Court Opinion

ID: 9555556
Source: CourtListenerOpinion
Date Created: 2023-08-14 14:00:53.901789+00
Date Added: 2024-06-11T15:36:44.743826
License: Public Domain

USCA11 Case: 22-13332    Document: 30-1      Date Filed: 08/14/2023    Page: 1 of 13

                                                    [DO NOT PUBLISH]
                                    In the
                 United States Court of Appeals
                         For the Eleventh Circuit

                           ____________________

                                 No. 22-13332
                           Non-Argument Calendar
                           ____________________

        RENATO DE MIRANDA GRANZOTI,
                                                                Petitioner,
        versus
        SECURITIES AND EXCHANGE COMMISSION,

                                                               Respondent.

                           ____________________

                    Petition for Review of a Decision of the
                     Securities and Exchange Commission
                            Agency No. 14-cv-11858
                           ____________________
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        2                      Opinion of the Court                 22-13332

        Before JILL PRYOR, LUCK, and MARCUS, Circuit Judges.
        PER CURIAM:
               Renato De Miranda Granzoti blew the whistle on a pyramid
        scheme conducted by TelexFree, Inc., so he requested an award
        from the SEC after it investigated and successfully brought an en-
        forcement action against TelexFree. But the SEC denied his appli-
        cation, determining that Granzoti’s tip did not lead to its investiga-
        tion or suit against TelexFree. Granzoti now petitions this Court
        for review of the SEC’s final order, claiming that the SEC misinter-
        preted its own regulation containing the requirements to receive
        an award and relied on insufficient evidence in reaching its deci-
        sion. After careful review, we deny the petition for review.
                                          I.
                On February 25, 2013, Granzoti tipped the SEC off about a
        “[f]raudulent investment scheme” by TelexFree. He wrote that the
        company had been “presenting itself as a multilevel marketing
        business operating in the Voice-over-IP sector,” but had “show[n]
        many signs of a Ponzi scheme, curiously focusing their efforts in
        Brazil.” According to Granzoti, the perpetrators behind TelexFree
        used a U.S. company to build legitimacy and lured in new custom-
        ers with testimonials of high returns on investments.
               On January 9, 2014, the SEC opened an investigation of Tel-
        exFree, and on April 15, the SEC filed suit against TelexFree in the
        U.S. District Court for the District of Massachusetts. It alleged vi-
        olations of the Security Exchange Act of 1934, 15 U.S.C. § 78a et
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        22-13332              Opinion of the Court                        3

        seq., Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, and the Securi-
        ties Act of 1933, 15 U.S.C. § 77a et seq., accusing the company of
        running a pyramid scheme. After years of litigation, the court en-
        tered final judgment against TelexFree on May 25, 2017, enjoining
        the company from future securities violations and ordering about
        $1.5 million in monetary sanctions.
                On June 30, 2017, the SEC’s Office of the Whistleblower in-
        vited claimants to submit whistleblower applications within ninety
        days for the TelexFree investigation and suit. Granzoti timely filed
        an application on September 26. He claimed that he was entitled
        to his award because he provided original and credible information
        voluntarily to the SEC and that information led to a successful en-
        forcement action resulting in over $1 million in sanctions.
               The SEC preliminarily denied Granzoti’s claim. In its pre-
        liminary order, the SEC stated that Granzoti’s information “was
        never provided to or used by staff handling the Covered Action or
        underlying investigation (or examination) and those staff members
        otherwise had no contact with” Granzoti. The SEC included a dec-
        laration by James Fay, an SEC attorney, who confirmed that
        Granzoti’s tip was not used and no one at the agency spoke with
        Granzoti “before, during or after the TelexFree investigation.”
               Granzoti filed a written response challenging the prelimi-
        nary decision, but the SEC entered a final order denying him any
        award on September 6, 2022. The order noted that, under 17
        C.F.R. § 240.21F-4(c)(1), “awards are based upon the actual use of
        a claimant’s information by Commission staff” -- not “potential or
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        4                       Opinion of the Court                  22-13332

