On May 30, 2023, the Supreme Court declined to review a challenge to an SEC award decision brought by an anonymous attorney who blew the whistle on a foreign bribery scheme.  (Case No. 22-963.)  The decision comes after the Second Circuit denied the whistleblower’s petition for review of the SEC’s order in November 2022, and further denied a petition for a rehearing in December of the same year.   The Whistleblower’s cert petition can be found here, while the SEC’s Order and the Second Circuit’s Summary Order are available as part of the appendix to the petition.

The initial SEC Order appealed by the whistleblower denied the whistleblower’s award request was heavily redacted, thus providing little information on the SEC’s grounds for denial.  However, the Summary Order issued by the Second Circuit provides necessary color: while the whistleblower did “provide information to the SEC that assisted in a successful agency information action with respect to an international bribery scheme” and had timely applied for an award—the two necessary prongs of any successful whistleblower award application—the SEC declined to issue an award because the whistleblower himself had pled guilty to bribery charges.  The SEC determined that the guilty plea meant that the whistleblower had been “convicted of a criminal violation related to” the bribery scheme, and that the same bribery scheme was at issue in the Covered Action (i.e., the SEC’s action) and the Related Action (i.e., the actions brought by other government agencies related to the same information). 

To be convicted of a criminal violation related to the action for which a whistleblower could otherwise receive an award is one of several exclusions for award eligibility set out in the SEC whistleblower rules. (See § 165.6(a)(2)).  The basis for the whistleblower’s petitions to both the Second Circuit and the Supreme Court were challenges to the SEC’s interpretation of two key terms in that rule: “convicted” and “related to.”  Specifically, the whistleblower argued that he was not “convicted,” because at the time of the SEC’s decision, the whistleblower had plead guilty, and had his plea accepted, but had not yet been sentenced.  The Second Circuit rejected this argument on two grounds: first, because the whistleblower had failed to raise the argument in his objection to the SEC’s preliminary determination, and therefore forfeited the argument; second, because one does not need to be sentenced in order to be considered “convicted.”  In support of their position, the Second Circuit noted that the term as used in the Exchange Act—where is not defined—should be given the same meaning as ascribed in the Advisers Act; the also highlighted several cases describing defendants as being “tried and convicted, and then sentenced.”

With respect to the scope of “related to,” the whistleblower contended that the term required him to have been “a part of the conduct underlying the…enforcement action.”  The SEC interpreted the term more broadly: “the conduct underlying the criminal conviction must be connected to or stand in some relation to the Covered Action.”  The Second Circuit embraced the wider definition, finding that the ordinary meaning of “related to” was broad enough to encompass the connection between the whistleblower’s bribery charges and the Covered Actions: namely, the bribery charges to which the whistleblower pled guilty involved “facilitating bribery payments from the same principal briber, targeted government officials in the same country, and sought benefits in the same industry” as in the Covered and Related Actions.

The whistleblower’s final argument posited that the SEC’s failure to articulate its reasoning in its final order denied him access to meaningful appellate review.  Again, the Second Circuit disagreed, pointing to the SEC’s lawyers’ declarations, which both provide their analysis, and which were provided to the whistleblower in advance of his appeals.

The whistleblower’s cert petition covered much of the same ground, describing the exclusionary rule dealing with “conviction” of a criminal violation “related to” the Covered Action to as one utilizing a “standardless definition” that allowed the SEC to “circumvent the statute’s award provisions.”  The whistleblower also argued against the “level of deference” the Circuit Courts give to the SEC’s “non-precedential, non-public” rulings.  With respect to the second argument, the whistleblower pointed out that the Second Circuit’s decision had failed to state whether or not it had applied Chevron deference to the SEC’s determinations—which the whistleblower had argued did not apply, as the decision was non-precedential and did not carry the force of law—or, if it had determined Chevron deference applied, why it did so.

While the facts of this case may not suggest a misstep by the SEC here—helping the same person bribe a someone in the same country and in the same industry does feel inherently “related” to the underlying bribery conduct—some aspects of the briefing raise valid concerns regarding the degree of notice provided to future whistleblowers.  As the whistleblower points out, the decision denying his award is heavily redacted, not easily searchable on the SEC’s website, and would not provide the average reader with notice of what conduct constitutes a conviction of a criminal act “related to” the Covered Actions.    While the Second Circuit’s decision is now available to guide whistleblowers and legal practitioners on the current interpretation of the term, perhaps an addition to the Rules’ definition section wouldn’t be amiss.   

On a related note, we here at Lundin PLLC are currently building a database of SEC and CFTC award determinations that would allow for greater search functionality than that provided by the government websites, with search fields for items like determination, award amounts, number of whistleblowers, etc. While we can’t fill in the gaps caused by the redacted portions of these decisions, we do think that the search functionality will be a useful tool to others hoping to track trends in these decisions.  We will announce the database when it goes live, so watch this space for more information.