FOIAengine: Fights Erupt as SEC’s Tipsters Seek to Cash In
After the Securities and Exchange Commission awarded $279 million last month to an anonymous whistleblower, a flurry of Freedom of Information Act requests and lawsuits followed.
The parties had very different motives.
Journalists immediately sought the identity of the anonymous informant who’d received the Powerball-sized reward. Soon thereafter, attorneys jumped into the fray, going to court on behalf of two frustrated whistleblowers seeking a share of the all-time-record payout.
Both actions illustrate the dual edges of the sharp sword that the SEC wields under the whistleblower program that the Dodd-Frank Act established 13 years ago. After a slow start, the agency finally appears to be picking up the pace of awards – and with that comes more fights among would-be informants and their contingent-fee lawyers for a share of the largesse. “Whistleblower law” has become a legal specialty.
Adding to the legal intrigue is the secrecy, mandated by Dodd-Frank, in which the SEC’s whistleblower program operates. Because the law guarantees anonymity to those who send in tips, there are scant clues about how the program operates and who gets the money. That’s where the new specialists in whistleblower law – including ex-lawyers from the SEC’s whistleblower office – come in. They can act as gatekeepers, guiding tipsters through an arcane process that typically consumes years before an award is made.
But in whistleblowing, as in any high-stakes game, the odds strongly favor the house. Almost all whistleblowers roll snake eyes. Now, in what could be the start of a trend, some disappointed tipsters are turning to the courts after their whistleblowing claim is denied. That happened not only in the case of the SEC’s record whistleblower award last month, but in some other notable recent cases as well.
When whistleblower cases move from the SEC to the courts, more information gets revealed. FOIAengine also provides some insight. Here’s what we know so far:
The SEC’s whistleblower program has paid out at least $1.6 billion since it was created by Dodd-Frank in 2010, including the record payment last month of $279 million to one tipster. Under Dodd-Frank, those who tip off the SEC to corporate wrongdoing can receive up to 30 percent of the fines collected, and there’s no upper dollar limit. That’s the attraction — and tipsters lately have swarmed.
But the odds of a whistleblower’s ever getting anything remain very low. The law’s procedural requirements can seem Delphic, and the courts have doomed whistleblowers who failed to fill out the correct form – officially called a Form TCR, for “Tip, Complaint, or Referral” – or who didn’t meet rigid deadlines for submitting a tip.
The long odds persist even when whistleblower-lawyer experts help tipsters navigate the tortuous process. Last year, the SEC received 12,300 whistleblower tips, an all-time high. But the agency gives out, on average, only about 30 awards per year, and takes its time making a decision. Example: The misconduct that resulted in the record $279 million whistleblower award – illegal bribes paid by Swedish telecom manufacturer Ericsson to win business in Saudi Arabia, China, Djibouti, Vietnam, Indonesia, and Kuwait – occurred between 2011 and 2017. By 2016, at least four whistleblowers had revealed the wrongdoing to the SEC. The charges against Ericsson were resolved in 2019, with Ericsson pleading guilty to civil and criminal charges and paying fines of over $1 billion. Still, it took at least four more years for the SEC to reward one of the whistleblowers. The agency finally announced the winner on May 5, 2023.
That same day, according to FOIAengine, the SEC began receiving requests from reporters seeking to learn the identity of that successful whistleblower, who’d been dubbed “Claimant 1” by the SEC.
FOIA requests to the federal government can be an important early warning of bad publicity or litigation to come. That is why PoliScio Analytics’ competitive-intelligence database FOIAengine tracks FOIA requests in as close to real-time as their availability allows.
The first media FOIA request came from Jack Newsham, a reporter on Business Insider’s investigations team. Newsham sought “the identities of the law firm and the individual lawyers that represented the successful claimant in the largest-ever whistleblower award.” Newsham didn’t respond to our request for comment.