        theoretical use.” It then credited two declarations. The first decla-
        ration said that the SEC opened the case based on a tip from the
        U.S. Attorney’s Office for the District of Massachusetts. The sec-
        ond declaration revealed that Granzoti’s tip was referred to the
        Federal Trade Commission and the Massachusetts Attorney Gen-
        eral’s Office and was then closed “with a disposition of ‘no further
        action.’” The SEC employees who referred the tip to those agen-
        cies never sent the information to anyone assigned to the investi-
        gation, and neither the FTC nor the Massachusetts Attorney Gen-
        eral’s Office had any role in the investigation or referral of the case.
        As a result, the SEC denied Granzoti’s claim, finding that his tip
        “did not cause the Commission to inquire into different conduct
        and did not significantly contribute to the success of the action.”
               This timely petition for review followed.
                                          II.
               On a petition for review, we will “hold unlawful and set
        aside agency action, findings, and conclusions” that are “arbitrary,
        capricious, an abuse of discretion, or otherwise not in accordance
        with law” or “unsupported by substantial evidence.” 5 U.S.C.
        § 706(2)(A), (E). The Commission’s “application of the law” is re-
        viewed de novo. Harner v. Soc. Sec. Admin., Comm’r, 38 F.4th 892,
        896 (11th Cir. 2022). In reviewing factual findings, we recognize
        that substantial evidence “requires more than a scintilla”; it “is less
        than a preponderance, but rather such relevant evidence as a rea-
        sonable person would accept as adequate to support a conclusion.”
        Viverette v. Comm’r of Soc. Sec., 13 F.4th 1309, 1314 (11th Cir. 2021)
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        22-13332                  Opinion of the Court                               5

        (quotations omitted). Further, in our substantial evidence review,
        “we may not decide the facts anew, reweigh the evidence, or sub-
        stitute our judgment for that of the [agency].” Id. (quotations omit-
        ted). “[W]hatever the meaning of ‘substantial’ in other contexts,
        the threshold for such evidentiary sufficiency is not high.” Biestek
        v. Berryhill, 139 S. Ct. 1148, 1154 (2019).
                                              A.
               First, we are unpersuaded by Granzoti’s claim that the SEC
        incorrectly decided that he was ineligible for a whistleblower
        award upon finding that it did not use his tip in investigating Tel-
        exFree. Under the statute, the SEC “shall pay an award” to any
        “whistleblower[] who voluntarily provided original information to
        the Commission that led to the successful enforcement of the cov-
        ered judicial or administrative action.” 15 U.S.C. § 78u-6(b)(1).
        “[A] claimant’s failure to satisfy any one of these statutory require-
        ments dooms his whistleblower award application.” Ross v. SEC,
        34 F.4th 1114, 1119 (D.C. Cir. 2022). The case before us concerns
        only the requirement that the information “led to the successful
        enforcement.” 1
               The SEC has promulgated a rule that lists three ways to sat-
        isfy this requirement. See 17 C.F.R. § 240.21F-4(c)(1)–(3); see also

        1 Granzoti also argues that he met the statutory and regulatory definition of a

        “whistleblower.” But the SEC never discussed that issue in its order, and be-
        cause we agree with the SEC that Granzoti’s information did not “le[a]d to the
        successful enforcement” of an action, it is unnecessary to do so now.
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        6                      Opinion of the Court                  22-13332

        Doe v. SEC, 28 F.4th 1306, 1312 (D.C. Cir. 2022) (per curiam). Only
        the first is relevant here, and it reads:
               You gave the Commission original information that
               was sufficiently specific, credible, and timely to cause
               the staff to commence an examination, open an inves-
               tigation, reopen an investigation that the Commis-
               sion had closed, or to inquire concerning different
               conduct as part of a current examination or investiga-
               tion, and the Commission brought a successful judi-
               cial or administrative action based in whole or in part
               on conduct that was the subject of your original in-
               formation.
        17 C.F.R. § 240.21F-4(c)(1). Our job is to determine whether the
        SEC properly applied this rule. When interpreting a regulation, we
        first “evaluate whether the plain language of the regulation unam-
        biguously answers the question at issue.” Landau v. RoundPoint
        Mortg. Servicing Corp., 925 F.3d 1365, 1369 (11th Cir. 2019). If the
        language is clear, that’s that. Only if a rule is ambiguous do we
        consider whether we should defer to the agency’s reading. Kisor v.
        Wilkie, 139 S. Ct. 2400, 2415 (2019).
               Here, the plain text of this rule confirms the SEC’s denial of
        Granzoti’s award. The rule expressly requires that a whistle-
        blower’s information was “sufficiently specific, credible, and timely
        to cause” the SEC to investigate, and that the SEC brought a suc-
        cessful action based, at least in part, on conduct that was the subject
        of the whistleblower’s information. 17 C.F.R. § 240.21F-4(c)(1)
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        22-13332                Opinion of the Court                            7

