On August 26, 2022, the U.S. Securities and Exchange Commission (SEC or Commission) published a final rule (Final Rule) implementing two amendments to its whistleblower program (the Program). The Final Rule, which provides the SEC with additional flexibility to pay whistleblower awards, becomes effective on October 3, 2022.

Adopting changes proposed on February 10, 2022, the Final Rule amends Rule 21F under the Securities and Exchange Act of 1934 (Exchange Act) in two ways. First, the Final Rule amends Rule 21F-3 to allow the SEC to pay whistleblower awards related to actions brought by other regulatory or enforcement entities including designated federal agencies. Under this amendment, such awards would be allowed when the other entity’s program is not comparable to the SEC’s Program or if the maximum award the Commission could pay on the related action would not exceed $5 million.

Second, the Final Rule amends Rule 21F-6 by affirming the SEC’s authority to consider a potential award’s dollar amount for the limited purpose of increasing the award amount. The amendment eliminates the Commission’s authority to consider the dollar amount for the purpose of decreasing an award.

The Program was established under the Dodd-Frank Act in 2010, which added Section 21F to the Exchange Act. The Program incentivizes individuals to voluntarily report high-quality tips – based on original information – relating to a violation of federal securities laws. Whistleblower awards are paid when the information leads to monetary sanctions exceeding $1 million in covered judicial or administrative actions. The award amounts range from 10% to 30% of the monetary sanctions collected. To date, enforcement matters brought using original information provided to the SEC have resulted in more than $1.3 billion to whistleblowers and more than $5 billion in total monetary sanctions. As stated in remarks made by SEC Chair Gary Gensler, the Program “has greatly aided the Commission’s work to protect investors.”

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 about 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.