Court Opinion

ID: 8208784
Source: CourtListenerOpinion
Date Created: 2022-09-23 15:00:33.566885+00
Date Added: 2024-06-11T16:41:35.278062
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 1, 2022             Decided September 23, 2022

                       No. 21-1132

                   MICHAEL JOHNSTON,
                      PETITIONER

                            v.

         SECURITIES AND EXCHANGE COMMISSION,
                      RESPONDENT

                   MICHAEL MITTMAN,
                      INTERVENOR

         On Petition for Review of an Order of the
          Securities and Exchange Commission

    Stephen M. Kohn argued the cause for petitioner. With
him on the briefs was Todd M. Yoder.

    Stephen G. Yoder, Senior Litigation Counsel, Securities
and Exchange Commission, argued the cause for respondent.
With him on the brief were Dan M. Berkovitz, General
Counsel, and Michael A. Conley, Solicitor.

     Justin Sher argued the cause and filed the brief for
intervenor Michael Mittman in support of respondent.
                               2
    Before: ROGERS and RAO, Circuit Judges, and GINSBURG,
Senior Circuit Judge.

    Opinion for the Court filed by Senior Circuit Judge
GINSBURG.

     GINSBURG, Senior Circuit Judge: Michael Johnston
petitioned for review of the Securities and Exchange
Commission order granting him a whistleblower award for
providing original information leading to a successful
enforcement action against Citigroup, Inc. Although the SEC
agreed the original information Johnston and his team provided
to the Commission warranted an award equal to 15 percent of
the fine levied against Citigroup, Johnston objects to the
Commission’s determination that he and his former co-worker
Michael Mittman were to divide the award equally as joint
whistleblowers.

     We dismiss Johnston’s petition for want of jurisdiction
insofar as he challenges the amount of the award granted to
Mittman. We deny the petition insofar as it challenges
Mittman’s eligibility for an award because the Commission’s
decision was not arbitrary and capricious, or otherwise contrary
to law, nor was its finding of fact unsupported by substantial
evidence.

                     I.      Background

     Michael Johnston was the leader of a financial advisory
team at Citi Smith Barney, a subsidiary of Citigroup, Inc. The
“Johnston Team” was established in the 1990s and consisted of
Johnston, Michael Mittman — the intervenor here — and John
Arnold. Johnston was responsible for managing client
relations; Arnold and Mittman were junior members of the
Team.
                              3

     In 2008, the Johnston Team brought an arbitration
proceeding against Citigroup before the Financial Industry
Regulatory Authority.           The arbitration concerned
approximately $3 billion in investments that Johnston managed
in Citigroup’s so-called “ASTA/MAT” funds and its “Falcon”
Strategy funds. These funds collapsed during the 2008
financial crisis. Johnston continued to lead the Team
throughout the arbitration. He retained an attorney, Michael
Blumenfeld, to represent the Team.

     As Johnston prepared for the arbitration, he claims he
discovered, without any input from Mittman or Arnold, that
Citigroup made misrepresentations about its “back-tests” ——
tests conducted to verify Citi’s risk assessment of the
ASTA/MAT and Falcon funds using historical investment
data.

     In July 2010, after making this discovery, the Johnston
Team submitted a 25-page report to the SEC detailing the
problem. Mittman and Johnston were both present at a meeting
on July 26 and 27 in which the two presented the findings of
the Team’s independent back-tests.

     The SEC then brought an enforcement action against
Citigroup Alternative Investments, LLC and Citigroup Global
Markets, Inc., which resulted in a settlement of $189 million.
See In the Matter of Citigroup Alternative Invs. LLC &
Citigroup Glob. Markets Inc., Securities and Exchange
Commission Release No. 4174 (Aug. 17, 2015). Following the
settlement order, the SEC invited whistleblowers to file claims
for an award by issuing Notice of Covered Action No. 2015-
92. Johnston and Mittman each submitted a timely claim,
although Johnston’s claim stated he was submitting his on
behalf of the Johnston Team as a whole.
                              4

     In 2020, the SEC’s Claims Review Staff issued its
Preliminary Order, which recommended that the Commission
grant Johnston and Mittman a joint whistleblower award in the
amount of $18.9 million — 10 percent of the fine the
Commission collected — to be divided equally between the
two. The recommendation was supported by the affidavit of a
staff attorney, Olivia Zach, who had been the primary SEC
point of contact with the Johnston Team. As Johnston notes,
her affidavit stated: “While we had significantly more contact
with Michael Johnston, we have no insight into how much
Michael Mittman had contributed to the materials provided by
Johnston.” As a result, the SEC viewed the two men as having
provided the original information jointly.

