On Thursday, the Securities and Exchange Commission voted on proposed amendments to rules governing its whistleblower award program. The program was established in 2010 by the Dodd-Frank Act and allows for individuals who provide information about fraud and securities violations to receive an award equal to 10-30% of the proceeds the SEC recovers in an enforcement action.
One proposed revision to the rules could limit the size of whistleblower awards where the SEC collects more than $100 million in sanctions. The proposal was motivated by concerns that awards to tipsters were getting too large, following SEC payouts of $50 and $33 million in March. SEC Chairman, Jay Clayton, supports the proposal and believes that its implementation would lead to more proportionate and quicker outcomes. Others argue that permitting the reduction of large awards may discourage whistleblowers from reporting high-value fraud and could effectively result in a cap on awards. Such limits do not exist in other whistleblower programs or under the False Claims Act.
The SEC also proposed a rule that would allow the Commission to increase the size of awards (up to the 30% cap) where the potential payout is less than $2 million, with the goal of incentivizing tipsters to report fraud and securities violations that may be serious, if not large.
Additionally, the SEC proposed an amendment that would allow the Commission to pay awards to whistleblowers based on deferred prosecution agreements, non-prosecution agreements, and SEC settlements that do not result from an enforcement proceeding. The purpose of the amendment is to reward whistleblowers who contribute valuable information, regardless of the mechanism of enforcement the government uses.
Other proposed rules include a revision to the definition of “whistleblower” for retaliation purposes, changes to the process for reviewing claims for awards, and clarifications of policies and procedures.