Securities and Exchange Commission adds incentives for whistleblower tips
The Securities and Exchange Commission is enhancing its whistleblower program, which has awarded some $1.3 billion to 278 individuals since it was established 12 years ago.
The SEC on Aug. 26, 2022, said it adopted two amendments to the rules governing the program. The first rule change allows the Commission to pay whistleblowers for their information and assistance in connection with non-SEC actions in additional circumstances.
Specifically, the SEC amendment allows the Commission to pay whistleblower awards for certain actions brought by other entities, including designated federal agencies, in cases where those awards might otherwise be paid under the other entity's whistleblower program. The amendments allow for such awards when the other entity’s program is not comparable to the Commission’s own program or if the maximum award that the Commission could pay on the related action would not exceed $5 million.
The second would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.
The amendments were expected to become effective 30 days after publication in the Federal Register.
The two changes will enhance the whistleblower program, which was established in 2010 and “has greatly aided the Commission’s work to protect investors,” said SEC Chair Gary Gensler.
“I think that these rules will strengthen our whistleblower program. That helps protect investors,” Gensler added.
U.S. whistleblower programs go well beyond helping ensure the proper functioning of U.S. investment markets, said Scott Williams, CEO of Ethic Alliance.
“U.S. whistleblower programs encourage public involvement and have a far-reaching impact, from protecting our financial markets, supporting economic sanctions, counter-narcotics efforts, aiding national defense, and fighting money laundering, healthcare and tax fraud. The new rule that allows the Commission to pay whistleblowers for information and assistance in non-SEC actions has the potential for enormous positive effects. Rewarding individuals that come forward with information and assistance, regardless of where the information was originally reported, enhances the cost-benefit decision that individuals make before coming forward, and should create even more momentum among the public to help enforce the laws of our country,” Williams said.
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.
The SEC’s awards can be very hefty. During July and August 2022, the agency awarded more than $30 million to several whistleblowers.
In August, the SEC announced awards of more than $16 million to two whistleblowers who provided information and assistance in a successful SEC enforcement action.
The first whistleblower prompted the opening of the investigation and provided information on difficult-to-detect violations. This whistleblower also identified key witnesses and provided critical information, which helped staff in their investigation. As a result, this whistleblower will receive an award of approximately $13 million. The second whistleblower submitted important new information during the course of the investigation and will receive an award of more than $3 million.
"These whistleblowers reported critical information that aided the SEC’s investigation and provided extensive, ongoing cooperation that helped stop the wrongdoing and protect the capital markets," said Creola Kelly, Chief of the SEC’s Office of the Whistleblower, in a statement.
And in July, the agency awarded more than $17 million to a whistleblower whose information prompted SEC staff to open a new investigation that led to the successful covered action. The whistleblower also provided SEC Enforcement staff with detailed information and documents throughout the investigation. Further, because the same information led to the success of the related action, the whistleblower is also entitled to an award based on amounts collected in the related action, the SEC said.
Contact Ethic Alliance at info@ethicalliance.com
Related links: https://www.sec.gov/news/press-release/2022-151 ; https://www.sec.gov/news/press-release/2022-139 ; https://www.sec.gov/news/press-release/2022-125
Photo by Anne Nygård on Unsplash