     Johnston filed multiple objections to the Preliminary
Order, introducing affidavits from Arnold and Blumenfeld
stating that he alone was responsible for discovering the
misrepresentations about the back-tests — the only original
information the Johnston Team provided. Mittman did not
object to the recommendation, add evidence to the record, or
represent that he and Johnston were joint whistleblowers.

     In 2021, the SEC issued its Final Order, granting Johnston
and Mittman, as joint whistleblowers, 15 percent of the
sanctions, or $27 million, to be divided equally. The
Commission rejected Johnston’s contention that the Johnston
Team had made an oral agreement setting out the division of
any award among the three members based upon their
“financial contributions and non-financial contributions,”
which Johnston suggested entitled him to approximately 90%
of any award.

    The Commission relied upon three facts to determine that
Johnston and Mittman were joint whistleblowers: (1) The two
                               5
men together attended the July 2010 meeting with the SEC as
members of a single team and represented by a single attorney;
(2) their counsel later submitted a letter stating “I am legal
counsel to Messrs. Michael Johnston, Michael Mittman, and
John Arnold (the ‘Johnston Team’)” and characterizing the
“original research and independent analysis” submitted to the
Commission as “developed by the Johnston Team”; and (3) at
no point during the investigation did any member of the Team
or its counsel delineate which information each member of the
Team had provided.

     Johnston timely petitioned this court for review and
Mittman moved to intervene. We granted Mittman’s motion to
intervene. Johnston then moved for summary reversal and
Mittman moved to dismiss the petition for lack of jurisdiction.
We denied Johnston’s motion, and we now deny in part and
grant in part Mittman’s motion to dismiss, and deny Johnston’s
petition for review.

                       II.     Analysis

    Johnston argues there are four reasons to vacate the
Commission’s award to Mittman: (1) By ignoring the contract
between the two and splitting the award evenly, the SEC
overstepped its statutory authority; (2) the SEC should have
applied the law of joint ventures to determine whether he and
Mittman were acting jointly as whistleblowers; (3) having
provided no original information to the Commission, Mittman
was not eligible for an award; and (4) because the SEC ignored
unrefuted evidence that he and Mittman were not joint
whistleblowers, the decision to treat them as such was arbitrary
and capricious.

     For his part, Mittman argues we do not have jurisdiction
to consider Johnston’s petition because it involves an attack on
                               6
the amount of an award. As explained below, the statute
governing SEC whistleblowers expressly precludes judicial
review of the amount of an award.

A. Jurisdiction

     The statute applicable to whistleblower awards issued by
the SEC, 15 U.S.C. § 78u-6, gives the Commission discretion
to make three types of determinations: “whether” to make an
award, the amount of the award, and “to whom” to make the
award. The next sentence allows us to review “[a]ny . . .
determination, except the determination of the amount of an
award if the award was made in accordance with subsection
(b),” which governs the eligibility of a whistleblower for an
award. Id. § 78u-6(f). In other words, the plain text of the
statute allows us to review the SEC’s discretionary decisions to
make an award and to whom to make an award, but not the
amount of an award. Therefore, insofar as Johnston’s petition
concerns the amount of an award, we do not have jurisdiction
to consider it.

    Mittman contends we lack jurisdiction to consider any of
Johnston’s arguments because accepting any of them would
change the amount of the award the Commission granted to
Mittman, to Johnston, or to each. Johnston counters that we
have jurisdiction to consider all his arguments because each
argument relates not to the amount of the award but to
Mittman’s eligibility for an award.

