In Stryker v. Securities and Exchange Commission, No. 13-4404-ag, 2015 U.S. App. LEXIS 3765 (Mar. 11, 2015), the Second Circuit affirmed the SEC’s determination that information submitted before the enactment of Dodd-Frank did not qualify for an award under Section 21F(b)(1) of the Securities Exchange Act of 1934. Between 2004 and July 2009, Larry Stryker reported information to the SEC regarding alleged wrongdoing by Advanced Technologies Group, Ltd (ATG) and another individual. Id. at *2. The SEC opened an investigation in March 2009 and, subsequently, filed an enforcement action charging ATG and the individual with violating Section 5 of the Securities Act of 1933. Id. The matter was settled in November 2010, and ATG and the individual were jointly liable for $19 million. Id.
On January 11, 2011, Mr. Stryker submitted an application for a whistleblower award under Section 21F of Dodd-Frank. Id. at *3. The SEC preliminarily recommended that the application be denied because the information that Mr. Stryker provided was “not ‘original information’ within the meaning of Section 21F(a)(1) … and Rule 21F-4(b)(1)(iv) … because it was not provided to the Commission for the first time after July 21, 2010.” Id. Mr. Stryker agreed that he had not provided information before July 2010, but contended that the definition of “original information” was “contrary to the statute insofar as it requires that information to be submitted to the Commission for the first time after Dodd-Frank’s effective date.” Id.
The Second Circuit ultimately deferred to the SEC’s interpretation. The Second Circuit began its analysis with the definition of original information, which is information that:
- Is derived from the independent knowledge or analysis of a whistleblower
- Is not known to the Commission from any other source, unless the whistleblower is the original source of the information
- Is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information
Id. at *5 (quoting 15 U.S.C. §78u-6(a)(3)).
The Second Circuit noted that Congress then provided that to qualify for an award, original information would need to be provided in the form and manner required by the SEC’s rules and regulations. Id. Because such rules and regulations would necessarily be promulgated after the passage of Dodd-Frank, it was possible that information would be volunteered before the rules were promulgated. Id. at *6. Congress, therefore, created a safe harbor for “[i]nformation provided to the Commission in writing … prior to the effective date of the regulations, if the information is provided by the whistleblower after July 21, 2010.” Id. The SEC subsequently enacted Rule 21F-9(d) to give effect to the safe harbor: “If you submitted original information in writing to the Commission after July 21, 2010 (the date of enactment of … Dodd-Frank), but before the effective date of the these rules, your submission will be deemed to satisfy the requirements set forth in paragraphs (a) and (b) of this section.” Id. The SEC also enacted Rule 21F-4(b)(1)(iv), which provided that whistleblower awards may only be made for information “[p]rovided to the Commission for the first time after July 21, 2010.”Id. at *7.
The Second Circuit found that under Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984), even if it was ambiguous as to whether Dodd-Frank intended to bar a whistleblower award based on information reported prior to July 21, 2010, the SEC’s interpretation that information submitted prior to July 21, 2010 would not qualify for an award was entitled to deference. Id. at *8-9. As the SEC’s interpretation was fully consistent with the safe harbor provision, the SEC’s decision to deny Mr. Stryker an award was upheld. Id. at *9.