On September 23, 2020, the Securities and Exchange Commission (SEC or the Commission) voted 3-2 to adopt a series of amendments to rules governing its Whistleblower Program. The amendments are intended to add clarity, efficiency, and transparency in an effort to “further incentivize whistleblowers, enhance the whistleblower award program and benefit investors and our markets,” according to a statement made by SEC Chairman Jay Clayton. Chairman Clayton characterized the changes as a benefit for whistleblowers, providing them with more money and in less time.

The SEC’s Whistleblower Program, established by the Dodd-Frank Act of 2010 and codified as Section 21F of the Securities Exchange Act of 1934, authorizes monetary awards for original information that leads to successful SEC enforcement actions resulting in sanctions of $1 million or more, subject to some limitations. Awards range between a statutory minimum and maximum of 10% to 30% of any sanctions collected in the enforcement action and any related actions by other regulatory or law enforcement authorities. Since the program’s inception, the Commission has awarded approximately $527 million to 100 individuals as of this writing, representing enforcement actions collecting more than $2.5 billion.

While the final rule contains numerous changes to regulatory provisions, financial services professionals should be aware of the amendments’ most pertinent changes, which include:

• Adding Rule 21F-6(c) to create a presumption that the SEC will award whistleblowers the 30% maximum of sanctions collected for awards amounting to $5 million or less, provided that no negative award factors are present. This change to presumptively adjust smaller awards upwards will expedite the time the Commission takes in assessing an award, a benefit to most whistleblowers since 75% of awards are for $5 million or less.

• For awards greater than $5 million, the SEC clarified that it has discretion to apply award factors based on percentage, dollar amount, or a combination of the two, although the Commission indicated that it would not use this discretion to reduce larger awards.

• Newly added Rule 21F-18 provides for a summary disposition procedure that will streamline the processing of commonly denied applications such as untimely applications, tips submitted outside of the program’s framework, and applications involving information that was not used.

• Subparagraph (e) of Rule 21F-8 codifies the practice of barring certain claimants, including those who submit false information or who repeatedly submit frivolous applications to the Commission.

• An amended Rule 21F-9 now allows the SEC to waive, under certain conditions, the requirement that a claimant file a “Form TCR” (Tip, Complaint or Referral).

• A uniform definition of “whistleblower” appears under an amended Rule 21F-2(a), which maintains the requirement that the applicant provide a written report to the SEC to obtain retaliation protections, and grants whistleblower status to an individual who provides the SEC “with information in writing that relates to a possible violation of the federal securities laws . . . that has occurred, is ongoing, or is about to occur.” Written submission may be made online or by email, facsimile, or U.S. mail.

• Finally, the SEC issued interpretive guidance clarifying the type of information that is useful to the Commission. In its discussion of “independent analysis” under Rule 21F-4(b)(3), an applicant’s submission should include information beyond what would be reasonably apparent to the SEC based on publicly available information, and must contribute significant independent information related to a potential securities law violation.

The amendments are effective December 7, 2020, according to the official Federal Register notice.

The attorneys at Giarrusso Law Group LLC have extensive experience with issues unique to the financial services industry, including SEC regulations governing whistleblower claims. We can advise you as to the reporting of potential violations of federal securities laws. Please call us at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.