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“What’s Worrying the SEC’s Former Whistleblower Chief?”

Phillips & Cohen partner Sean McKessy, who was Chief of the SEC Office of the Whistleblower for five years, spoke at length with the National Law Journal about his concerns regarding proposed changes to the SEC’s whistleblower program rules.

Why would the SEC send the message that it wants to lower awards even if the the proposed floor would be a still-hefty $30 million? But that wasn’t what most concerned Phillips & Cohen partner Sean McKessy, the first director of the SEC’s whistleblower program.

 What’s most troubling to McKessy … was a separate proposal — tucked at the end of the SEC’s release — concerning tips brought not by corporate insiders but by outsiders who come forward with independent analysis. (Think Harry Markopolos, the forensic accountant and fraud investigator who sniffed out Bernie Madoff’s Ponzi scheme, only to be ignored for years by the SEC.)

Along with the rule changes, the SEC proposed “interpretive guidance” clarifying that independent analysis must go “beyond what would be reasonably apparent to the commission from publicly available information” in order to be deemed worthy of a whistleblower award.

McKessy said the guidance would give the SEC great leeway to stiff tipsters who expose frauds through their own analyses. With the benefit of hindsight, the SEC could reason that it would have caught on to a fraud without the outsider’s help—an easy-to-envision scenario.

“These rules are going to be subject to a comment period, and this is going to be the one I’m going to focus on,” McKessy said. “This is the most dangerous in the long term for the program.” He added: “It’s injecting in the opportunity for human beings, well after the fact, to make subjective determinations that I don’t think were intended by Congress.”

Read the entire article at law.com.

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