    For its part, the SEC argues we can consider Johnston’s
argument that Mittman was not eligible for an award because
he provided no original information, but not his other
arguments. We agree with the Commission.
                                7
     Mittman argues Johnston’s petition seeks to circumvent
the clear jurisdictional limitation in the statute by portraying
his request to reduce Mittman’s award as an attack on his
eligibility, when it really goes to the amount of his award,
which he seeks to reduce from $13.5 million to zero dollars.
He further argues Johnston’s position would allow any one of
multiple whistleblowers to evade the Congress’s implicit
prohibition of judicial review of the amount of an award by
challenging the eligibility of the other whistleblower(s).

      Mittman is correct that in the situation in which
whistleblowers are determined to be joint whistleblowers over
the objection of at least one of them, a petition questioning the
eligibility of another of them could have the effect of increasing
the award granted to the others. As the SEC points out,
however, there is a significant difference between a petition
that directly challenges eligibility but could have the indirect
effect of reducing the award to one or more whistleblowers and
a petition, such as Johnston’s, that directly challenges the
amount of an award. In other words, Mittman’s interpretation
is barred by the statutory provision limiting our review to “any
. . . determination” the SEC makes about “whether” and “to
whom” an award is issued. 15 U.S.C. § 78u-6(f).

     Mittman and the SEC persuasively argue a determination
that directly affects the amount of an award, but does not bear
upon eligibility for an award, is barred from review. Johnston
does not directly refute their argument. Instead, he claims each
of the arguments he raises goes to Mittman’s eligibility, not to
the amount of the award. For the reasons that follow, we accept
the Commission’s position and dismiss the petition for want of
jurisdiction over the issues that directly challenge the overall
amount or the division of the award between Johnston and
Mittman.
                                8
     We see that three of the arguments Johnston raises directly
challenge the division of the award, not Mittman’s eligibility
for an award: (1) The law of joint ventures bars Mittman from
receiving an equal award, a component of the first issue
Johnston raises, namely, whether the SEC should have applied
the law of joint ventures in its decision; (2) the SEC ignored
the parties’ contract in deciding to split the award evenly
between Mittman and himself, the remainder of the first issue
Johnston raises; (3) the authority Congress delegated to the
SEC to issue a whistleblower award does not include the power
to interpret an agreement between parties to split the award, the
second issue Johnston raises. Because these arguments
challenge the percentage of the award Mittman should receive,
rather than his eligibility for an award, we do not have
jurisdiction to consider them. On the other hand, Johnston is
correct, as the SEC concedes, that the remainder of Johnston’s
arguments go to Mittman’s eligibility. Therefore, we deny in
part and grant in part Mittman’s motion to dismiss Johnston’s
petition, and do not consider Johnston’s arguments going to the
amount of his award relative to Mittman’s.

B. Provision of Original Information: Legal Arguments

     Pursuant to the whistleblower statute, 15 U.S.C. § 78u-
6(f), we review the SEC’s decisions concerning eligibility for
a whistleblower award “in accordance with section 706” of the
Administrative Procedure Act, which requires us to set aside
an agency action if it is “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). Therefore, the SEC must have examined “the
relevant data and articulate[d] a satisfactory explanation for its
action including a ‘rational connection between the facts found
and the choice made.’” Motor Vehicle Mfrs. Ass’n v. State
Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) (quoting
                               9
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156,
168 (1962)).

    1.       A whistleblower may be two or more persons
             acting jointly

     Johnston argues he is the only whistleblower who
“provided” — the key statutory term — original information to
the SEC, so he is the only one to whom the SEC could legally
grant an award. The SEC responds that it considered who
provided original information at the time it received the
information, as required by the whistleblower statute; Johnston
and Mittman presented themselves as a team at that time,
making both eligible for an award.

