Labor & Employment Law Daily Wrap Up, WHISTLEBLOWERS—D.C. Cir.: SEC abused discretion in whistleblower award denial, (May 5, 2026)

By Anne Sherry, J.D.

The SEC abused its discretion by moving whistleblower-policy goalposts in departure from past practice.

An appeals court remanded a whistleblower’s request for exemptions back to the SEC for reconsideration. The SEC had denied an award application, judging that the tip had not been made “voluntarily” and that the claimant was not entitled to an exemption. The D.C. Circuit concluded that the agency abused its discretion by “perfunctorily restating the statutory policy goals” when faced with a credible showing that an exception was in the public interest and consistent with past Commission practice (Doe v. SEC, No. 23-1124 (D.C. Cir.: May 1, 2026)).

Background. The whistleblower, a John Doe, tipped the news media to fraud at a large public company. On the basis of that information, the SEC opened an investigation, during which Congress and Commission staff contacted Doe for interviews and more information. Only after hiring new counsel who mentioned the possibility of a whistleblower award did Doe submit initial and supplemental Forms TCR. Then, after the SEC posted a Notice of Covered Action, Doe applied for an award.

The SEC denied Doe’s application because it came only after the agency had contacted him and thus was not made “voluntarily” as required by the statute and rules. Another basis was that the submission was untimely. The SEC summarily denied Doe’s request for exemption.

According to the petitioner, the denial on voluntariness grounds relied largely on a letter from then-Congressman Adam Schiff inviting Doe to provide testimony and other evidence. In December 2024, Schiff supplied a second letter in lieu of an amicus brief expressing his support for Doe’s claim. “Under the SEC’s interpretation of ‘voluntary,’ Congress would be placed in the impossible position of potentially harming a whistleblower by merely exercising its Constitutional investigatory authority,” Schiff wrote.

Appeal. In his petition for review to the D.C. Circuit, Doe maintained that his submission was timely and that the SEC acted in an arbitrary and capricious manner in interpreting the word “voluntarily” in Rule 21F-4(a) contrary to common sense and plain meaning. Alternatively, he argued that the denial of his request for exemptions was insufficiently explained and contrary to Commission precedent and that denying awards for talking to the press raises First Amendment concerns of chilling speech.

The court noted at the outset that while it must exercise independent judgment, its review must be highly deferential to the Commission: it can only set aside the action if the agency’s reasons are so insubstantial as to render the denial an abuse of discretion. The agency’s factual findings are conclusive when supported by substantial evidence, and the action will withstand review as long as the court can discern the “why and wherefore” of the denial.

Submission not voluntary. The appeals court did not overturn the SEC on the ground of voluntariness. As there is no formal relationship between the SEC and the news media, the SEC could reasonably conclude that tipping off the media would not fulfill the core objective of the Dodd-Frank whistleblower regime: motivating people to inform the SEC of securities violations. Doe also could not find solace in the 2006 IRS whistleblower program; although Dodd-Frank’s whistleblower regime was modeled on the IRS’s, it departed in key ways, including by imposing a voluntariness requirement that isn’t in the tax statute. And Doe waived his plain-meaning arguments by failing to raise them before the SEC.

Doe’s First Amendment argument was misplaced: the SEC denied the submission not because he told the press but because he failed to “voluntarily” tell the Commission. “Nothing in the statute or rules prevented him from doing both at the same time or telling the Commission first, and then the press,” the court explained.

Exemption should have been considered. However, the court did agree with the petitioner that the SEC abused its discretion in summarily rejecting his request for an exemption from the voluntariness requirement. Under Exchange Act Section 36(a), the SEC has authority to grant an exemption that “is necessary or appropriate in the public interest, and is consistent with the protection of investors.”

Doe presented to the SEC “a wealth of credible information” suggesting that an exemption was in the public interest and consistent with the protection of investors. The SEC did not dispute that Doe provided the critical information upon which it launched the enforcement action. Doe pointed out that his tips to the news media and cooperation with the government achieved the precise aim of the Dodd-Frank Act and that denying an award would discourage others from coming forward. He also identified other cases in which the SEC waived the voluntariness requirement.

In response to the substantial evidence, the SEC disposed of the exemption request in a single footnote stating that it would be “inconsistent with the statutory purpose of incentivizing whistleblowers to come forward early” and “share their information with the Commission.” From this statement of general policy goals, the court could not determine the “why and wherefore” of the denial of the exemption, and so it fell short of even the highly deferential standard.

The court clarified that the SEC may not need to address every argument and all factual circumstances of every award application, but here, the Commission fell short by failing to “address Doe’s arguments that he submitted original information that led to its substantial enforcement success and that he cooperated with the Commission and other regulatory authorities, much less explain why Doe’s request was less worthy of an award than others in which the Commission exercised its exemption authority.”

The case is No. 23-1124.

Judge: Rogers, J.

Attorneys: Stephen M. Kohn (Kohn, Kohn & Colapinto) for John Doe. Emily True Parise for the SEC.

Cases: Whistleblowers DistrictofColumbiaNews