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A Manhattan district court magistrate judge (Judge Pitman) ordered the Securities and Exchange Commission to turn over the whistleblower tip and other documents to lawyers for hedge-fund firm Yorkville Advisors LLC.  The SEC sued Yorkville Advisors in 2012 accusing them of grossly exaggerating investments in order to boost fees and attract business

   

The SEC's three year old "Office of the Whistleblower" was established by the Dodd-Frank act of 2010 for the purpose of bringing to light bad corporate behavior.  The SEC calls whistleblowers "the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission."  Of course, the SEC has the power to provide monetary awards to whistleblowers who come forward with high-quality original information that leads to a SEC enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money the SEC collects.

 

The decision by Judge Pitman ordering the SEC to turn over whistleblower tip information opened the door to broader discovery requests focused on information relating to the source of a tip and what the circumstances are that gave rise to a tip.

 

In the Yorkville case, the SEC produced inadequate privilege logs, one of which contained information related to the whistleblower tip that started the case.  In one instance, the SEC asserted the deliberative process privilege on a blanket basis over every document.  Judge Pitman found this to be disturbing, finding "this is clearly not the manner in which the privilege ought to have been asserted and raises serious concerns...as to the bona fides of the SEC's assertion of privilege claims in this case." And, although the SEC tried to remedy the inadequate privilege logs after the fact, Judge Pitman found that "the submission was untimely."

 

This case is an example of how the courts are shaping the SEC's whistleblower program policies (i.e. the SEC has to play fair and by the rules too).

 

Read Judge Pitman's complete Order here.

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