     As the SEC points out, the plain language of the
whistleblower statute requires the SEC to consider whether a
party or parties provided information original to the
Commission as of the time the information was submitted.
First, the statute requires that the Commission, “[i]n any
covered . . . action . . . shall pay an award or awards to 1 or
more whistleblowers who voluntarily provided original
information to the Commission that led to the successful
enforcement of the covered judicial or administrative action.”
15 U.S.C. § 78u- 6(b)(1). The term “provided” preceding
“original information” clarifies the scope of the SEC’s inquiry:
The Commission must determine whether the information
provided was original, that is, not already known to the SEC;
whether that information contributed to a “successful
enforcement” action; and, if so, whether the applicant (or
applicants) for an award is (or are) the person (or persons) who
provided the information. The statute plainly does not
reference who developed or discovered the information. Id.
                              10
     Second, the statute defines a whistleblower as “any
individual who provides, or 2 or more individuals acting jointly
who provide, information relating to a violation of the
securities laws to the Commission.” Id. at (a)(6). Although the
statute does not define “jointly,” the ordinary meaning of the
term is “[i]n common; together.” See AMERICAN HERITAGE
DICTIONARY (2022). Therefore, the one who “voluntarily
provided original information” can be either an individual or a
group acting in concert, because the definition of
whistleblower in (a)(6) applies to the subsequent eligibility
provision in (b)(1). Even though the term whistleblower, being
singular, ordinarily implies a single individual, the statute
explicitly defines the term, and that definition supersedes
ordinary usage. See Stenberg v. Carhart, 530 U.S. 914, 942
(2000) (“When a statute includes an explicit definition, we
must follow that definition, even if it varies from that term’s
ordinary meaning.”). Hence the term whistleblower in
subsection (b)(1) may refer either to a person or a group of
persons acting together. See 15 U.S.C. § 78u-6(a)(6), (b)(1).

    2.        An applicant for an award need not have
              developed the information he provided

     Johnston emphasizes the phrase “provided original
information” and argues each individual must have provided
original information. The phrase “original information” in 15
U.S.C. § 78u-6(b)(1) means information derived from “the
independent knowledge or analysis of a whistleblower” and
“not known to the Commission from any other source,” id. at
(a)(3). Because the word whistleblower is singular, Johnston
reads this provision as requiring the Commission to parse the
information submitted in order to assign responsibility for each
part of a submission to an individual whistleblower. The
SEC’s response is straightforward: The Commission can
receive information from a team of people acting together —
                              11
as it did here — and consider that information to be original
information from “a whistleblower” because, as explained
above, that word can refer not only to an individual but also to
a group of people.

     Johnston does not respond directly to this point, instead
arguing the term “provided” does not override the need to
consider who “developed” the information; in this he reads the
word “developed” into the whistleblower statute, which by its
terms makes clear that a whistleblower is the person or group
of persons who provided original information regardless of
who may have developed it. Indeed, he repeatedly discusses
his responsibility for “developing” the back-test, rather than
showing he was solely responsible for having “provided” the
information to the Commission.           Because the SEC’s
interpretation does not require reading any additional words
into the statute, whereas Johnston’s would, we adopt the SEC’s
interpretation.

     Johnston next argues that because the definition of
whistleblower in § 78u-6(a)(6) does not include the word
“original,” that term does not apply to the award provision in
(b)(1), which does include the word original. The problem with
this argument is that the statute plainly contradicts it: The
phrase “whistleblowers who voluntarily provided original
information” in the award eligibility provision, 15 U.S.C.
§ 78u-6(b)(1), presumably incorporates the definition of
whistleblower in (a)(6), and Johnston gives us no reason to
think otherwise.

     Johnston next argues that for Mittman to be eligible for an
award he must himself have provided original information
because a Commission rule says award applicants must meet
“all of the [qualifying] conditions.” 17 C.F.R. § 240.21F-5(b).
Even if that rule, which simply lays out the sequence of the
                                12
Commission’s decision-making, were a substantive restriction
on eligibility for an award, it would not help Johnston. As we
have seen, Mittman met “all of the [qualifying] conditions” for
eligibility because, as a member of the Johnston Team, he
provided original information to the Commission.

    3.         The      Commission       can       determine
               whistleblowers provided information jointly
               without regard to whether their award
               applications were submitted jointly

    Johnston next argues that because he and Mittman filed
separate award applications, the two cannot be considered joint
whistleblowers. As the SEC points out, however, nothing in
the statute or its regulations requires the Commission to
consider how an individual styles his award application in
determining whether he is a joint or solo applicant.

