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Volume XI, Number 213

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July 30, 2021

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SEC Continues To Pay Out Millions In Secrecy

Earlier this week, the Securities and Exchange Commission announced awards to three whistleblowers totaling more than $7 million. That is about all anyone can say about the awards.  The SEC’s order is only 448 words long, including numerous occurrences of the word “redacted”.  It doesn’t name the company or describe the nature of the investment scheme.

Even lottery winners don’t enjoy anonymity

In prior posts, I have noted that Congress requires that the SEC keep whistleblower identities confidential.  However, this obligation may not exist for time and all eternity.  Section 21F(h)(2) of the Securities Exchange Act (15 U.S.C. 78u-6(h)(2)) prohibits the SEC, its officers and employees from disclosing any information, including information provided by a whistleblower to the SEC, that could reasonably be expected to reveal the identity of a whistleblower.  However, this prohibition exists only “unless and until” the information is required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the SEC or certain other entities.  By using the conjunctions “unless and until”, Congress imposed a terminus on the SEC’s obligation of confidentiality.  Indeed, it makes little sense to prohibit disclosure once a whistleblower’s identity becomes known in public enforcement proceedings.  The SEC, however, substitutes “except” for “unless and until” in describing its obligation in Rule 240.21F-7.  Why should whistleblower identities be disclosed.  Perhaps California Assemblyman Philip Y. Ting explained it best when asked whether the names of California Lottery winners should be made public:

“Winners need to be public so the public has faith in the lottery.  Beneficiary anonymity cannot overshadow governmental accountability to the public.”

Lottery officials say identifying winners a must” San Francisco Chronicle (Jan. 16, 2016).  Without transparency, there can be no public trust in the SEC’s whistleblower program.

The SEC also insouciantly continues to claim in its press release “No money has been taken or withheld from harmed investors to pay whistleblower awards.” See Is This SEC Claim False And Misleading?  Ask yourself, just where is the money to pay these awards coming from?  If it is being paid by companies, harmed investors (i.e., the stockholders) are footing the bill.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume VII, Number 25
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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