{"id":3386,"date":"2020-10-15T08:05:03","date_gmt":"2020-10-15T13:05:03","guid":{"rendered":"http:\/\/blogs.luc.edu\/compliance\/?p=3386"},"modified":"2020-10-15T08:05:03","modified_gmt":"2020-10-15T13:05:03","slug":"sec-adopts-new-rules-for-whistleblower-program","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=3386","title":{"rendered":"SEC Adopts New Rules for Whistleblower Program"},"content":{"rendered":"

Travis Thickstun<\/em><\/span><\/p>\n

Associate Editor<\/em><\/span><\/p>\n

Loyola University Chicago School of Law, JD 2023<\/em><\/span><\/p>\n

Twelve years after the 164-year-old brokerage firm Lehman Brothers collapsed<\/a> during the global financial crisis that had been sparked by the subprime mortgage catastrophe, last month the U.S. Securities and Exchange Commission (SEC) adopted a new rule<\/a> changing parts of the agency\u2019s whistleblower program. <\/span>The program<\/a>, which was established by the Dodd-Frank Act in 2010, permits the agency to provide financial awards to whistleblowers who provide it with original information about fraud and securities violations. At issue in this new rule is how the SEC will evaluate and apply its award criteria based on the circumstances in each case. <\/span>Commissioners voted<\/a> 3-2 to adopt the final rule \u2013 which is effective 30 days after publication in the Federal Register \u2013 during their Sept. 23 meeting. The SEC said<\/a> the new rule was aimed at more efficient claim processing, increased transparency to the structure used by the Commission in determining award amounts and making other changes that reflect the Commission’s experience overseeing the program.<\/span><\/p>\n

Changes to SEC <\/strong>w<\/strong>histleblowe<\/strong>r<\/strong> p<\/strong>rogram<\/strong><\/span><\/p>\n

Whistleblowers have helped the SEC<\/a> obtain more than $2.5 billion in financial penalties, of which more than $1.4 billion was from disgorgement of fraudulent gains. Of that amount, the SEC said<\/a> almost $750 million has been or will be returned to injured investors. Because of the contributions of whistleblowers, the Commission said<\/a> it had ordered more than $523 million to 97 individuals in 80 enforcement actions whose original information helped the agency pursue enforcement actions \u2013 as well as those brought by other enforcement authorities against wrongdoers.<\/span><\/p>\n

Stephanie Avakian, who is the director of the Commission\u2019s enforcement division, told Commissioners<\/a> at their Sept. 23 meeting that the rule changes were another step in the agency\u2019s reevaluation of its whistleblower awards process. The SEC, Avakian said<\/a>, has implemented process improvements that resulted in a record of $136 million going to 30 whistleblowers so far this year. In fact, Avakian said<\/a> the agency had already received 6,500 tips, complaints and referrals from whistleblowers so far this year \u2013 a nearly 25% increase over last year\u2019s total.<\/span><\/p>\n

Five key changes<\/a> the rule made to the whistleblower program include:<\/span><\/p>\n

    \n
  1. Additional tools in award determinations, including a presumption of the statutory maximum award amount for certain awards of $5 million and less;<\/span><\/li>\n
  2. Uniform definition of \u201cwhistleblower\u201d in response to the U.S. Supreme Court\u2019s decision in Digital Realty Tr., Inc. v. Somers<\/em>, 138 S. Ct. 767 (2018);<\/span><\/li>\n
  3. Increased efficiency in the claims review process, including barring applicants who submit materially false, fictitious, or fraudulent statements to the Commission;<\/span><\/li>\n
  4. Clarification and enhancement of certain policies and procedures, including practices and procedures in implementing the program; and<\/span><\/li>\n
  5. Commission interpretive guidance to help clarify the meaning of \u201cindependent analysis.\u201d<\/span><\/li>\n<\/ol>\n

    Opposition to <\/strong>c<\/strong>onsidering <\/strong>d<\/strong>ollar <\/strong>a<\/strong>mount of <\/strong>w<\/strong>histleblower <\/strong>a<\/strong>wards<\/strong><\/span><\/p>\n

    But not all of the rule changes were without disagreement.<\/span><\/p>\n

    Commissioner Allison Herren Lee said<\/a> she was unable to support the proposed rule because of the treatment given to the Commission\u2019s discretion to consider the dollar amount of an award in making award determinations. Lee said<\/a> she could not support a rule that permitted two different outcomes where the only distinction was the amount of the award, particularly where it provided whistleblowers no way to contest its application.<\/span><\/p>\n

