those bringing valuable information to the agency.
In the pending Fifth Circuit Case, John Doe v. SEC, GAP’s brief, which TSN joined, argues that the SEC’s decision to deny a pro se whistleblower claim (i.e. a claim filed by a whistleblower without the support of an attorney) for failing to adhere to strict procedural requirements was arbitrary because it held the filing to the same standard as one submitted by a lawyer – in direct contravention to the long-established rule that pro se filings are held to less stringent standards than those submitted by a lawyer. For nearly a century, courts have consistently held pro se litigants to a relaxed standard as compared to parties represented by lawyers: legal procedures are highly complex. This is especially true for the SEC whistleblower reporting process.
Shockingly, the SEC had ignored this ironclad precedent. Without referring to the whistleblower’s lack of legal training, the SEC held them to the standard of an attorney because they regularly consumed financial news. Suffice it to say, reading the news does not make one a lawyer. The SEC’s failure to consider this fact establishes the arbitrary nature of its decision to deny the claim.
In addition, the case in the Fifth Circuit highlights the incentive created by the SEC’s requirement that whistleblowers file with the agency before going to the media. Congress modeled the Dodd-Frank reporting structure after the actions of Harry Markopolos, who blew the whistle on Bernie Madoff’s ponzi scheme. Upon learning of Madoff’s scheme, Markopolos tipped off the SEC on multiple occasions. After receiving no response from the SEC, Markopolos went to the media with his information, where the story gained traction. But under the SEC’s own interpretation of Dodd-Frank, Markopolos would have been ineligible for a whistleblower award. The SEC’s current interpretation, in effect, means that whistleblowers who provide information to the agency feel they must remain silent while hoping that the SEC opens an investigation and ultimately decides to issue a reward based on the information. This ultimately punishes whistleblowers who do everything they can to mitigate the harm that they are blowing the whistle on by alerting the public, while keeping the public in the dark about the harm they are exposed to.
Similary, GAP and TSN’s brief in the 11th Circuit argues that the SEC’s extremely strict filing rules undercut Dodd-Frank’s fundamental purpose of deterring the financial practices that crashed the economy in 2008. When Congress passes a statute aimed at deterring harmful behavior, the statute must be interpreted broadly so as to vindicate Congress’s purpose. This principal of law is so essential, it dates back to before America’s founding. Congress created Dodd-Frank’s whistleblower awards program to deter harmful financial practices. As the agency charged with enforcing Dodd-Frank, the SEC should follow the Act’s purpose and loosen its whistleblower filing requirements – not punish those who bring their information to the media in addition to the SEC. Thankfully, the National Whistleblower Center has also submitted a brief in this case, which can be found here.
Dodd-Frank’s whistleblower rewards program is a critical component of Congress’s efforts to prevent another financial crisis. The unfortunate reality is that whistleblowers often find themselves blacklisted from their industry after going public. Too often, whistleblowers have to choose between preventing harm and maintaining their livelihood. The whistleblower rewards program eases the pain whistleblowers experience, Positive outcomes in these cases is an essential step to protecting the public from financial crimes that can be prevented by whistleblowers.
