SEC whistleblower program changes coming

Look for new rules in fiscal year 2020

Look for the SEC to adopt new whistleblower rules soon. The Commission is expected to move on addressing items that have developed over the eight-year history of its whistleblower program “in the near future,” said SEC Chairman Jay Clayton Nov. 15. The chief of the SEC’s Office of the Whistleblower Jane Norberg echoed Clayton’s comments in remarking that she anticipates new rules being adopted in fiscal year 2020, which began last month.

The release by the SEC’s Office of the Whistleblower of its annual report to Congress triggered the regulators’ remarks (see related story). The OWB is now in its eighth full year.

‘An invaluable component’

Clayton characterized the whistleblower program as “an invaluable component” of the SEC’s enforcement efforts. He sees the program as continuing to move more efficiently and with greater effect and attributed the progress to continued cooperation among the SEC’s Division of Enforcement, the OWB, and other Divisions and Offices of the Commission. Clayton acknowledged there is room for improvement.

That improvement could come, in part, in the form of whistleblower rule amendments. In June 2018, amendments designed to improve the efficiency and effectiveness of the whistleblower program were offered (RCW, Sept. 26, 2018).

Clayton noted that the amendments seek to clarify the requirements for anti-retaliation protections following the Digital Realty case. The proposed amendments also would provide tools to increase efficiencies in the claims review process and tackle other issues.

Cap mischaracterization

Clayton did want to clear up a misperception. He noted that a proposed framework to guide the exercise of discretion by the SEC in the case of awards over $30 million was mischaracterized by some as a “cap.” Clayton said the provision “was not a ‘cap,’ it could not and was not intended to operate as a ‘cap,’ and I do not support a cap.”

Congress vested in the Commission the authority and responsibility to use its good judgement and experience to determine award amounts within the prescribed range of 10%-30% and we should do just that, stated Clayton.

Uncertainty raised

The whistleblower bar, members of Congress and others brought to Clayton’s attention that the mischaracterization raised uncertainty about the SEC’s commitment to the whistleblower program. There is concern that uncertainty, even regarding the award process for very large payouts, could deter potential whistleblowers from coming forward.

It is Clayton’s aim that, as the Commission gains even greater experience with the program, the award process will become more transparent. He believes that such a dynamic should “lead to a greater number of actionable tips, complaints and referrals, resulting in awards to meritorious whistleblowers in a more efficient manner.”

It is an expectation that the proposed enhancements to the whistleblower rules will continue to incentivize whistleblowers to provide valuable information to aid the SEC in protecting investors and markets.

Another award

On the same day that Clayton made his statement, the SEC announced an award to three unidentified individuals who jointly submitted a tip alerting the Commission to a well-concealed fraud targeting retail investors. The information provided ultimately led to a successful unidentified enforcement action. The whistleblowers, who were harmed investors who lost their retirement savings, will collectively receive a payment of over $260,000 based on current collections.

“This matter exemplifies the importance of the SEC’s whistleblower program to the agency’s enforcement efforts and commitment to protect investors,” said Norberg.