Stryker v. Secs. & Exch. Comm'n, No. 13-4404 (2d Cir. 2015)
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Between 2004 and 2009, Stryker submitted information to the Securities and Exchange Commission’s Enforcement Division regarding alleged wrongdoing by ATG and an involved individual. In 2009, the SEC opened an investigation and interviewed Stryker. The SEC subsequently filed an enforcement action against ATG and the individual, charging them with violating Section 5 of the Securities Act of 1933. In 2010, the SEC reached a settlement with the respondents to the enforcement action. The district court approved the settlement, whereby ATG and the individual were held liable for more than $19 million. In 2011, Stryker sought a whistleblower award under Section 21F of the Dodd-Frank Act, 15 U.S.C. 78u-6, based on the successful enforcement action. The SEC denied the award because the information was submitted before enactment of Dodd-Frank. The Second Circuit affirmed, concluding that the SEC’s interpretation was within its authority and consistent with the legislation.
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13-4404-ag Stryker v. Securities and Exchange Commission, 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2014 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (Argued: September 29, 2014 Decided: March 11, 2015) Docket No. 13-4404-ag - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - LARRY STRYKER, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - B e f o r e: WINTER and CHIN, Circuit Judges, and OETKEN, District Judge.* Petition for review of the Securities and Exchange 25 Commission’s denial of a claim for a whistleblower award. We 26 hold that the SEC’s interpretation of Section 21F of the 27 Securities Exchange Act was reasonable and therefore entitled to 28 deference under Chevron, U.S.A., Inc. v. Natural Res. Def. 29 Council, Inc., 467 U.S. 837 (1984). We deny the petition. 30 31 * The Honorable J. Paul Oetken, of the United States District Court for the Southern District of New York, sitting by designation. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 STEPHEN M. KOHN (Karim H. Kamal, New York, NY, Michael D. Kohn & David K. Colapinto, Kohn, Kohn & Colapinto, LLP, Washington, DC, on the brief), Kohn, Kohn & Colapinto, LLP, Washington, DC, for Petitioner. WILLIAM K. SHIRLEY (Anne K. Small, Michael A. Conley, John W. Avery, Stephen G. Yoder, on the brief), Securities and Exchange Commission, Washington, DC, for Respondent. Dean A. Zerbe, Zerbe, Fingeret, Frank & Jadav PC, Houston, TX, for Amicus Curiae. WINTER, Circuit Judge: Larry Stryker petitions for review of an order of the 21 Securities and Exchange Commission (“SEC”) denying his claim for 22 a whistleblower award. 23 the Dodd-Frank Act (“Dodd-Frank”), 15 U.S.C. § 78u-6, based on 24 information he supplied to the SEC that it relied upon in a 25 successful enforcement action. 26 information was submitted before enactment of Dodd-Frank, 27 petitioner did not qualify for an award under Section 21F(b)(1) 28 of the Securities Exchange Act of 1934 and Rules 21F-(3)(a) and 29 21F-4(c). 30 21F was within its authority and consistent with the legislation, 31 we deny the petition. He sought the award under Section 21F of The SEC held that, because the Concluding that the SEC’s interpretation of Section 32 33 34 2 1 BACKGROUND 2 Between 2004 and July 2009, petitioner submitted information 3 to the SEC’s Enforcement Division regarding alleged wrongdoing by 4 Advanced Technologies Group LTD (“ATG”) and an involved 5 individual. 6 the alleged misconduct. 7 month. 8 ATG and the individual, charging them with violating Section 5 of 9 the Securities Act of 1933. In March 2009, the SEC opened an investigation of It interviewed petitioner the following The SEC subsequently filed an enforcement action against In November 2010, the SEC reached a 10 settlement with the respondents to the enforcement action. 11 district court for the Southern District of New York approved the 12 settlement, whereby ATG and the individual were held liable for a 13 little over $19 million. 14 Release No. 70772, 2013 WL 5819623 (Oct. 30, 2013); see SEC v. 15 Advanced Tech. Group, Ltd., No. 10-CV-4868 (S.D.N.Y. 2011). 16 The Advanced Tech. Group Ltd., Exchange Act On January 11, 2011, petitioner submitted an application for 17 a whistleblower award under Section 21F of Dodd-Frank based on 18 the successful enforcement action. 19 determination recommended that his award claim be denied. 