Last month, in a 3-2 vote, the U.S. Securities and Exchange Commission (SEC) approved two changes to the rules governing its whistleblower program. The amendments will strengthen the SEC’s whistleblower program by giving it more transparency and further incentivizing whistleblowers to report wrongdoing on Wall Street.
The first rule change allows the Commission to reward whistleblowers for their assistance with non-SEC actions in certain circumstances. This allows the Commission to pay whistleblowers for actions brought by other designated federal agencies and applies even when awards might be available to be paid under another agency’s whistleblower program. The new rule allows for such awards when the other program is not comparable to the Commission’s program or if the maximum award the Commission could pay would not exceed $5 million.
The second rule change amends a 2020 rule adopted during the Trump administration that added language stating that the SEC has the discretion to consider the dollar amount of a potential award to either increase or decrease a whistleblower’s award.
The rule change makes it clear the agency only has the discretion to increase the amount of an award and may not decrease the size of an award, giving the agency more flexibility to reward whistleblowers when they come forward to report investor fraud.
“The SEC’s changes are beneficial to whistleblowers and will only strengthen an already highly successful Whistleblower Program. The SEC’s new rules clarify ambiguities in the whistleblower rules, giving whistleblowers greater incentives to come forward and report to all interested regulatory authorities to protect the investing community, without risking losing out on an award from the SEC,” said Sean X. McKessy, partner at Phillips & Cohen and the first Chief of the SEC Office of the Whistleblower.
“The new rules also prevent the highly counterintuitive result that whistleblowers who report large frauds will not be penalized by having their awards reduced,” said McKessy.
The SEC whistleblower program was established in 2010 as part of the Dodd-Frank Act. The program is widely considered a huge success, with over $5 billion in monetary sanctions from securities law violators since the program’s inception. According to the SEC, the agency has awarded over $1.3 billion to more than 280 whistleblowers since the program issued its first award in 2012.
SEC Chair Gary Gensler said, “In 2010, Congress under the Dodd-Frank Act directed the SEC to establish a whistleblower program, which to date has greatly aided the Commission’s work to protect investors. … I think that these rules will strengthen our whistleblower program. That helps protect investors.”
The two new whistleblower rules will become effective later this month.
If you are aware of any significant corporate fraud, securities violations, or FCPA violations and would like to discuss your options under the SEC whistleblower or CFTC whistleblower programs, please contact Phillips & Cohen’s whistleblower attorneys to discuss the matter confidentially at no charge.