    \u201cWhistleblowers deserve better,\u201d Lee said<\/a> during the Commission\u2019s hearing. \u201cThey take great risks to help law enforcement, never knowing when they make their decision to speak up what will happen to them.\u201d<\/span><\/p>\n

    Commissioner Caroline A. Crenshaw, who also voted against the new rule, said she<\/a> shared Lee\u2019s concerns about the discretion to consider the award amount.<\/span><\/p>\n

    \u201cOur program\u2019s effectiveness depends on providing potential whistleblowers with certainty about how they will be treated, including award eligibility and determinations,\u201d Crenshaw said<\/a> during the hearing. \u201cAlthough today\u2019s rule makes improvements on the initial proposal,\u201d Crenshaw said<\/a>. \u201cthere are still aspects of the rule that leave inefficiencies and create uncertainties for potential whistleblowers.\u201d<\/span><\/p>\n

    In fact, during the rule\u2019s pre-adoption public-comment period, the SEC\u2019s proposed rule change resulted in more than 110,000 comments<\/a> from those opposed to some key parts of the proposed rule. Opponents included Public Citizen<\/a>, which said it opposed what it called an \u201carbitrary cap\u201d on whistleblower awards in cases over $30 million. The consumer-advocacy organization said it supported parts of the proposed rule that would authorize the SEC to adjust the award percentage upward for small awards. Senator Charles Grassley, chairman of the U.S. Senate Committee on the Judiciary, joined in opposition to this proposed limit of $30 million, writing that<\/a> the Commission\u2019s proposal \u201cwould operate as an arbitrary cap.\u201d Grassley was also concerned<\/a> that \u2013 unlike awards in qui tam<\/em> suits under the federal False Claims Act<\/a> \u2013 the Commission\u2019s program lacked the ability for Wall Street whistleblowers to appeal the size of awards to independent federal judges.<\/span><\/p>\n

    Rule <\/strong>a<\/strong>imed at <\/strong>g<\/strong>iving <\/strong>g<\/strong>reater <\/strong>t<\/strong>ransparency, <\/strong>e<\/strong>fficiency<\/strong>,<\/strong> and <\/strong>c<\/strong>larity to <\/strong>w<\/strong>histleblowers<\/strong><\/span><\/p>\n

    The SEC said<\/a> the final rule it adopted was aimed at providing greater clarity to whistleblowers and increasing the program\u2019s efficiency and transparency.\u00a0 The Commission also said<\/a> it wanted to provide added efficiencies and transparency in the award process.<\/span><\/p>\n

    \u201cThe Commission\u2019s enforcement efforts, and most importantly, American investors and markets, have greatly benefitted from the credible information and assistance that whistleblowers have provided,\u201d SEC Chairman Jay Clayton said<\/a> in a Sept. 23 press release.\u00a0 \u201cWhistleblowers often take professional and reputational risks in reporting their information to the SEC and we are committed to rewarding them for taking those risks and contributing to our enforcement efforts.\u00a0Today\u2019s rule amendments will help us get more money into the hands of whistleblowers, and at a faster pace.\u00a0Experience demonstrates this added clarity, efficiency, and transparency will further incentivize whistleblowers, enhance the whistleblower award program, and benefit investors and our markets.\u201d<\/span><\/p>\n

    In adopting the new whistleblower rule, the SEC<\/a> underscored its purpose of providing greater transparency, efficiency, and clarity to whistleblowers.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

    Twelve years after the 164-year-old brokerage firm Lehman Brothers collapsed during the global financial crisis that had been sparked by the subprime mortgage catastrophe, last month the U.S. Securities and Exchange Commission (SEC) adopted a new rule changing parts of the agency\u2019s whistleblower program. The program, which was established by the Dodd-Frank Act in 2010, permits the agency to provide financial awards to whistleblowers who provide it with original information about fraud and securities violations. At issue in this new rule is how the SEC will evaluate and apply its award criteria based on the circumstances in each case. Commissioners voted 3-2 to adopt the final rule \u2013 which is effective 30 days after publication in the Federal Register \u2013 during their Sept. 23 meeting. The SEC said the new rule was aimed at more efficient claim processing, increased transparency to the structure used by the Commission in determining award amounts and making other changes that reflect the Commission’s experience overseeing the program.<\/p>\n","protected":false},"author":76,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,29],"tags":[1205,1690],"class_list":["post-3386","post","type-post","status-publish","format-standard","hentry","category-finance-banking","category-fraud-abuse","tag-journal-of-regulatory-compliance","tag-regulation"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/3386","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/76"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3386"}],"version-history":[{"count":0,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/3386\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3386"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3386"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3386"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}