20 stated, in relevant part: 21 22 23 24 25 26 27 The SEC’s preliminary The information provided by Claimant [Stryker] prior to July 21, 2010 . . . is not “original information” within the meaning of Section 21F(a)(1) of the Exchange Act and Rule 21F-4(b)(1)(iv) thereunder because it was not provided to the Commission for the first time after July 21, 2010 . . . . 3 It 1 2 Petitioner’s response to the preliminary determination did 3 not dispute that he provided the information in question before 4 July 2010. 5 information,” as set forth in the quoted Rule, was “contrary to 6 the statute insofar as it requires that information be submitted 7 to the Commission for the first time after Dodd-Frank’s effective 8 date.” 9 Rather, he argued that the definition of “original On October 30, 2013, the SEC issued a final order denying 10 petitioner’s claim for the reasons given in its preliminary 11 determination. 12 DISCUSSION 13 Section 21F(f) of the Securities Exchange Act, 15 U.S.C. 14 § 78u-6(f), authorizes us to review the SEC's denial of a 15 whistleblower award. 16 interpretive rule or regulation promulgated by the SEC pursuant 17 to legislation, our review uses the familiar two-step framework 18 set forth in Chevron U.S.A., Inc. v. Natural Res. Def. Council, 19 Inc., 467 U.S. 837, 842-43 (1984). 20 test as follows: 21 22 23 24 25 26 27 28 29 Where the ruling is based on an We have described the Chevron At step one, we consider whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. To ascertain Congress's intent, we begin with the statutory text because if its language is unambiguous, no further inquiry 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 N.Y. ex rel. N.Y. State Office of Children & Family Servs. v. 18 U.S. Dep’t of Health & Human Servs. Admin. for Children & 19 Families, 556 F.3d 90, 97 (2d Cir. 2009) (citations and internal 20 quotation marks omitted); see also United States v. Connolly, 552 21 F.3d 86, 89 (2d Cir. 2008) (applying the two-step inquiry as 22 required by Chevron). 23 is necessary. Only if we determine that Congress has not directly addressed the precise question at issue will we turn to canons of construction and, if that is unsuccessful, to legislative history to see if those interpretive clues permit us to identify Congress's clear intent. If, despite these efforts, we still cannot conclude that Congress has directly addressed the precise question at issue, we will proceed to Chevron step two, which instructs us to defer to an agency's interpretation of the statute it administers, so long as it is reasonable. We therefore turn to Step 1 and the pertinent statutory 24 language. 25 sanctions imposed in an SEC enforcement action exceed $1 million, 26 the SEC must make a whistleblower award to individuals who 27 voluntarily provided the SEC with "original information" about 28 the underlying violation of securities laws. 29 § 78u-6(a), (b). Section 21F defines "original information" as 30 information that: 31 32 Section 21F provides that, where the monetary See 15 U.S.C. (A) is derived from the independent knowledge or analysis of a whistleblower; 5 1 2 3 4 5 6 7 8 9 10 11 Id. § 78u-6(a)(3). 12 number of loose ends, Congress also provided that a putative 13 whistleblower must provide the requisite information in the form 14 and manner required by SEC's rules and regulations. 15 § 78u-6(a)(6); see also id. § 78u-7(a) (providing the SEC with 16 rulemaking authority to "issue final regulations implementing the 17 provisions of section 78u-6"). 18 (B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and (C) 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. Recognizing that this definition leaves a See id. Such rules and regulations would be of necessity promulgated 19 sometime after Dodd-Frank was passed, and Congress also 20 recognized that information from putative whistleblowers might be 21 volunteered to the SEC before such promulgation. 22 such submissions to qualify for a whistleblower award, Congress 23 created an express safe harbor for "[i]nformation provided to the 24 Commission in writing . . . prior to the effective date of the 25 regulations, if the information is provided by the whistleblower 26 after July 21, 2010." 27 safe harbor, the SEC adopted Rule 21F-9(d), which states: 28 29 30 31 Id. § 78u-7(b). To allow for To give effect to the 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 these rules, 6 1 2 3 4 5 6 7 your submission will be deemed to satisfy the requirements set forth in paragraphs (a) and (b) of this section. 