41 F.4th 83
2d Cir.2022Background:
- Victor Hong worked briefly (Sept–Nov 2007) at an RBS subsidiary and later alleged improper RMBS valuation and sales practices.
- In July 2014 Hong submitted Tip/Complaint/Referral (TCR) forms to the SEC; the SEC shared his information with DOJ and FHFA, both of which were already investigating RBS.
- Hong produced additional documents to DOJ/FHFA by subpoena; FHFA settled with RBS for $5.5 billion (2017) and DOJ settled for $4.9 billion (2018), totaling over $10 billion.
- Hong applied to the SEC for a Section 21F whistleblower award, claiming the DOJ/FHFA recoveries qualified as "covered" or "related" actions; the SEC denied the claim because it had not itself "brought" a covered action.
- Hong sought judicial review; the SEC issued a final determination on remand and the Second Circuit reviewed whether the SEC reasonably construed Section 21F and properly denied the award.
Issues:
| Issue | Plaintiff's Argument (Hong) | Defendant's Argument (SEC) | Held |
|---|---|---|---|
| 1. Whether a whistleblower award requires a "covered judicial or administrative action brought by the Commission" | "Action" should include SEC investigative steps, referrals, and evidence-sharing that led to other agencies' recoveries; statutory purpose favors broad reading. | The statutory phrase contemplates judicial/administrative enforcement actions (or certain SEC settlements), not ordinary investigative or information-sharing activities. | Held for SEC: "action" reasonably means a judicial/administrative proceeding or similar enforcement settlement; investigatory referrals do not qualify. |
| 2. Whether "brought by the Commission" may be satisfied when SEC merely shares information and other agencies obtain recoveries | SEC involvement in a task force and sharing tips means the Commission "brought" or effectively caused the recoveries. | "Brought by the Commission" requires the SEC to lead or institute the enforcement action (file suit, prosecute, or enter the settlement). | Held for SEC: phrase requires SEC-led action; DOJ/FHFA settlements were not "brought by" the SEC. |
| 3. Whether DOJ/FHFA settlements can be "related actions" absent an SEC action | Related-action definition should cover agency recoveries based on original SEC-referred tips even if SEC did not bring a predicate action. | "Related action" is defined with reference to a Commission action; regulations reasonably require a predicate SEC action for related-action awards. | Held for SEC: a related action presupposes a qualifying SEC action; without a covered SEC action, no related-action award. |
| 4. Whether SEC complied with remand and disclosure obligations | SEC failed to produce records about its handling/referral of Hong’s tip and thus did not act in good faith on remand. | SEC provided materials it relied upon and complied with rules limiting applicant access to specified categories of materials. | Held for SEC: agency complied with remand; Hong was not entitled to broader discovery and additional records would not change award eligibility. |
Key Cases Cited
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (establishing two-step framework for judicial review of agency statutory interpretation)
- Catskill Mountains Chapter of Trout Unlimited, Inc. v. Env't Prot. Agency, 846 F.3d 492 (2d Cir. 2017) (applying Chevron Step One/Two analysis)
- Kilgour v. U.S. Sec. & Exch. Comm'n, 942 F.3d 113 (2d Cir. 2019) (interpreting SEC whistleblower rules and procedure)
- Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208 (2009) (reasonable agency interpretations entitled to deference even if not the only permissible reading)
- Gabelli v. Sec. and Exch. Comm'n, 568 U.S. 442 (2013) (uses phrasing that a party "brought a civil enforcement action")
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (1983) (arbitrary-and-capricious standard for reviewing agency action)