Appeals Court Seals Opinion Related to SEC Award to Carson Block

A federal court has permanently rejected its final order rejecting an investor’s claim that he deserved part of a $14 million SEC whistle-blower award to activist investor Carson Block, in a move legal experts called rare and confusing.

March 23 decision in the Third Circuit Court of Appeals in Philadelphia forever hides the judicial system from public view.

The ruling is the latest twist from March 11, 2012 to his award in 2011 to block the whistleblower outcry. The Securities and Exchange Commission ignored its staff’s recommendation that Lockdown was not making money. The complaint sparked a series of lawsuits between Block, the SEC and short seller Kevin Barnes, who worked with Block on the original whistle-blowing report.

Sean Marotta, an appellate attorney for Hogan Lovells, said it was extremely unusual for him to permanently seal the judgment. “I’m not saying it’s happened before, but I don’t remember,” said Marotta, who had previously testified in the New Jersey Superior Court.

Barnes contends that he and Claus jointly authored a 2011 report outlining deep fraud and wrongdoing at Focus Media, a Chinese advertising and marketing services company that later paid $55.6 million to the SEC, and that people jointly filed a whistle-blowing complaint. Block said in court filings that he was the sole author of the report’s content and only deserved the reward, which represents 25% of the fine.

The SEC is required by law to redact any information that may identify the whistleblower, and its final orders are often heavily redacted. Anyone who wants to contest the SEC’s finding must file in federal appeals court, which they did last year under the name Jamie Doe Barnes.

A wrinkle to the secret is that both Barnes and Block have identified themselves in other lawsuits connected to the case. Barnes filed a federal lawsuit against Block in New York seeking half of the award, and Barnes responded by filing a lawsuit in Texas accusing Barnes of defamation because of comments he made in the case.

A 2022 Bloomberg Law investigation found that the SEC’s emphasis on privacy has gone too far to legal mandates, which often disregarded its own rules when making decisions and that three former SEC officials were awarded more than $420 million for clients using that law firm.

One of those attorneys is Jordan Thomas, the former SEC assistant chief of litigation counsel, whose clients have received nearly $200 million. Barnes’ attorneys in the lawsuit against Block alleged that “on information and belief” Block used Thomas to help him with his whistle-blowing screams.

Thomas could not be reached for comment.

the right to know

Eugene Volokh, a UCLA law professor, said the documents were particularly noteworthy because they came from the appeals court. “The judgment of the courts explains why the legal system reached a certain decision. That’s what … we need to be available to understand,” Volokh said.

The court could conclude that redactions and pseudonyms were not enough to protect the parties, Volokh said. In the case, the Third Circuit filed a separate version of the sealed briefs that were followed by redacted versions in the public domain.

Nicholas Woodfield, principal and general counsel of the Employment Law Society, a firm representing whistleblowers who provide tips to the SEC, said the Third Circuit will not make the decision public because the decision will not set a precedent in other cases.

“It’s not going to be there as a kind of line in the sand for others, for the courts that follow,” Woodfield said.

“It’s okay to just say, you know, there’s no point in producing an opinion that’s mostly made up of salient facts… it’s no use. It is a waste of every hour. So we can’t even do this.”

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Ava Grey

Hi there! I'm Ava Grey, an enthusiastic article writer with a passion for the arts, fashion, and staying informed about current events. As a journalism student at the New York Academy of Art, I'm driven to use my writing to create positive change and spark meaningful conversations. I'm particularly interested in contemporary art and sustainable fashion, and I love exploring how people use these mediums to express themselves and communicate their values. I believe that staying informed and hearing different perspectives is essential for personal growth and learning, and I'm always eager to engage in lively debates and discussions.

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