17 C.F.R. § 240.21F-9(d). Like the statutory definition of "original information," the 8 safe harbor provision does not expressly state whether 9 information submitted prior to July 21, 2010 might still qualify 10 for a whistleblower award. 11 “original information” had to be submitted in conformity with the 12 SEC's rules and regulations. 13 considering comments from the public on proposed rules 14 implementing the whistleblower provisions of Dodd-Frank, the SEC 15 adopted Rules 21F-1 through 21F-17. 16 -17. 17 be made only for information "[p]rovided to the Commission for 18 the first time after July 21, 2010." 19 the denial of an award to petitioner who now challenges it as 20 invalid. 21 Congress, however, did provide that See 15 U.S.C. § 78u-6(a)(6). After 17 C.F.R. §§ 240.21F-1 to Rule 21F-4(b)(1)(iv) provides that whistleblower awards may This Rule was the basis of We reject that challenge. The sole basis for petitioner’s claim is Section 21F, which 22 was not enacted until after he took the actions that are the 23 grounds for the award sought. 24 to encourage whistleblower activity, already completed actions 25 would arguably not qualify. 26 Congress clearly intended to bar a whistleblower award to 27 petitioner at Chevron Step 1 because even if Dodd-Frank is If the purpose of Dodd-Frank was We need not, however, decide if 7 1 ambiguous, we defer to the SEC’s interpretation of Dodd-Frank at 2 Step 2. 3 6(c)(2)(D)’s provision that, to qualify as “original 4 information,” information must be submitted pursuant to the SEC's 5 rules and regulations, support the SEC’s position that 6 information submitted before July 21, 2010 does not qualify as 7 “original information.” 8 authority to implement the whistleblower award program and 9 specific authority to determine the "form and manner" in which Section 78u-7(b)’s safe harbor and Section 78u- Congress delegated to the SEC rulemaking 10 information had to be submitted in order to qualify as “original 11 information.” 12 the only genre of information exempted from the requirement that 13 it be submitted pursuant to the SEC's applicable rules and 14 regulations is that described in the Section 924(b) safe harbor, 15 i.e., information "provided to the Commission . . . prior to the 16 effective date of the regulations, if the information is provided 17 by the whistleblower after July 21, 2010." 18 limited exclusion from the otherwise required compliance with 19 rules and regulations to be promulgated by the SEC supports an 20 inference that Rule 21F-4(b)(l)(iv) is consistent with 21 legislative intent. 22 58 (2000) ("When Congress provides exceptions in a statute, . . . 23 . [t]he proper inference . . . is that Congress considered the 24 issue of exceptions, and, in the end, limited the statute to the See 15 U.S.C. § 78u-6(a)(6). Under Dodd-Frank, Id. § 78u-7(b). This See United States v. Johnson, 529 U.S. 53, 8 1 ones set forth."); Gulino v. N.Y. State Educ. Dep't, 460 F.3d 2 361, 375 (2d Cir. 2006) (similar). 3 Even if Congress's intent is unclear, therefore, under Step 4 2 of Chevron, the SEC's interpretation, as set forth in Rule 5 21F-4(b)(1)(iv), was reasonable and entitled to deference. 6 “will defer to a reasonable agency interpretation of ambiguous 7 statutory language when it appears that Congress has delegated 8 authority to the agency generally to make rules carrying the 9 force of law, and that the agency interpretation claiming We 10 deference was promulgated in the exercise of that authority." 11 Cohen v. JP Morgan Chase & Co., 498 F.3d 111, 124 (2d Cir. 2007) 12 (internal quotation marks omitted). 13 interpretation is reasonable, we "need not conclude that the 14 agency construction was the only one it permissibly could have 15 adopted." 16 2012) (internal quotation marks omitted). 17 interpretation was fully consistent with the legislation's safe 18 harbor provision, the SEC's final order against petitioner is 19 valid. 20 21 To find an agency's Mei Juan Zhang v. Holder, 672 F.3d 178, 183 (2d Cir. Because the SEC’s CONCLUSION Even if Dodd-Frank is ambiguous in relevant part, 22 petitioner's submission of information to the SEC did not qualify 23 as statutorily defined whistleblower information because it: 24 did not conform to the SEC's Rule 21F-4(b)(1)(iv), which 9 (i) 1 disqualified information submitted prior to July 21, 2010; and 2 (ii) did not fall within Congress's safe harbor, which excluded 3 from its protection information submitted prior to that date. 4 therefore deny the petition. 5 10 We
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