Senators Send Letter to SEC Denouncing Proposed Changes to Whistleblower Program

Ahead of a pivotal vote on proposed changes to the Securities and Exchange Commission (SEC) Whistleblower Program, several U.S. Senators sent a letter to the SEC expressing their concern about the controversial proposals. Whistleblower advocates warn that the proposed changes would undermine the success of the program, and, in their letter, the Senators express similar sentiments.

On September 17, Senators Sherrod Brown, Elizabeth Warren, Chris Van Hollen, Jack Reed, Patrick Leahy, and Christopher A. Coons sent a letter addressed to SEC Chairman Jay Clayton. In the letter, they express their support of the whistleblower program and urge the SEC to not approve changes that could undermine its success. In particular, they point to two controversial proposed rules concerning a “soft cap” on large whistleblower awards and the definition of “original information.”

The Senators begin the letter by stating:

We are concerned that the Commission is considering detrimental revisions to the existing whistleblower rules by adopting the Proposal with significant elements of discretion and uncertainty that would substantially undermine the SEC’s whistleblower program. The Commission must preserve the whistleblower program’s incentives and structure to ensure that it remains effective as a means to uncover fraud and misconduct.

After acknowledging the “unqualified success” of the program, the Senators address two specific proposed rule changes. The Senators denounce a proposed rule that would implement a “soft cap” on the largest whistleblower awards by allowing the SEC to lower the amount of the awards simply due to their size. The Senators state that the SEC must not approve any rule which institutes a cap on whistleblower awards. Moreover, they explain that “cloaking the ability to reduce or limit the dollar amount of an award as an ‘adjustment’ to ‘achieve the goals and interests’ of the whistleblower program is disingenuous and would impair the integrity and proven success of the program. Such an “adjustment” is contrary to Congressional intent, public policy, and the goal of investor protection.”

The other piece of the proposal denounced by the Senators is a rule change that would alter the level of “independent analysis” needed to qualify as “original information” in a whistleblower tip. Whistleblowers must provide “original information” in order to be eligible for a whistleblower award. The Senators write that the proposed change “would permit the SEC to create an insurmountable hurdle for a whistleblower to establish original information based on ‘independent analysis.’” The Senators explain that this vague standard for independent analysis would be a disincentive to whistleblowers and thus “would be contrary to public policy and the legislative purpose of the whistleblower law.”

In conclusion, the Senators write:

At a time when members of Congress have proposed bipartisan legislation to strengthen whistleblower protections, the SEC should not seek to reduce awards or inject uncertainty and ambiguity in the evaluation of whistleblower tips. The SEC should instead work with Congress to protect whistleblowers and ensure that successful tips result in awards as intended under the law.


The Senators’ Letter

Protect the SEC Whistleblower Program

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