SEC Amps Up Whistleblower Program

The SEC adopted amendments to rules governing whistleblowers that will (i) expand the scope of award eligibility (and the types of actions that will qualify for such awards), and (ii) grant the SEC discretion to award larger amounts where the whistleblower's assistance results in multiple successful recovery actions (even if such ancillary proceedings did not involve the SEC).

Under the final amendments to SEA Section 21F ("Securities whistleblower incentives and protection,") the SEC expanded the eligibility rules for the whistleblower program to include covered judicial, administrative or non-SEC related actions. The SEC defined a "qualified non-SEC related action" to include an instance where (i) the non-SEC award program would result in a significantly smaller award, (ii) the non-SEC program is permitted to use discretion in determining award amounts or (iii) the maximum award the SEC could pay for a non-related action does not exceed $5 million.

The SEC also granted the SEC discretion to consider the statutory dollar amount of any non-related action awards for the purpose of increasing an award granted under the SEC's program. The amendments make clear that the SEC cannot use its discretion to decrease any award. The final rule also includes clarifying definitions and conforming amendments.

The final rule will become effective 30 days after publication of the rule in the Federal Register. Once effective, the rule will apply to any outstanding whistleblower applications that have not yet been decided and any future award applications.

SEC Chair Gary Gensler supported the final rule and said that the rule incentivizes whistleblowers to continue to report securities law violations by protecting their potential awards.

SEC Commissioner Hester M. Peirce dissented, asserting that the final rule carries harmful consequences for both the whistleblower program and the SEC's rulemaking process. Ms. Peirce expressed concern that the final rule is substantively inconsequential and further complicates the rules governing the whistleblower award program. SEC Commissioner Mark T. Uyeda added that the amendments "are not aimed at remediating any known or identified weaknesses with the current whistleblower rules." He stated that "there is neither a negative trend for claims and awards justifying amendments nor clear benefits resulting from the revisions[,]" and maintained that the SEC should have evaluated the whistleblower program to determine if change was necessary, rather than just amending the program.