        (emphasis added). “To cause” is “[t]o bring about or effect.” Cause,
        Black’s Law Dictionary (11th ed. 2019). Naturally, then, something
        that is never considered by the SEC could not have caused the SEC
        to investigate. If the SEC didn’t consider the information, then the
        information could not bring about or effect a result.
               This interpretation of the rule is bolstered by the statutory
        text for which the rule was promulgated. The statute calls for
        “original information . . . that led to the successful enforcement” --
        not information that could have led or may have led or would have led
        to a successful enforcement, if only the SEC had used it. 15 U.S.C.
        § 78u-6(b)(1) (emphasis added). Some excerpts of the preamble to
        the rule’s announcement support this reading, too. See Securities
        Whistleblower Incentives and Protections, 76 Fed. Reg. 34,300, 34,321–
        22 (June 13, 2011) (“If [a whistleblower]’s submission were suffi-
        ciently specific, credible, and timely that it caused us to open an
        investigation, and if a successful enforcement action resulted, then
        we would consider whether [the whistleblower]’s submission ‘led
        to’ our successful action under . . . Rule 21F-4(c)(1).”); see also id. at
        34,311 n.95 (“[W]here information is obtained through the normal
        cooperative arrangements between the Commission and other reg-
        ulators, the whistleblower’s submission would not be deemed to
        have caused the opening of an investigation, . . . such as to make
        the whistleblower eligible for an award under Rule 21F-4(c).”).
              Finally, other courts agree with this interpretation. The
        D.C. Circuit has noted without analysis that award eligibility turns
        on, among other things, whether a tip “caused” the SEC to
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        8                       Opinion of the Court                   22-13332

        investigate. See Doe, 28 F.4th at 1312 (summarizing the rule to re-
        quire that “the whistleblower’s original information caused the
        SEC” to open, reopen, or expand an investigation (quotations
        omitted)); see also Doe v. SEC, 729 F. App’x 1, 3 (D.C. Cir. 2018) (per
        curiam) (“Information leads to a successful enforcement action if it
        . . . causes the Commission to open, reopen, or expand an exami-
        nation or investigation . . .” (quotations omitted)). And, in consid-
        ering the reasonableness of the rule’s promulgation, the Second
        Circuit has found it “not arbitrary or capricious for the SEC to con-
        clude that [a whistleblower’s] submissions did not provide ‘original
        information to the Commission that led to’ a successful enforce-
        ment action because [the whistleblower’s] submissions were not
        used by the” agency. Kilgour v. SEC, 942 F.3d 113, 123 (2d Cir. 2019)
        (emphasis omitted) (quoting 15 U.S.C. § 78u-6(b)(1)).
               Despite the regulation’s unambiguous requirement that the
        information provided by the whistleblower caused the SEC to
        open, reopen, or expand an investigation, Granzoti searches for an
        alternative approach to the regulation. He argues that the text cre-
        ates an “objective test to determine whether the character of the
        information was sufficient” for the SEC to use, irrespective of
        whether the SEC used it. So, in his view, the rule merely requires
        that the “original information is ‘that’ which is ‘sufficient[]’ to
        ‘cause,’ not that which did cause, because the restrictive relative
        clause applies to the entire suite of sufficiency: specificity, credibil-
        ity, and timeliness.”
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        22-13332               Opinion of the Court                        9

               We are unpersuaded by Granzoti’s proposed reading. For
        one, there is no authority suggesting that this regulation calls for
        an objective test. What’s more, this interpretation adds words to
        the text, equating the meaning of “to cause” with “to have caused”
        in the process. Cf. Catalyst Pharm., Inc. v. Becerra, 14 F.4th 1299,
        1309 (11th Cir. 2021) (“And we are not allowed to add or subtract
        words from a statute; we cannot rewrite it.” (quotations omitted)).
        Granzoti urges that his reading is supported by the SEC’s decision
        to use “to cause” rather than “‘and that caused,’ or another similar
        wording that would have separated ‘cause’ from the sufficiency of
        the information.” But simply because Grazoti would have pre-
        ferred different wording does not undermine the SEC’s clear re-
        quirement that the information must be sufficient “to cause” an in-
        vestigation rather than “to have caused” one.
               Because the plain language requires that the whistleblower’s
        information cause the investigation, that “is the end of the matter.”
        See Landau, 925 F.3d at 1369. The SEC denied Granzoti’s applica-
        tion based on that interpretation. Its order was properly grounded
        in the text of the regulation, and thus not arbitrary or capricious.
                                         B.
               We also find no merit to Granzoti’s claim that the SEC did
        not rely on substantial evidence to deny his requested award. As
        the record reflects, the SEC’s final determination was supported by
        two declarations that squarely established that Granzoti’s tip was
        never used.
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        10                     Opinion of the Court                22-13332

