Reversal on Rule 36A

Kohn, Kohn and Colapinto is the only law firm in the country to have obtained a substantive reversal in a Dodd-Frank Act case, where the Securities Exchange Commission failed to exercise its general exemptive authority under Section 36(a) of the Exchange Act to waive regulatory requirements when such waivers are in the “public interest an the interest of investors.”

Case Overview

According to the decision of the U.S. Court of Appeals for the District of Columbia Circuit, the confidential whistleblower had “alerted the Commission to the misconduct which prompted the opening of the investigation and then provided ongoing assistance.” Despite the whistleblower’s critical role in enabling the SEC to successfully prosecute the fraudster, the Commission denied the whistleblower’s award application, applying technical regulations narrowly defining who qualifies for an award.

The Court of Appeals vacated the SEC’s decision and remanded the case for reconsideration, ordering the Commission to properly apply Section 36(a) of the Securities Exchange Act. That provision permits the SEC to waive regulations when such waivers are in the public interest. The case set national precedent regarding the application of Section 36(a) to whistleblower award claims under the Dodd-Frank Act.

The Court explained the basis for remanding the case:

“Before the Commission, Doe adduced a wealth of credible information suggesting that granting an exemption would be consistent with “public interest” and “protection of investors.” 15 U.S.C. § 78mm(a)(l). Indeed, the Commission does not dispute that Doe provided the critical original information on which the Commission relied in pursuing a significant and successful enforcement action. Doe met with the Commission on two occasions, and in advance the Commission staff emphasized that their requests sought his “voluntary”cooperation.”