* Former RBS risk manager claims bounty unlawfully denied
-filings
* Court may rule for payout, force authorities to reconsider
claim
* Unclear why agencies deemed RBS fine was ineligible -
filings
By Michelle Price and Sinead Cruise
WASHINGTON D.C./LONDON, May 12 (Reuters) - The U.S. Second
Circuit Appeals Court will on Tuesday consider arguments by an
ex-Royal Bank of Scotland employee who is suing the U.S.
Justice Department and Securities and Exchange Commission for a
bounty he says he is owed under a whistleblower program.
The suit brought by former RBS risk manager Victor Hong
could result in a landmark ruling if the court finds the
agencies broke the law, or force them to reconsider his case or
produce documents that may shed light on how they handled it.
In February, Hong filed a petition with the court alleging
the agencies flouted the law "in bad faith" when assessing
whether he was due a payout for helping federal probes into the
British bank's mis-selling of mortgage bonds in the run-up to
the 2007-08 financial crisis.
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 program, public records show.
Hong has asked the court to compel the SEC and the Justice
Department to produce all records relating to the RBS settlement
and to deem it eligible for a potential tipster reward,
according to the filings, which Reuters has reviewed.
The Justice Department and SEC have not said publicly why
the RBS settlement was deemed ineligible. The SEC declined to
comment while the Justice Department did not immediately provide
comment.
In a Jan. 30 filing the Justice Department asked that the
court dismiss the petition against the agency on the grounds
that the SEC was "the only appropriate respondent" but the court
has yet to grant that request.
REWARDS
Established by the 2010 Dodd Frank Act after the financial
crisis, the whistleblower program has resulted in more than $2
billion in penalties and $450 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.
It may also pay a reward in related enforcement actions
brought by other agencies provided the settlement was based on
the same information the tipster originally gave the SEC.
In a March filing, the SEC said it had not considered Hong's
argument that the Justice Department settlement was a related
enforcement action but could do so if the court were to return
the case to the SEC for review.
The court will consider that option on Tuesday, or it may
require the agencies to produce documents on how they handled
the case, or conclude that the agencies breached Dodd Frank and
force them to process Hong's reward claim.
A former managing director of risk management at RBS' U.S.
operations, Hong resigned two months into the job after
discovering billions of dollars of mortgage bonds had been
mispriced.
He first approached the SEC and Justice Department offering
information in December 2007, according to the filings.
He later met with Justice Department officials in December
2014, and provided testimony and documents, according to the
filings which include copies of subpoenas, Hong's formal SEC
tip, and emails with Justice Department officials.
The filings suggest Hong's information also "significantly"
contributed to the success of a separate $5.5 billion settlement
RBS agreed with the Federal Housing Finance Agency (FHFA) in
2017 on behalf of housing finance giants Fannie Mae and Freddie
Mac which had bought mortgage bonds from RBS.
He has asked the court to deem that settlement a related
action eligible for a reward. The FHFA did not immediately
provide comment.
The SEC may deny claims for a range of reasons, including
that the tip did not offer new information or prompt any action.
(Editing by Kirsten Donovan)
