SEC Amends Whistleblower Award Rules

Author: Juliana M. Ness, Cosgrove Law Group, LLC

On Wednesday, September 23, 2020, the Securities and Exchange Commission (the “SEC”) amended rules within their Whistleblower program. Their primary motivations behind these new amendments are to increase efficiency, transparency, and provide greater clarity within their decade-old program [1]. Since the inception of the program, The SEC has awarded nearly $523 million to whistleblowers. These new changes directly affect award amounts, establishing new criteria for whistleblower payouts, along with definitions to clarify the program’s award process.

The passed amendments assert the SEC’s authority in determining award amounts for whistleblowers[2].  An action defined within the Dodd-Frank Wall Street Reform and Consumer Protection Act (The Dodd-Frank Act) specifies that the SEC should determine an award amount that lies within 10-30 percent of monetary sanctions collected[3]. Since the development of the whistleblower program, the SEC has used this rule. A proposed amendment in July of 2018 would have codified the SEC’s role in determining award amounts (including downward adjustments1) within the Whistleblower program itself2. The SEC scrapped that proposal, claiming that the stipulation is not necessary to add. Similarly, another proposal enumerated in June of 20183 advocated for caps on awards. The SEC also rejected this proposal due to controversy over the idea of award caps. Critics of the proposal argued that caps would disincentivize individuals from blowing the whistle on critical violations. 

One of the amendments passed adds a presumption that whistleblowers who qualify for awards below $5 Million will receive the maximum statutory award amount. (30% of Monterey sanctions)2 This amendment to rule 21F-6(b) aims at creating more of an incentive for whistleblowers that would otherwise receive a lower award amount. Other awards over $5 million will remain under the determination of the SEC’s award criteria within Rule 21F-6. The enumerated criteria include both positives and negatives that affect award amounts. Examples of these criteria include but are not limited to the significance of the tip, the extent of assistance, delay in reporting, and integrity with compliance systems.  

The SEC also voted to clarify definitions of key terms within the rules. Rule 21F-2 modifications were aimed at establishing a uniform definition of “Whistleblower” in response to a 2018 Supreme Court decision.1,[4]These changes impact retaliation policies. Likewise, the SEC narrowed the scope of “related actions” concerning whistleblower awards1. The changes within rule 21F-3 state that any whistleblowers that pass on original information to another enforcement agency may also receive a reward for the SEC if that information led to the recovery of over 1 million in monetary sanctions3. The agencies included are the Attorney General of the United States, an appropriate regulatory authority, a self-regulatory organization, or a state attorney general in a criminal case3. This rule does not apply in cases where a sperate whistleblower award from another enforcement agency is more appropriate.  In short, the definition specifies that a whistleblower cannot obtain two separate awards for the same information and reports. 

The amendments take effect 30 days after publication in the Federal Register.

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[1] Securities and Exchange Commission. (2020, September 23). Press Release. Retrieved September 25, 2020, from https://www.sec.gov/news/press-release/2020-219

[2] Barbarino, A. (2020, September 23). SEC Rule Asserts Authority To Adjust Whistleblower Awards. Retrieved September 25, 2020, from https://www.law360.com/assetmanagement/articles/1312156/sec-rule-asserts-authority-to-adjust-whistleblower-awards

[3] Zuckerman, J., Stock, M., & Krems, K. (2020, September 24). SEC Adopts Amendments to Whistleblower Rules that Will Strengthen Some Aspects of the Program But Also Reduce Large Awards and Limit Protection Against Retaliation. Retrieved September 25, 2020, from https://www.natlawreview.com/article/sec-adopts-amendments-to-whistleblower-rules-will-strengthen-some-aspects-program

[4] Wilson, S., & Achilles, J. (2018, March 3). Four key takeaways from the Supreme Court's decision in Digital Realty Trust, Inc. v. Somers, 138 U.S. 767  (2018): Perspectives: Reed Smith LLP. Retrieved September 25, 2020, from https://www.reedsmith.com/en/perspectives/2018/03/four-takeaways-from-supreme-court-in-digital-realty-trust-inc-v-somers