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 (Argued: September 29, 2014 Decided: March 11, 2015)
6
7 Docket No. 13-4404-ag
8
9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
10 LARRY STRYKER,
11
12 Petitioner,
13
14 v.
15
16 SECURITIES AND EXCHANGE COMMISSION,
17
18 Respondent.
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20
21 B e f o r e: WINTER and CHIN, Circuit Judges, and OETKEN,
22 District Judge.*
23
24 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 STEPHEN M. KOHN (Karim H. Kamal, New
2 York, NY, Michael D. Kohn & David K.
3 Colapinto, Kohn, Kohn & Colapinto, LLP,
4 Washington, DC, on the brief), Kohn,
5 Kohn & Colapinto, LLP, Washington, DC,
6 for Petitioner.
7
8 WILLIAM K. SHIRLEY (Anne K. Small,
9 Michael A. Conley, John W. Avery,
10 Stephen G. Yoder, on the brief),
11 Securities and Exchange Commission,
12 Washington, DC, for Respondent.
13
14 Dean A. Zerbe, Zerbe, Fingeret, Frank &
15 Jadav PC, Houston, TX, for Amicus
16 Curiae.
17
18 WINTER, Circuit Judge:
19
20 Larry Stryker petitions for review of an order of the
21 Securities and Exchange Commission (“SEC”) denying his claim for
22 a whistleblower award. He sought the award under Section 21F of
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. The SEC held that, because the
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). Concluding that the SEC’s interpretation of Section
30 21F was within its authority and consistent with the legislation,
31 we deny the petition.
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. In March 2009, the SEC opened an investigation of
6 the alleged misconduct. It interviewed petitioner the following
7 month. The SEC subsequently filed an enforcement action against
8 ATG and the individual, charging them with violating Section 5 of
9 the Securities Act of 1933. In November 2010, the SEC reached a
10 settlement with the respondents to the enforcement action. The
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. Advanced Tech. Group Ltd., Exchange Act
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 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. The SEC’s preliminary
19 determination recommended that his award claim be denied. It
20 stated, in relevant part:
21 The information provided by Claimant
22 [Stryker] prior to July 21, 2010 . . . is not
23 “original information” within the meaning of
24 Section 21F(a)(1) of the Exchange Act and
25 Rule 21F-4(b)(1)(iv) thereunder because it
26 was not provided to the Commission for the
27 first time after July 21, 2010 . . . .
3
1
2 Petitioner’s response to the preliminary determination did
3 not dispute that he provided the information in question before
4 July 2010. Rather, he argued that the definition of “original
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 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. Where the ruling is based on an
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). We have described the Chevron
20 test as follows:
21 At step one, we consider whether Congress has
22 directly spoken to the precise question at
23 issue. If the intent of Congress is clear,
24 that is the end of the matter; for the court,
25 as well as the agency, must give effect to
26 the unambiguously expressed intent of
27 Congress. To ascertain Congress's intent, we
28 begin with the statutory text because if its
29 language is unambiguous, no further inquiry
4
1 is necessary. Only if we determine that
2 Congress has not directly addressed the
3 precise question at issue will we turn to
4 canons of construction and, if that is
5 unsuccessful, to legislative history to see
6 if those interpretive clues permit us to
7 identify Congress's clear intent.
8
9 If, despite these efforts, we still cannot
10 conclude that Congress has directly addressed
11 the precise question at issue, we will
12 proceed to Chevron step two, which instructs
13 us to defer to an agency's interpretation of
14 the statute it administers, so long as it is
15 reasonable.
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 We therefore turn to Step 1 and the pertinent statutory
24 language. Section 21F provides that, where the monetary
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. See 15 U.S.C.
29 § 78u-6(a), (b). Section 21F defines "original information" as
30 information that:
31 (A) is derived from the independent knowledge
32 or analysis of a whistleblower;
5
1 (B) is not known to the Commission from any
2 other source, unless the whistleblower is the
3 original source of the information; and
4 (C) is not exclusively derived from an
5 allegation made in a judicial or
6 administrative hearing, in a governmental
7 report, hearing, audit, or investigation, or
8 from the news media, unless the whistleblower
9 is a source of the information.
10
11 Id. § 78u-6(a)(3). Recognizing that this definition leaves a
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. See id.
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 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. To allow for
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." Id. § 78u-7(b). To give effect to the
27 safe harbor, the SEC adopted Rule 21F-9(d), which states:
28 If you submitted original information in
29 writing to the Commission after July 21, 2010
30 (the date of enactment of . . . Dodd-Frank
31 but before the effective date of these rules,
6
1 your submission will be deemed to satisfy the
2 requirements set forth in paragraphs (a) and
3 (b) of this section.
4
5 17 C.F.R. § 240.21F-9(d).
6
7 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. Congress, however, did provide that
11 “original information” had to be submitted in conformity with the
12 SEC's rules and regulations. See 15 U.S.C. § 78u-6(a)(6). After
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. 17 C.F.R. §§ 240.21F-1 to
16 -17. Rule 21F-4(b)(1)(iv) provides that whistleblower awards may
17 be made only for information "[p]rovided to the Commission for
18 the first time after July 21, 2010." This Rule was the basis of
19 the denial of an award to petitioner who now challenges it as
20 invalid. We reject that challenge.
21 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. If the purpose of Dodd-Frank was
24 to encourage whistleblower activity, already completed actions
25 would arguably not qualify. We need not, however, decide if
26 Congress clearly intended to bar a whistleblower award to
27 petitioner at Chevron Step 1 because even if Dodd-Frank is
7
1 ambiguous, we defer to the SEC’s interpretation of Dodd-Frank at
2 Step 2. Section 78u-7(b)’s safe harbor and Section 78u-
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.” Congress delegated to the SEC rulemaking
8 authority to implement the whistleblower award program and
9 specific authority to determine the "form and manner" in which
10 information had to be submitted in order to qualify as “original
11 information.” See 15 U.S.C. § 78u-6(a)(6). Under Dodd-Frank,
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." Id. § 78u-7(b). This
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. See United States v. Johnson, 529 U.S. 53,
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
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. We
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
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). To find an agency's
13 interpretation is reasonable, we "need not conclude that the
14 agency construction was the only one it permissibly could have
15 adopted." Mei Juan Zhang v. Holder, 672 F.3d 178, 183 (2d Cir.
16 2012) (internal quotation marks omitted). Because the SEC’s
17 interpretation was fully consistent with the legislation's safe
18 harbor provision, the SEC's final order against petitioner is
19 valid.
20 CONCLUSION
21 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: (i)
24 did not conform to the SEC's Rule 21F-4(b)(1)(iv), which
9
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. We
4 therefore deny the petition.
5
10