     Finally, in an argument so obtuse as to be insulting,
Johnston quotes a portion of the SEC’s regulations stating “[a]
whistleblower must be an individual,” from which he purports
to infer a whistleblower cannot be two or more individuals
acting jointly. 17 C.F.R. § 240.21F-2(a)(2). In fact, the quoted
phrase simply distinguishes an individual from “[a] company
or other entity” because those entities are “not eligible to be a
whistleblower.” Id. Indeed, the immediately preceding portion
of the regulation contradicts Johnston’s position because it
states: “You are a whistleblower for purposes of Section 21F
of the Exchange Act (15 U.S.C. 78u-6) as of the time that, alone
or jointly with others, you provide the Commission with
[qualifying] information.” Id. at § 240.21F-2(a)(1).1

1
  Johnston makes various policy arguments against the SEC’s
interpretation of the statute. Those arguments were not raised below
and are forfeit. Wallaesa v. FAA, 824 F.3d 1071, 1078 (D.C. Cir.
                                 13

     In sum, the Commission’s conclusion that Mittman and
Johnston jointly provided original information was based upon
a lawful interpretation of the whistleblower statute.

C. Joint whistleblower determination: Factual arguments

     Johnston argues the SEC ignored evidence contradicting
its factual finding that Johnston and Mittman were joint
whistleblowers, contrary to both “the APA’s arbitrary or
capricious [and] substantial evidence standards.” Insofar as
Johnston raises a factual dispute, we review the Commission’s
findings of fact to determine only whether they are supported
by substantial evidence. See 15 U.S.C. § 784(a)(4)) (“The
findings of the Commission as to the facts, if supported by
substantial evidence, are conclusive.”).

     Johnston disputes the SEC’s determination that he and
Mittman were joint whistleblowers because the agency itself
identifies the back-test analysis as the key original information
received from the Johnston Team, Mittman had no part in
developing that information, and the oral agreement among the
Team members did not create a partnership of equals. All of
this is irrelevant to the question whether, as a matter of fact,
Johnston and Mittman acted jointly when they provided
information to the SEC.

     As to the relevant question, as the SEC found, the record
is clear: “[T]hey presented themselves to the Commission as
joint whistleblowers when they provided their information to
the Commission in July 2010.” A single attorney, Mr.

2016) (“[T]here is a near absolute bar against raising new issues —
factual or legal — on appeal in the administrative context.” (quoting
Nat’l Wildlife Fed’n v. EPA, 286 F.3d 554, 562 (D.C. Cir. 2002)).
                                 14
Blumenfeld, represented both men at their meeting with the
Commission staff, and later wrote to the SEC on their behalf
recounting that “Michael Johnston and Michael Mittman . . .
voluntarily presented to the SEC a portion of the original
research and independent analysis developed by the Johnston
Team pertaining to the Falcon and [ASTA]/MAT Funds.”
Indeed, Johnston’s own award application says not only “The
Johnston Group discovered the . . . results of the MAT back-
test,” which is irrelevant, but also “the Johnston [G]roup was
able to conduct their Independent Analyses and to present them
to the SEC in 2010 and 2011.” Therefore, we hold the SEC
had substantial evidence that Johnston and Mittman acted
jointly when providing the information to the Commission.2

     Finally, Johnston argues the Commission should have laid
out the criteria it used to determine that Mittman and he were
joint whistleblowers. The joint whistleblower concept comes
directly from the award statute. The SEC did not apply the
term to some exotic or counterintuitive set of facts; we will not
require the SEC to explain why it adhered to the ordinary
meaning of a statutory term.3

2
  Johnston also argues the SEC did not respond to his supplemental
affidavits and evidence supporting his position that he alone was
responsible for developing the back-testing analysis. As we have
explained, the Commission must consider who provided the
information, rather than who developed it, so this argument is
irrelevant.
3
  Johnston argues the SEC’s determination that he and Mittman were
joint whistleblowers conflicts with the agency’s precedents. That
argument was not raised in his opening brief and therefore is forfeit.
See Al-Tamimi v. Adelson, 916 F.3d 1, 6 (D.C. Cir. 2019).
                                 15
                      III.      Conclusion

     The SEC whistleblower statute does not ask who
developed the original information that led to a successful
resolution of a covered action; instead, it asks who provided
that information to the Commission. The SEC did not err as to
the law, nor did it lack substantial evidence as to the facts, in
determining that Johnston and Mittman acted as joint
whistleblowers when they provided information to the
Commission, making Mittman eligible for an award.
Johnston’s petition for review is therefore

                             Dismissed in part and denied in part.