Today, the U.S. Securities and Exchange Commission (SEC) approved rule changes to its highly successful whistleblower program in a 3-2 vote. After the changes were first proposed in 2018, whistleblower advocates were vocal in opposing a number of the changes which they warned threatened the efficacy of the program. In response, the SEC removed two of these controversial rule changes from its final proposal.
“Whistleblowers scored a major victory today when the SEC backed down from two proposals that would have devastated its whistleblower reward program,” said Stephen M. Kohn, a leading whistleblower attorney at Kohn, Kohn & Colapinto and the Chairman of the Board of Directors of the National Whistleblower Center, in a statement released in response to Commissioners’ public comments at today’s vote. Kohn and other whistleblower advocates repeatedly met with SEC officials concerning the rule changes.
The SEC did not approve proposals that would automatically reduce the largest whistleblower awards. The SEC also modified a proposal that would have set strict requirements that could have disqualified countless whistleblowers who failed to file a mandatory form. According to Kohn, “the Commission modified its proposal to ensure that qualified whistleblowers would remain eligible despite minor technical deficiencies.”
Throughout the meeting, every official who spoke, including Chairman Jay Clayton, affirmed the SEC’s commitment to an effective whistleblower program and acknowledged the crucial role whistleblowers play in the agency’s enforcement efforts. According to Kohn, “the unanimity of support for the basic principles underlying the whistleblower reward law sends a powerful message to Wall Street.”
However, the dissenting opinions of Commissioners Lee and Crenshaw echo concerns raised by whistleblower advocates about several other aspects of the rule change. These include the loosening of anti-retaliation protections for whistleblowers and heightened criteria for “independent analysis” to be deemed “original information.” Kohn stated that “although the program was not gutted, the dissents from two Commissioners demonstrate that work needs to be done to ensure that whistleblowers are fully protected, and the intent of Congress is achieved. We will continue to work with Congress and the Commission to make sure this highly effective program works for every qualified whistleblower.”
Another newly approved rule change, which Lee and Crenshaw reference in their dissents, allows the SEC to deny “related action” rewards if the action is covered by a separate whistleblower rewards program. Kohn stated that “we are extremely troubled by the Commission’s adoption of a “related action” rule that is contrary to the statute and public interest. The rule, as approved, opens the door to stripping whistleblowers from obtaining rewards under numerous laws administered by other agencies. Congress wanted to ensure that this type of shell game could not be played to the detriment of whistleblowers. We expect that this provision will be challenged in court.”
Whistleblower News Network will provide additional coverage and analysis once the details of the 191-page final rule and comment have been studied.