SEC Proposes Whistleblower Program Amendments Enhancing Potential Awards
On February 10, 2022, the Securities and Exchange Commission (SEC or Commission) proposed two amendments to the rules implementing its whistleblower program (the Proposal). The Proposal, if enacted, would allow the SEC to pay whistleblower awards related to actions brought by other regulatory or enforcement entities. The Proposal would also affirm the Commission’s authority to consider a potential award’s dollar amount for the limited purpose of increasing – but not decreasing – the award. As SEC Chair Gary Gensler stated in a press release, the proposed amendments “would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law.”
The SEC’s whistleblower program was established by the Dodd-Frank Act of 2010 which added Section 21F to the Securities and Exchange Act of 1934 (Exchange Act). Under Section 21F, the SEC may issue monetary awards to eligible individuals who voluntarily provide original information about securities law violations leading to successful enforcement actions resulting in monetary sanctions exceeding $1 million in covered judicial or administrative actions. Whistleblower award amounts range from 10% to 30% of the monetary sanctions collected. Further, a whistleblower award given by the SEC can also qualify the recipient for awards in related matters brought by the United States Department of Justice and other regulatory or enforcement entities. Since the program’s inception, the SEC has ordered more than $1.2 billion in whistleblower awards to nearly 250 recipients.
The Proposal follows the SEC’s previous round of amendments in September 2020, which were intended to add clarity, efficiency, and transparency to the whistleblower program. The Proposal builds on those efforts, intended to further revise two rules issued under Section 21F, along with other minor conforming and technical changes. The salient points of the Proposal include:
Amending Exchange Act Rule 21F-3, which applies to instances in which the SEC’s whistleblower program and at least one other whistleblower program may apply to the same related action. The proposed change would allow the SEC to pay whistleblower awards for certain actions brought under non-SEC whistleblower programs. This proposed change is significant because it would ensure that an individual is not disadvantaged by another whistleblower program that may not pay as high an award as would the SEC.
Amending Exchange Act Rule 21F-6, which concerns the SEC’s discretion to apply award factors and set award amounts. The proposed change would affirm the SEC’s authority to consider a potential award’s dollar amount, but only for the limited purpose of increasing the amount. This proposed change is significant because the SEC could only exercise its award amount discretion within the context of increasing an award, but not to decrease an award.
The SEC accepted public comments on the Proposal until April 11, 2022. The Commission is now reviewing public comments and moving forward with next steps in the regulatory process. If finalized and adopted, the Proposal’s changes would apply to all new whistleblower award applications filed after the final rule’s effective date, as well as to all whistleblower award applications that are pending as of the effective date.
The attorneys at Giarrusso Law Group LLC have considerable experience with issues unique to the financial services industry, including federal and state legislative and regulatory developments affecting both investors and financial advisors. If you have a question regarding this announcement or any other industry matter, you can contact us at (201) 771-1115 or info@gialawgroup.com for a free and confidential consultation.