It was a moment of great satisfaction and vindication when the SEC published:"SEC Whistleblower Program Is A Black Hole Of Despair" (BrokeAndBroker.com Blog, April 9, 2015).
http://www.brokeandbroker.com/2735/sec-oig-owb/Comments on Proposed Rule: Amendments to the Commission's Whistleblower Program Rules / Release No. 34-83557; File No. S7-16-18/ From: Bill Singer / September 12, 2018https://www.sec.gov/comments/s7-16-18/s71618-173238.htm
SEC Adds Clarity, Efficiency and Transparency to Its Successful Whistleblower Award Program (SEC Release)https://www.sec.gov/news/press-release/2020-219
One controversial aspect of the SEC proposed amendments was addressed in the Final Rule: "Although the Commission did not intend to create a new restriction on, or affect the size of, Award Amounts, this proposed rule was misperceived by some as a potential new restriction on Award Amounts." at page 9 of the Final Rule. By way of summary, the Final Rule adopted the following [Ed: footnotes omitted]:The Securities and Exchange Commission ("Commission") is adopting several amendments to the Commission's rules implementing its congressionally mandated whistleblower program. Section 21F of the Securities Exchange Act of 1934 ("Exchange Act") provides, among other things, that the Commission shall pay-under regulations prescribed by the Commission and subject to certain limitations-to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action, an aggregate amount, determined in the Commission's discretion, that is equal to not less than 10 percent, and not more than 30 percent, of monetary sanctions that have been collected in the covered or related actions. On May 25, 2011, the Commission adopted a set of rules to implement the whistleblower program. After ten years of experience administering the program, the Commission is adopting various amendments that are intended to provide greater transparency, efficiency and clarity to whistleblowers, to ensure whistleblowers are properly incentivized, and to continue to properly award whistleblowers to the maximum extent appropriate and with maximum efficiency. The Commission is also making several technical amendments, and adopting interpretive guidance concerning the term "independent analysis."
at page 13 of the Final Order[T]he Commission is directing that the Office of the Whistleblower will include in its annual reports to Congress (beginning with the fiscal year 2020 report), in an aggregated manner, an overview discussion of the factors that were present in the awards throughout the year, including (to the extent practicable) a qualitative discussion of how these factors affected the Commission's determination of Award Amounts. The Office of the Whistleblower will continue to make available on its webpage, and will review and update as necessary on not less than an annual basis, information regarding its approach to processing whistleblower award claims, including the initial review and prioritization of award claims.
Finally, before I turn to our colleagues for their presentation, I want to note our appreciation to whistleblowers who, sometimes at great risk to their livelihood, report suspected securities laws violations to the SEC. Our whistleblower program has been a success because of their efforts. Working together, we have stopped frauds and prevented losses for countless investors. Today's amendments build upon the strong foundation to date and make the program even stronger. I look forward to your continued assistance in rooting out fraud and protecting investors and the marketplace.
[(1)] in roughly 75% of cases, we were limited to awarding $5 million or less by statute, and (2) in most of our cases, it turned out that after analyzing the award factors, we awarded amounts in the top quarter of the range. How, then, could we take this information and use it to help us get money to these whistleblowers faster?The amendments today provide that, for awards where the statutory maximum is in the aggregate $5 million or less and no negative award factors are present, there will be a presumption that the award be set at the statutory maximum, subject to certain exclusions that will not apply in the majority of circumstances. Again, in these cases, our review will presume that the whistleblower will get the maximum award allowed under the statute. In addition to providing greater transparency and certainty, this presumption will reduce the time the Commission would otherwise spend determining the precise award amounts. Said simply, based on our experience, we can add more certainty around time and amount in the substantial majority of cases, enhancing the effectiveness of the program for the Commission and increasing incentives for whistleblowers, all with no meaningful countervailing cost.But what about cases where the maximum possible statutory award is greater than $5 million? The evaluation will remain unchanged. . . .
[T]he whistleblower program has, in its decade of existence, become an integral part of our enforcement program. People have brought us countless tips, and many of those tips inform us for the first time of misconduct that needs to be investigated or help us connect the dots in an existing investigation. Many of these whistleblowers would have come to us even in the absence of the prospect of an award. Our ability to pay awards, however, enables us to recognize whistleblowers' contributions to the integrity of our markets in a concrete way. As Justice Ginsburg explained in Digital Realty Trust, Congress "recognize[ed] that 'whistleblowers often face the difficult choice between telling the truth and committing 'career suicide'.' "An award may encourage an individual to make the difficult choice to tell the truth by replacing the income she loses if she is fired from her job and by providing some offset for the reputational, personal, and even physical threats that whistleblowers can endure as a result of alerting us to wrongdoing.We have drawn from our decade of experience with the rule lessons about how to administer this program effectively. One lesson that has emerged is the importance of paying whistleblowers quickly. These amendments will help us to do that by focusing the time and attention of our Office of Whistleblower staff on meritorious award claims. We also have gained experience with a wide variety of whistleblower claims; the facts and circumstances are unique to each matter. The amended rule allows us to look at each matter on its facts, but also lays out the parameters that guide our decision-making and give whistleblowers greater insight into what they can expect to receive.
Increased Efficiency for OWBThe final rule, like the proposal, includes several mechanisms designed to increase the efficiency and effectiveness of our hard-working colleagues in OWB who focus on getting awards to whistleblowers. For example, the rules provide for a summary disposition mechanism that will allow the staff in OWB to issue a preliminary award denial of certain common invalid award claims. This change and others will free up resources in OWB, so that the staff can more efficiently process valid claims. . . .
Although today's rule makes improvements on the initial proposal, there are still aspects of the rule that leave inefficiencies and create uncertainties for potential whistleblowers. I am therefore, unfortunately, and for the following reasons, unable to support today's rulemaking.First, I share Commissioner Lee's serious concerns about the discretion to consider the dollar amount, and I hope that future Commissioners will exercise the discretion as carefully as we do.Second, we are providing interpretive guidance on the meaning of "independent analysis," which is a concept that impacts whether certain information provided by a whistleblower to the Commission is award-worthy. I worry this guidance will inadvertently impact the perception of the type of information the Commission considers valuable. In the guidance, we describe "independent analysis" as information that is not reasonably accessible and that is not "reasonably inferable" by the Commission. Our focus, instead, should be on the quality of the information and the analysis provided by the whistleblower. The amount of data and information available to the Commission is extensive. Given that, we should not focus on whether the staff "could have" inferred the information from what was provided, but whether the staff did infer the information prior to getting the submission.Third, I am concerned about whether the rule sufficiently protects certain whistleblowers who experience retaliation. In Digital Realty, the Supreme Court held that the anti-retaliation protections in our rule apply only to those who provide information to the Commission before they experience retaliation. But the Court gave us express discretion to say how whistleblowers can come forward. Today, by limiting the anti-retaliation protections to whistleblowers who submit information in writing, we fail to do all we can to protect those who cooperate with our exams and investigations. In other words, if a whistleblower provides information to the Commission through interviews or testimony, that whistleblower does not necessarily get the benefits of the anti-relation provision. I think we could have approached our response to Digital Realty differently in light of our nation's strong history of protecting whistleblowers, and our agency's interest in continuing to do so.