SEC Considers Tweaks to Whistleblower Program

Employment Law

The Securities and Exchange Commission (SEC) is considering changes to its billion-dollar whistleblower program with two amendments.

First, a tweak to Rule 21F-3 would give the agency the discretion to pay whistleblower awards for certain actions brought by other entities.

Currently, a whistleblower who obtains an award based on an SEC action may also be eligible for an award based on monetary sanctions collected in an action brought by other statutorily delineated authorities.

Pursuant to the proposal, the agency would be allowed to make an award for a related action that might otherwise be covered by an alternative whistleblower program—even where the other program has a more direct or relevant connection to the related action.

If enacted, the rule change could be implemented in different ways. For example, if a claimant filed a related-action award application, and the alternative award program is not comparable to the SEC program (because the other award range is more limited, awards are subject to a cap or the other award program is discretionary, not mandatory), then the agency would treat the other action as “related,” regardless of whether the alternative award program had a more direct or relevant connection.

The maximum award the agency could pay would not exceed $5 million.

Some of the other options include allowing the whistleblower to make a choice (whether to receive a related-action award from the SEC or the alternative award program) once the award amount was determined; an offset approach (where the SEC would determine the award percentage for a related action but offset from the total award the amount the whistleblower received from the other program); and a “topping off” method that would give the SEC discretion to increase the SEC award (up to 30 percent) if the agency concludes that the other program was inadequate.

In a second proposed change, Rule 21F-6 would be modified to affirm the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the amount—but not to lower an award.

“These amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission,” SEC Chair Gary Gensler said. “

To read the proposed rule changes, click here.

Why it matters: The proposals are open for public comment until April 11. Since the SEC’s whistleblower program launched in 2012, the agency has awarded more than $1.2 billion to 248 individuals. The proposed changes would only increase the financial incentives for potential whistleblowers to make a report to the agency.



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