SEC Proposes Changes To Two Whistleblower Program Rules
On February 10, 2022, the Securities and Exchange Commission (“SEC”) announced that it has proposed two amendments to the rules governing its whistleblower program. The first proposed amendment concerns award claims for related actions that would be otherwise covered by an alternative whistleblower program. The second proposed amendment affirms the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award, but not to lower an award.
Specifically, the SEC is proposing two amendments to Exchange Act Rules 21F-3 and 6, the rules governing its whistleblower program:
● The first proposed amendment addresses instances when a whistleblower from the SEC’s program receives an award from another, non-SEC, whistleblower program.
● The second affirms the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award, but not to lower an award.
Why This Is Important
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 21F to the Securities Exchange Act of 1934, establishing the SEC’s whistleblower program. Among other things, Section 21 authorizes the SEC to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful SEC enforcement actions resulting in monetary sanctions exceeding $1 million and certain successful related actions. Awards must be made in an amount equal to 10-30 percent of the monetary sanctions collected.
How This Rule Applies
Related Action Claims Covered By Another Whistleblower Program
● Under Exchange Act Section 21F(b) and Rule 21F-11, a whistleblower who obtains an award based on an SEC covered action also may be eligible for an award based on monetary sanctions that are collected in an action brought by other statutorily-identified authorities.
● The proposing rule would allow the SEC to make an award for a related action that might otherwise be covered by an alternative whistleblower program, even where the alternative whistleblower program has the more direct or relevant connection to the related action in certain circumstances. The proposing rule offers multiple potential approaches:
Comparability: Under this approach, if a claimant files a related-action award application, and the alternative award program is not comparable to the SEC’s program, because the statutory award range is more limited, awards are subject to an award cap, or the other award program is discretionary and not mandatory, the SEC would treat the non-SEC action as “related” for purposes of the SEC’s award program, regardless of whether the alternative award program has a more direct or relevant connection to the action. The SEC also would make an award on a potential related action without regard to which program had the more direct and relevant connection to the action if the maximum award that the SEC could pay on the action would not exceed $5 million.
Whistleblower Choice: The proposed release offers an alternative option that would allow a meritorious whistleblower to decide whether to receive a related-action award from the SEC or the authority administering the other award program. The whistleblower would not be required to select which program to receive the award from until both programs had determined the award amount they would pay.
Offset Approach: The SEC would determine the award percentage it would pay on the related action but offset from the SEC’s total award payment by the dollar amount the whistleblower received for the related action from the other award program.
Topping Off Approach: The SEC would have the discretion to increase the award on the SEC covered action (up to 30 percent) if the SEC concludes that the other whistleblower program’s award for the related action was inadequate for any reason.
● Under the Comparability or Whistleblower Choice approach, the whistleblower would be required to make an irrevocable waiver of any claim to an award from the other whistleblower award program.
Discretion To Consider The Dollar Amount Of The Award
● In 2020, amendments added language to Rule 21F-6 stating that the SEC has discretion to consider the dollar amount of a potential award when making an award determination.
● The proposed changes would affirm the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, but would eliminate the SEC’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.
The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.
Questions Or Concerns About Voluntarily Providing Information To The SEC And Whistleblower Award Eligibility?
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. SEC whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.
If you have questions or concerns about voluntarily providing information to the SEC regarding violations of the federal securities laws, including questions about whistleblower award eligibility, or the form and manner in which the information is required to be provided to the SEC, please contact Kehoe Law Firm, P.C. by completing the form above on the right, sending an e-mail to [email protected] or by contacting either Michael Yarnoff, Esq., [email protected], (215) 792-6676, Ext. 804, or John Kehoe, Esq., [email protected], (215) 792-6676, Ext. 801.