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US Securities and Exchange Commission

SEC Poised to Finalized Changes to Whistleblower Program

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Soyoung Ho

The SEC is poised to finalize changes to its guidelines on whistleblower complaints—changes that consumer advocates are against, including limits to potential awards for tips that lead to successful enforcement action.

The vote is scheduled to be held on October 23, 2019, and it will be based on the changes proposed in Release No. 34-83557, Amendments to the Commission’s Whistleblower Program Rules , which was issued in June 2018. It would change how the commission reviews whistleblower claims and clarify rules intended to protect those who file claims from employer retaliation.

In an October 3 letter to the SEC, the National Whistleblower Center said the proposed rule would disincentivize whistleblowers from coming forward by placing an arbitrary limit on potential awards, regardless of the size of the fraud reported.

“Whistleblowers laws that have capped rewards have universally failed,” the center wrote. “This is why Congress has repeatedly rejected such limits…. It is critical that whistleblower rewards are based on the quality of the information and its contribution to a successful prosecution.”

The proposal recommends the commission to adjust any whistleblower awards that are below $2 million to be closer to the statutory maximum of 30 percent of the collected funds, and it would impose heightened scrutiny in determining awards above $30 million but stipulates that the award would not be less than the 10 percent statutory minimum.

“The amendments … would arbitrarily, and contrary to Congress’s will, send a chilling message to all whistleblowers: if you provide original information that leads to large sanctions, your award will be capped at 10%, the bare minimum required under” Dodd-Frank, Better Markets said in a comment letter last year. “Congress never intended for the SEC to cap awards at minimum levels, and it certainly did not permit the SEC to use any award level, in terms of absolute dollar amounts, as a metric to analyze and determine an award. Simply put, the $30 million threshold being set in the Proposal is an SEC construct that is contrary to Congress’s will. Congress afforded sufficient discretion to the SEC to determine award levels, but this new proposed threshold and methodology goes impermissibly and arbitrarily beyond what Congress intended and permitted.”

The SEC adopted the whistleblower program in 2011 to carry out a Dodd-Frank mandate in Release No. 34-64545, Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934 .

The proposal would classify any delay of more than 180 days in reporting misconduct to the SEC as unreasonable. It would also provide interpretive guidance about what “independent analysis” would mean within the definition of “original information.” It limits a whistleblower’s use of public information in its submission.

“This inappropriately provides the Commission with too much discretion and fails to give potential whistleblowers sufficient certainty, which will needlessly discourage them: the exact opposite of the intent of Congress,” Better Markets said. “Allowing the Commission to dismiss and disqualify otherwise meritorious submissions due to an after the fact claim that it would have otherwise independently identified the information, done an investigation, connected all the dots, and brought a case is simply baseless speculation that introduces ambiguity into a very clear and unambiguous statutory scheme.”

By contrast, businesses, which did not like the whistleblower provision from the get go, welcomed the proposed changes. “This effort helps to provide proper balance to the program and allow whistleblowers to report wrongdoing,” the U.S. Chamber of Commerce said in a comment letter.

In the meantime, more than 4,600 individuals signed form comment letters opposing the proposed changes.


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