Seven years ago the Securities and Exchange Commission opened its Office of the Whistleblower under the authorization of the Dodd-Frank Act. Since then the SEC has received over 22,000 whistleblower tips, obtained over $1.4 billion in financial remedies related to those tips, and ordered over $266 million in whistleblower awards to 55 individuals. Now, the SEC wants to tweak the program and offered up a series of regulatory revisions.
More Settlements Would Eligible
The first change is to expand the scope of actions that are subject to whistleblower awards. The current SEC whistleblower rules do not address whether the SEC can pay an award when the information that leads to a Deferred Prosecution Agreement or Non-Prosecution Agreement entered into by DOJ or a state attorney general in a criminal proceeding. The SEC is also looking for the discretion to award whistleblower claims based on public information using independent evaluation and analysis.
More for Smaller Settlements
The second change is to push for a higher award in smaller cases. According to the SEC, 60% of the whistleblower awards have been less than $2 million. The SEC is trying to set a $2 million floor, subject to the Section 922 cap of 30% of the award. The purpose of the change is to reward meritorious whistleblowers and incentivize future whistleblowers who might otherwise be concerned about the low dollar amount of a potential award.
Less for Bigger Settlements
The third change is related to the remaining 40% of funds paid out in claims. That 40% represents just three awards. For big cases, the SEC wants to be able to cap the award at $30 million, subject to the Section 922 floor of 10% of the award.
Digital Realty Fix
In the Digital Realty case decided by the Supreme Court earlier this year, the Court held that the whistleblower provisions of the Exchange Act require a person to report a possible securities law violation to the SEC in order to qualify for protection against employment retaliation. For purposes of retaliation protection, an individual would be required to report information about possible securities laws violations to the Commission “in writing”.
Others
Besides these four big changes, there are several other smaller changes to increase the efficiency and effectiveness of the whistleblower program.
My Take
I think it’s great that the current SEC is willing re-evaluate its rules and fix them to make them work better. I bet most o fus could point to many parts of the SEC rules that need fixing. I hope they continue this process for other rules.
Sources:
- SEC Proposes Whistleblower Rule Amendments
- SEC proposes to limit whistleblower awards by Francine McKenna
- Statement of Commissioner Piwowar at Open Meeting Regarding Amendments to the Commission’s Whistleblower Program Rule from Commissioner Michael S. Piwowar
- Statement at Open Meeting on Amendments to the Commission’s Whistleblower Program Rule from Chairman Jay Clayton
- Statement on Proposed Amendments to the Commission’s Whistleblower Program Rules by Commissioner Kara M. Stein
- Statement on Proposed Rules Regarding SEC Whistleblower Program by Commissioner Robert J. Jackson, Jr.
- Statement at Open Meeting on Amendments to the Commission’s Whistleblower Program Rules by Commissioner Hester M. Peirce
- Section 922 of Dodd-Frank: Whistleblower Protection
- The Limit of Whistleblowers