The SEC has announced its largest-ever Dodd-Frank whistleblower award: between $30 and $35 million. While the amount of the award is eye-popping on its own, the Commission’s order awarding the whistleblower’s claim – the fourth award to an individual living outside the US – may be the SEC’s most emphatic statement to date regarding its power to apply Dodd-Frank’s whistleblower provisions extraterritorially. Moreover, the award may presage continued growth in the number of whistleblower submissions from outside the US.
In August, the Second Circuit held that the “antiretaliation” provisions of Dodd-Frank (as opposed to the whistleblower “bounty” provisions) do not apply extraterritorially. As part of his (unsuccessful) argument that the antiretaliation provisions should apply extraterritorially, the plaintiff had argued that the SEC’s interpretation of Dodd-Frank’s whistleblower bounty provisions strongly suggested that the SEC “conceives of the bounty as having international reach.”
The Second Circuit assumed, without deciding, that the plaintiff’s interpretation of the SEC’s thinking was correct, but greeted it with great skepticism: “Given the strong presumption that statutes are limited to domestic application in the absence of clear expression of congressional intent to the contrary, it is far from clear that an agency's assertion that a statute has extraterritorial effect…should be given deference.”
In last week’s Order, the SEC acknowledged the Second Circuit’s decision, but stated it did “not find [the Second Circuit’s decision] controlling here; 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.”
Furthermore, the SEC made clear that it will apply the bounty provision extraterritorially:
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.
Given the size of the award, the minimal threshold set by the SEC for a foreign whistleblower to qualify for an award (i.e., original information that leads to the enforcement of a covered action, no matter where in the world either the company, the conduct or the whistleblower is), and the significant numbers of whistleblower complaints the SEC has previously reported it is already fielding from outside the US, the Order will likely result in even more international leads (and resulting awards) in the future. In the words of Sean McKessy, Chief of the SEC’s Office of the Whistleblower, “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”