Recently, the SEC announced its largest whistleblower award to date - an expected award of $30-35 million - to be issued to a foreign resident. Notably, the award would have been even larger if the tipster had not unreasonably delayed in reporting the violations.
This award to a foreign resident is of particular interest because it was announced in the wake of Liu v. Siemens, 763 F.3d 175 (2d Cir. 2014). As we recently discussed, in Liu, the United States Court of Appeals for the Second Circuit followed Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010), in ruling that Dodd-Frank’s anti-retaliation provision, 15 U.S.C. § 78u-6(h), does not apply extraterritorially. In affirming the dismissal of Liu’s claim, the court also concluded that Liu failed to plead facts constituting a domestic application of the provision to a foreign worker employed by a foreign corporation when all events related to the disclosure occurred abroad. In its opinion, the court specifically rejected Liu’s reliance on Dodd-Frank’s whistleblower bounty provision, 15 U.S.C. § 78u-6(b), to support the argument for foreign application of the anti-retaliation provision. Among other reasons, the court noted that the extraterritorial application of the bounty and anti-retaliation provisions have “far different international ramifications.”
Less than a month after the Liu opinion was entered, the SEC announced this record-breaking whistleblower award, which is the fourth award to a whistleblower living in a foreign country. In an extensive footnote in its Order Determining Whistleblower Award Claim, the SEC addressed the issue of extraterritoriality, explaining:
In our view, there is a sufficient U.S. territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations. When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas.
The SEC then specifically acknowledged Liu, finding that the decision was not controlling because “the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”
This award and the SEC’s pronouncement on the issue of extraterritoriality demonstrate the SEC’s continued interest in maintaining foreign tipsters as significant sources of information for potential violations of U.S. securities laws. Chief of the SEC’s Office of the Whistleblower, Sean McKessy, reaffirmed this interest when the award was announced. Highlighting the international reach of the whistleblower program, he noted that “[w]histleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”