April 11 Deadline Nears for Public Comments on SEC Whistleblower Program Amendments

SEC Whistleblower

April 11 is the deadline for the public to submit comments on proposed rule changes to the U.S. Securities and Exchange Commission (SEC) Whistleblower Program. The proposed amendments are meant to ensure that qualified whistleblowers are properly rewarded. One of the proposed changes concerns related action awards for enforcement actions carried out by other agencies and is strongly supported by whistleblower advocates.

The proposed rule changes were announced by the SEC on February 10. The first proposed amendment allows the SEC to pay related action awards even when the agency that carried out the related action has its own whistleblower program. The second proposed amendment affirms that the SEC can consider the potential dollar amount of an award when deciding to increase an award size but eliminates the SEC’s ability to consider dollar amount for the purpose of decreasing an award.

“These amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission,” said SEC Chair Gary Gensler. “The first proposed rule change is designed to ensure that a whistleblower is not disadvantaged by another whistleblower program that would not give them as high an award as the SEC would offer. Under the second proposed rule change, the SEC could consider the dollar amounts of potential awards only to increase the whistleblower’s award. This would give whistleblowers additional comfort knowing that the SEC could consider the dollar amount of the award only in such cases.”

“The proposed amendments are an excellent step in the right direction,” said leading whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto (KKC). Kohn, who has previously worked closely with SEC Commissioners on whistleblower program rules, added that “this initiates a process that should ensure that the SEC complies with the law, and pays rewards when a whistleblower’s information triggers multiple fines under various laws, including those administered by the SEC.”

On March 22, Kohn and his partners at KKC sent a letter to the SEC voicing strong support for the proposed related action rule change. The attorneys support the rule change because it fixes issues with the current rule which “violates the law, undermines statutory intent of the [Dodd-Frank Act], and disincentivizes whistleblowers,” according to the letter.

One of the major issues with the current rule, according to whistleblower advocates, is that it disincentivizes whistleblowing by requiring whistleblowers to rely on outdated and ineffective whistleblower reward programs. KKC’s letter states that “[t]he current rule creates substantial risks for whistleblowers whose related action cases implicate older reward laws that are purely discretionary and/or have very low mandatory reward caps.”

“The current rule must be amended as proposed by the Commission,” the letter continues. “It causes confusion as to reward eligibility, discourages whistleblowers from stepping forward, interferes with a whistleblower’s willingness to fully cooperate with other federal or state law enforcement agencies, and causes significant hardship on a small class of whistleblowers covered under the deficient reward laws.”

Comments on the proposed rule can be submitted via the SEC’s website, e-mail, or paper sent through the mail. The SEC will accept comments until April 11.


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