Additional FOIA requests rolled in from other news organizations. On May 11, Grace Schepis of Whistleblower Network News, who has written extensively about whistleblower lawyers and their potential conflicts of interest, filed a broader FOIA request asking about “all law firms that represented [successful] whistleblowers” since January 1, 2021. Schepis didn’t respond to our questions about her request. On May 15, John Holland, an investigative reporter for Bloomberg Industry Group who has also done groundbreaking reporting on whistleblowers and their lawyers, made clear that he, too, wanted to know “[the] name of the attorney, or attorneys, who represented Claimant 1.” Holland later broadened his request, asking for the “names of all attorneys who have represented claimants who have received monetary awards pursuant to the Dodd-Frank SEC whistleblower program” since January 1, 2020. Holland told us he hasn’t received any information from the SEC other than an acknowledgment of his requests. So far, the attorney for Claimant 1 hasn’t been publicly identified.
But there was more to dig for. In its heavily redacted order announcing the award, the SEC revealed that there were multiple unsuccessful claimants. Two people, labeled “Claimant 2” and “Claimant 3” in the SEC’s order, were contesting the SEC’s decision to award them nothing. The SEC had denied their claims, saying the information they provided wasn’t helpful.
Who were the unsuccessful whistleblowers? And who were their attorneys? It did not take long for more parts of the puzzle to fall into place.
On June 1, the lawyer for “Claimant 2” filed a petition against the SEC in the Court of Appeals for the D.C. Circuit, asking the court to review the SEC’s final order. Claimant 2’s identity was redacted in accordance with the SEC’s whistleblower protection rules; in the petition, she’s referred to only as “Jane Doe.” Her lawyer, Max Maccoby of Washington Global Law Group, told the Wall Street Journal, “We believe that the final order was flawed, and we will fully pursue an appeal in this matter.”
One day later, the lawyer for “Claimant 3” came forward, revealing his client to be Liss-Olof Nenzell, a former executive of the Sweden-based Ericsson. Nenzell’s lawyer, David Stone, a senior managing partner at law firm Stone & Magnanini, filed his petition on June 2, also in the D.C. Circuit. Stone & Magnanini boasts on its website about its “high profile/high stakes” litigation expertise, and calls itself “innovators in the use of alternative fee arrangements, including reverse contingency fee arrangements, flat fees and hybrid fee arrangements in appropriate cases.”
Maccoby, the lawyer for Claimant 2, has represented other unsuccessful SEC whistleblowers. He filed a similar “Jane Doe” petition against the SEC in the D.C. Circuit in 2021; the appeals court rejected it. That previously unpublicized petition involved a whistleblower who sought an award for tipping off the SEC to foreign bribes made by pharmaceutical company Novartis. (The SEC had fined Novartis $25 million.) Maccoby filed the Jane Doe petition after a Novartis in-house whistleblower, a sales rep named Ozzie Bilotta, was awarded $109 million plus interest in a related False Claims Act payout.
Earlier this year, Maccoby filed yet another petition with the D.C. Circuit on behalf of a “John Doe” claimant who unsuccessfully sought a whistleblower award from the SEC. That case, also previously unpublicized and still pending, concerns the Commission’s $101 million investor-fraud penalty levied in 2020 against operators of a company called Palm House Hotel.
If history is a guide, these unsuccessful whistleblowers will fail. SEC rejections of whistleblower awards are seldom, if ever, reversed. But court challenges to the SEC’s opaque decision-making have nonetheless been mounting as the perceived rewards reach Mega Millions levels and contingent-fee lawyers with a vested interest in the outcome jump into the fight.
Cracks are beginning to show. In a case we wrote about last week, three judges of the Third Circuit Court of Appeals gave fealty to the SEC’s decision not to reward a whistleblower, even as they questioned how the agency came to its decision.
In a footnote laden with judicial restraint, the judges offered a warning: “The SEC’s proffered justification” for deciding how to reward whistleblowers, they said, “leaves something to be desired.”
Come back here for updates.
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John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere. He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis. His most recent book is The Partisan: The Life of William Rehnquist. Jenkins founded Law Street Media in 2013. Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly. FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller. Learn more about FOIAengine here. To review FOIA requests mentioned in this article, subscribe to FOIAengine.