This month Senators Chuck Grassley (R- Iowa) and Elizabeth Warren (D-MA) reintroduced legislation designed to strengthen the Securities and Exchange Commission (SEC) Whistleblower Program. The bipartisan legislation titled, SEC Whistleblower Reform Act of 2023, would ensure the timely processing of whistleblower award claims, enhance the whistleblower protections in the Dodd-Frank law that prohibit retaliation against whistleblowers, and make explicit that whistleblowers’ rights cannot be waived through pre-dispute arbitration agreements. Sens. Susan Collins (R-Maine), Raphael Warnock (D-Ga.) and Catherine Cortez Masto (D-Nev.) are cosponsors of the bill.
Senator Grassley said of the new legislation, “Whistleblowers bring sunshine to the corners of our government and the private sector where waste, fraud, and abuse are taking place in the shadows. The American people have whistleblowers to thank for recovering billions of valuable taxpayer dollars. I’m proud to once again lead this push for greater government accountability by protecting the whistleblower process at the SEC.”
Established in 2010 by the Dodd-Frank Act, the SEC Whistleblower Program has been an enormous success, collecting over $6.3 billion in monetary sanctions from enforcement actions brought using information from meritorious whistleblowers since the program’s inception and more than $1.5 billion has been, or is scheduled to be, returned to harmed investors.
For fiscal year 2022, the Commission received over 12,300 whistleblower tips—the largest number of whistleblower tips received in a fiscal year. While the program has been successful, the proposed legislation would make three critical improvements to the program.
Shorten the long delays of whistleblower award claims
A key change the bill would make is to guarantee the prompt payment of whistleblower awards by setting mandatory deadlines for the SEC to issue award determinations. Whistleblowers have experienced increasingly delayed award processing times as the SEC Whistleblower Program has grown in popularity and received more tips. The legislation would require that the SEC issue a determination no later than “the date that is one year after the deadline established by the Commission, by rule, for the whistleblower to file the award claim” or “the date that is one year after the final resolution of all litigation, including any appeals, concerning the covered action or related action.”
Protect internal whistleblowers
The bill would also extend whistleblower protections to people who report misconduct internally to a direct superior. Currently, following the Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers, the anti-retaliation protections apply only when a whistleblower contacts the SEC or other officials. Because most whistleblowers report concerns internally first, the Court’s ruling had limited the effectiveness of the anti-retaliation provision. The bill responds to that ruling by extending anti-retaliation protections when someone reports misconduct internally to a direct superior.
Disclosure agreements won’t silence whistleblowers
Finally, the new bill would make sure that certain common nondisclosure agreements do not silence whistleblowers, by clarifying that whistleblowers cannot waive their rights under Dodd-Frank through pre-dispute arbitration agreements.
These three changes will remove some of the barriers to whistleblowers reporting misconduct. As Senator Cortez-Masto summarized, “Whistleblowers who expose wrongdoing and fraud should not be held back out of fear of retribution, and I’m proud to support this legislation to ensure they are protected at the SEC.”
Overall, these changes would bolster the Program, and should provide greater reassurance to whistleblowers that they will be protected, and their claims processed efficiently.
The full text of the bill is available here.