SEC Says it Won’t Limit Whistleblower Payouts

Regulator proposes changes to two amendments adopted during Trump administration that it says could have been used by future commission to reduce awards

‘These amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law,’ SEC Chairman Gary Gensler said Thursday.

The Securities and Exchange Commission said Thursday that it was revising two amendments governing the rules of its whistleblower program to address concerns that they would discourage tipsters from coming forward.

The two amendments were adopted in September 2020, during the Trump administration. SEC Chairman Gary Gensler, a Democrat tapped by President Biden, said last year that one amendment could be used by a future commission to lower an award because of its size. Another amendment could prevent the SEC from making an award in related enforcement actions brought by other authorities if another whistleblower award program might also apply to the action, he said.

The SEC said the proposed changes to the two amendments would allow the regulator to increase a possible award, but not lower it, and to pay whistleblower awards for actions that would be otherwise covered by a non-SEC whistleblower program.

“These amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission,” Mr. Gensler said in a statement Thursday.

The proposed change regarding the SEC’s discretion to consider the dollar amount of an award would “give whistleblowers additional comfort knowing that the SEC could consider the dollar amount of the award” only to increase it, Mr. Gensler said. The other change would “ensure that a whistleblower is not disadvantaged by another whistleblower program that would not give them as high an award as the SEC would offer,” he said.

The proposed changes come after the SEC signalled last summer that it would look into revising the two amendments, which were adopted with a vote of 3-2, with Democratic members opposing. The SEC said in August that it would largely pause enforcement of parts of the two amendments in the interim.

The SEC’s whistleblower program was enacted in 2011 as part of the 2010 Dodd-Frank Act. Under the program, a whistleblower can receive an award totalling between 10% and 30% of the fines levied in SEC civil enforcement actions stemming from a tip, assuming the fines total more than $1 million. The SEC said its whistleblower program has issued more than $1.2 billion to 245 individuals since it launched.

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