               The first declaration came from James Fay, an officer from
        the SEC’s enforcement staff assigned to the TelexFree investiga-
        tion. He confirmed that the TelexFree “investigation was opened
        as a result of a referral by the United States Attorney’s Office for
        the District of Massachusetts on January 9, 2014,” and that the U.S.
        Attorney’s Office never saw any information from Granzoti. Based
        on “[Fay’s] own personal involvement in the TelexFree Investiga-
        tion, as well as after consultation with other BRO Enforcement
        staff on the TelexFree Investigation,” he declared that no one on
        the SEC’s or U.S. Attorney’s investigation team spoke with or tried
        to speak with Granzoti. And he concluded that “[n]one of the in-
        formation provided by [Granzoti] helped advance the TelexFree
        Investigation,” and “[n]one of [Granzoti’s] information was used
        in, or had any impact, on the charges brought by the Commission
        in the TelexFree Action.”
               The second declaration was from Frank Correll, an attorney
        in the SEC’s Office of the Whistleblower. He reviewed the SEC’s
        Tips, Complaints, and Referrals system and concluded that
        Granzoti’s tip was not “forwarded to staff assigned to the investi-
        gation that resulted in the Covered Action, nor . . . to other inves-
        tigative staff at the Commission.” Instead, it was forwarded only
        to the FTC and the Massachusetts Attorney General’s Office.
        These declarations -- which were both credited by the SEC -- pro-
        vide “more than a scintilla,” and would allow a reasonable person
        to conclude that Granzoti’s tip was not used. See Viverette, 13 F.4th
        at 1314.
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        22-13332                   Opinion of the Court                                 11

                As for Granzoti’s argument that the substance of the decla-
        rations supported a finding that the SEC did, in fact, use his infor-
        mation, we disagree. First, he says that Fay’s partially redacted dec-
        laration was “based on a number of unsubstantiated ‘understand-
        ings,’” and “only [spoke] to what actions were or were not taken at
        one regional office of the SEC, rather than by the SEC as a whole.” 2
        But this argument does nothing to explain why the SEC should not
        have credited Fay’s “understandings.” Indeed, Fay was particularly
        qualified to say whether Granzoti’s tip was ever used by the very
        office that undertook the investigation. He worked “as one of the
        primary Enforcement attorneys assigned to the” TelexFree inves-
        tigation and “consult[ed] with other [Boston Regional Office] En-
        forcement staff on the TelexFree Investigation” in the preparation
        of his declaration.
               Second, Granzoti complains that “the declarant state[d] that
        the claim was ‘forwarded to another government regulator for re-
        view’” before the SEC opened its own investigation of TelexFree
        but did “not offer information regarding which regulator it was for-
        warded to nor discuss the outcome of that review.” This is proof,
        he asserts, that the SEC must have reviewed and used the tip.

        2 It is not clear whether Granzoti takes issue with the fact that Fay’s declaration

        had redactions. To the extent that he does, the challenge fails. A declaration
        may be redacted “as necessary to comply with any statutory restrictions, to
        protect the Commission’s law enforcement and regulatory functions, and to
        comply with requests for confidential treatment from other law enforcement
        and regulatory authorities.” 17 C.F.R. § 240.21F-12(b). Granzoti offers no ar-
        gument for why these redactions were impermissible.
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        12                     Opinion of the Court                 22-13332

        However, Correll’s declaration clarifies that the tip was sent to the
        FTC and the Massachusetts Attorney General’s Office, so Granzoti
        is mistaken. Regardless, we do not see how forwarding a tip to
        another government agency sheds any light on whether the SEC used
        Granzoti’s tip. If anything, sending the information elsewhere ac-
        tually bolsters the notion that the SEC never used it. Likewise,
        what the FTC or the Massachusetts Attorney General’s Office did
        with that information has no bearing at all on whether it led the
        SEC to successfully sue TelexFree.
                Third, he takes issue with the fact that Correll’s declaration
        “was not initially provided” to him. This argument appears unre-
        lated to whether the record was sufficient for the SEC to deny his
        award. But, in any event, it doesn’t move the needle. When
        Granzoti challenged the preliminary disposition, the SEC was re-
        quired to provide any sworn declarations that it relied on. See 17
        C.F.R. §§ 240.21F-10(e)(1)(i), 240.21F-12(a)(6); see also Kilgour, 942
        F.3d at 124. Correll’s declaration expressly stated that he made it
        in response to Granzoti’s challenge to the preliminary disposition. In
        other words, the SEC provided the declaration as soon as it issued
        an order that relied on it.
              Fourth, Granzoti suggests that “there is a potential feedback
        loop of the information going from the whistleblower, through the
        SEC, to Massachusetts, and back to the SEC.” Yet in so thinking,
        Granzoti confuses two unrelated Massachusetts-based agencies.
        The SEC provided Granzoti’s tip to the Massachusetts Attorney
        General’s Office -- a state entity. Later on, the U.S. Attorney for
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        22-13332               Opinion of the Court                       13

        the District of Massachusetts -- a federal entity -- provided the tip
        that led to the SEC’s involvement in the TelexFree case. There is
        no feedback loop because Granzoti offers no evidence that the state
        attorney general ever passed along the information to the federal
        prosecutor. His only link is that they are located in the same state.
                The long and the short of it is that the evidence supported a
        finding that the SEC never used Granzoti’s tip. And because it
        never used his tip, the information couldn’t have led to the success-
        ful action against TelexFree. As a result, the SEC reasonably denied
        Granzoti’s request for a whistleblower award.
              PETITION DENIED.