Barr v. SEC, 114 F.4th 441

This case arises from a significant securities fraud perpetrated by Life Partners Holdings, Inc. between 1999 and 2013, resulting in an SEC enforcement action and a judgment of $38.7 million against Life Partners.
After the SEC won judgment, Life Partners filed for bankruptcy to avoid receivership; the bankruptcy court later implemented a reorganization plan.
Petitioners John Barr and John McPherson applied for whistleblower awards based on their contributions to the SEC’s enforcement action; Barr was initially denied, and McPherson was granted a partial award.
Petitioners challenged the SEC’s calculation of award amounts, arguing the bankruptcy case initiated by the SEC constituted a new “covered action” entitling them to higher awards under the Dodd–Frank Act.
The SEC determined that whistleblower awards could only be based on amounts actually collected in “covered actions” as defined by statute, not hypothetical collections or amounts involved in the bankruptcy proceeding.
The Fifth Circuit reviewed the SEC’s final orders, applying the arbitrary and capricious standard of review for agency action.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the bankruptcy case was a "covered action" or "related action" under the Dodd–Frank Act for whistleblower awards	SEC’s involvement in bankruptcy equates to bringing a new qualifying action for awards	Bankruptcy was not “brought by” SEC/qualifying entity; only the enforcement suit qualifies	Bankruptcy case not a "covered" or "related action" under statutory definitions
Whether filing a motion to appoint a Chapter 11 trustee equals “bringing an action” under Dodd-Frank	The SEC’s motion initiated an action entitling whistleblowers to awards	A motion within an existing bankruptcy is not commencing a new action	Filing such a motion does not meet ordinary meaning of “action brought”
Whether awards should be based on what the SEC could have collected versus what was actually collected	Award should be based on what SEC "could collect" with greater efforts	Award calculation required by statute to be based on collections actually made	Awards limited to amounts actually collected; hypothetical amounts disallowed
Whether the SEC abused its discretion or should expand exemptive authority to go above statutory cap	SEC should use its exemptive authority for a higher award	Statute sets explicit maximum; exemptive authority does not apply to statutory cap	No abuse of discretion; SEC decline to expand exemptive authority above statutory cap

SEC v. Life Partners Holdings, Inc., 854 F.3d 765 (5th Cir. 2017) (background on underlying securities fraud scheme)
Jacobs v. Cowley (In re Life Partners Holdings, Inc.), 926 F.3d 103 (5th Cir. 2019) (bankruptcy proceedings context)
Tex. Oil & Gas Ass’n v. EPA, 161 F.3d 923 (5th Cir. 1998) (standard for arbitrary and capricious review)
Brown v. Megg, 857 F.3d 287 (5th Cir. 2017) (ordinary meaning of “action”)
Serna v. L. Off. of Joseph Onwuteaka, P.C., 732 F.3d 440 (5th Cir. 2013) (definition of “bring an action”)