WASHINGTON, D.C. | September 23, 2020 — The U.S. Securities and Exchange Commission (SEC) today voted 3-2 to approve amendments to the rules governing the SEC’s Whistleblower Program. The National Whistleblower Center (NWC) commends the SEC for the improvements in these amendments compared to those proposed in 2018 but continues to have concerns about potential negative effects on whistleblowers.
John Kostyack, NWC Executive Director, stated: “By making positive changes in response to concerns expressed by whistleblowers, the National Whistleblower Center and their advocates, and unanimously praising the whistleblower program’s track record of success, the SEC today reaffirmed the critical role of whistleblowers in addressing securities fraud and related corruption. Most but not all of our concerns with the 2018 proposal were addressed. We thank the Commissioners for responding to many of our concerns and will continue working to address problematic aspects of today’s rulemaking.”
Stephen M. Kohn, NWC Board Chairman, said: “Significantly, every Commissioner, regardless of political party, strongly praised the SEC’s Dodd-Frank Act’s whistleblower law, recognizing the importance of paying awards to whistleblowers and the invaluable contributions whistleblowers make to protecting investors. The unanimity of support for the basic principles underlying the whistleblower reward law sends a powerful message to Wall Street. Despite their best efforts to undermine whistleblower protections, the worst features contained in the proposed amendments were not implemented.”
In its advocacy to oppose potentially disastrous changes to the program, NWC campaigned heavily to urge the SEC to reverse course, speaking directly to SEC commissioners and relying on its incredible grassroots supporters to file a record-breaking petition to protect whistleblowers.
Today’s rulemaking addressed four key issues:
- Cap on the size of awards. The Dodd-Frank Act calls for 15 to 30 percent of monetary sanctions recovered to be provided to whistleblowers based on the whistleblower’s role in the success of the case. In its 2018 proposal, the SEC included a mandatory reduction in the size of awards in any case where it arbitrarily determines that the award is too large. In today’s rulemaking, in response to concerns from NWC and others, this mandatory reduction was removed.
- Maximum awards in small cases. In cases where sanctions obtained by the SEC are $5 million or less, the SEC created the presumption that awards should be paid at 30 percent of monetary sanctions recovered, the highest amount. As noted by SEC Chairman Jay Clayton today, most whistleblower cases result in a less than $5 million sanction, thus benefitting many whistleblowers. NWC commends the adoption of this amendment, as it will provide much-earned rewards to numerous whistleblowers.
- Procedural barriers to securing whistleblower protection. In its 2018 proposal, the SEC included a requirement that whistleblower disclosures made to the SEC without use of the SEC’s Tip, Complaint and Referral (TCR) form be dismissed. The SEC allowed only a 30-day period after the disclosure to remedy this procedural error, an arbitrary limit which NWC and others argued was unfair to many whistleblowers with valid cases, including many whistleblowers with pending cases. In today’s rulemaking, the SEC indicated that the 30-day period would start only after the whistleblower learned of the TCR requirement and that it would consider exemptions from this time limit. Although this left some room for dismissals of valid cases, it largely addressed the concerns of NWC and others about not erecting unreasonable procedural barriers.
- Related actions. Under the Dodd-Frank Act, whistleblowers are entitled to awards from the SEC for assisting with cases brought not only by the SEC but with cases brought by other agencies that stem from a disclosure to the SEC. Today’s rulemaking unfortunately raises questions about whether the SEC will fulfill its duty to pay awards for so-called related actions by other agencies. Contrary to Congress’s intent, it indicated that it may withhold such awards if they may potentially be available from other whistleblower programs. NWC will continue to advocate against such an approach, which adds costs and uncertainties to an already challenging whistleblower disclosure process.
The final rule and comment from the SEC is linked here. For more information, please contact Nick Younger at firstname.lastname@example.org.