Court Opinion

ID: 2785251
Source: CourtListenerOpinion
Date Created: 2015-03-11 15:00:36.202786+00
Date Added: 2024-06-11T11:03:15.396818
License: Public Domain

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.
19   - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - -
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