The Law Firm of Piacentile, Stefanowski & Malherbe LLP

SEC Proposes New Rule Amendments to Help Strengthen its Whistleblower Program

Since the formation of the Securities and Exchange Commission’s (SEC) Whistleblower Program in 2011, original information provided by whistleblowers has led to enforcement actions in which the SEC has recovered over $1.2 billion. The whistleblower program was established to incentivize individuals to report high-quality tips to the Commission and help the agency detect wrongdoing, and better protect the investors in the marketplace.  

The SEC recently announced new changes that would strengthen its program and help achieve its goal. In its proposed changes, it would reverse two very controversial rule amendments that it adopted in 2020, and that affected some key rules in its whistleblower’s reward program. The first proposed rule prohibits the SEC from adjusting awards up and down based on the magnitude of the potential award. The Commission’s whistleblower program entitles individuals to receive between 10-30% of the amounts collected from the defendants based on their information. This rule obviously raised concerns when adopted by the SEC because the Agency could consider some awards as “too big” and enforced this rule to reduce the award paid to a meritorious whistleblower. 

The second proposed improvement to the Commission’s whistleblower program was to expand its “related action” award rules. Under this rule, the SEC is authorized to pay a whistleblower in certain successful “related actions” if those actions are based on the same original information the whistleblower provided where the SEC obtained monetary sanctions totaling more than $1 million. In these “related actions,” the statute requires the Commission to pay an award to the whistleblower of 10-30% of any money collected by the Agency. This new proposal looks to ensure the whistleblower will not obtain less than the 10% floor required by the statute, either by the SEC, the other agency, or some combination of the two.