By Sinead Cruise and Michelle Price
LONDON/WASHINGTON DC Feb 12 (Reuters) - An ex-Royal Bank of
Scotland (RBS) employee is suing the U.S. Justice
Department and Securities and Exchange Commission (SEC) for
records that could relate to a bounty he says he is owed under a
post-crisis whistleblower programme.
Victor Hong alleges the U.S. agencies "capriciously" and "in
bad faith" flouted the law when assessing whether he was due a
payout for information he provided to probes into the British
bank's mis-selling of mortgage bonds in the run-up to the
2007-08 financial crisis, court filings show.
In August 2018, RBS agreed to pay $4.9 billion to end the
probes, which were led by the Justice Department. No portion of
that fine has ever been deemed eligible for a reward under the
whistleblower programme, public records show.
The Justice Department and the SEC have not said publicly
why the RBS settlement was not deemed eligible for a potential
tipster reward.
The SEC declined to comment while the Justice Department did
not respond to requests for comment.
The Justice Department has objected to being named as a
respondent in the case saying in a Jan. 30 filing that the SEC
was "the only appropriate respondent".
Hong's move is an example of the disputes that can result
from what from campaigners say is the opaque nature of the
whistleblower programme, set up after the financial crisis
revealed a swathe of improper and illegal activity across Wall
Street.
The programme, which promises cash rewards should
information lead to regulatory action, receives thousands of
tips a year. Some advocates say only a token number of
whistleblowers receive compensation and that the decision-making
process over who should be rewarded is shrouded in secrecy.
"I'm sorry to say Mr Hong's experience is not atypical,"
said Tom Devine, legal director at the Washington-based
Government Accountability Project.
"The bounty has been an excellent boost for law enforcement
but the programmes are using whistleblowers rather than
rewarding them."
SEC chairman Jay Clayton has said in the past that the
programme is sometimes constrained by rigid rules and that a
pending proposal to tweak those rules aims to get more money
into the hands of whistleblowers.
Since it made its first payout in 2012, the whistleblower
programme has resulted in more than $2 billion in penalties and
$387 million in rewards, SEC data shows.
Currently, the SEC can reward tipsters whose original
information leads to a penalty exceeding $1 million with rewards
of between 10% and 30% of the fine.
The SEC may also pay a reward in a related enforcement
action brought by the Justice Department or other agencies,
provided that settlement was based on the same information the
tipster originally gave to the SEC.
The SEC may deny claims for a range of reasons, including
that the tip did not offer new information or prompt any action.
Hong has supplied evidence and testimony to other legal actions
against the bank but Reuters could not determine what role, if
any, the information Hong provided played in the RBS settlement.
Over the past 18 months, Hong has tried unsuccessfully to
access SEC and Justice Department records that could shed light
on why the agencies determined that the 2018 RBS settlement was
not eligible for a reward, according to court filings.
On Monday, he filed a motion with the U.S. Second Circuit
Appeals Court seeking to compel the SEC and the Justice
Department to produce the full set of records relating to the
RBS settlement and the decision to deem it ineligible for a
reward.
A former managing director of risk management at RBS's U.S.
operations, Hong resigned after two months on the job after
discovering the mispricing https://www.reuters.com/article/us-banks-rbs-lawsuit-insight/court-documents-allege-clashes-inside-rbs-over-2008-toxic-assets-idUSKBN13B0IP
of billions of dollars of mortgage bonds.
He first approached the SEC and Justice Department offering
information in December 2007, after leaving the lender the
previous month, according to the filings.
He later met with Justice Department officials in December
2014, and provided testimony and documents on RBS misconduct,
according to the filings which include copies of subpoenas,
Hong's formal SEC tip, and emails with Justice Department
officials.
(Editing by Carmel Crimmins)
