According to the respective SEC’s order, the award was paid to the whistleblower that had disclosed serious financial mismanagement for having “provided original information [previously unknown] to the Commission that led to the successful enforcement”. Moreover, the whistleblower had “provided Enforcement staff with extensive and ongoing assistance during the course of the investigation, including identifying witnesses and helping staff understand complex fact patterns and issues related to the matters under investigation” and had “made persistent efforts to remedy the issues, while suffering hardships”.
This is not the biggest award ever paid since the SEC’s whistleblower programme was established. It was last June that the SEC awarded the record payout of $50 million; before that, in 2018, the same amount was shared by two whistleblowers, whilst the biggest individual award at that time amounted to $39 million and was also paid in 2018. The SEC has paid a total amount of around $520 million to whistleblowers since it launched the programme in 2011.
The SEC’s policy of awarding whistleblowers is regulated by article 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to the article, an individual that voluntarily and timely discloses original and reliable information about a violation of the securities legislation to the SEC leading to a successful enforcement and the collection of over $1 million in the form of sanctions may count on an award equal to from 10 to 30 per cent of the amount of the sanctions*. The SEC is also guided by the rules of implementation of the whistleblower programme, provided for by section 21F of the Exchange Act and containing, among other things, the criteria for increasing and reducing the amount of awards.
In early September 2020 the SEC should have voted on amendments to the rules, but the consideration of this issue was ultimately postponed. The previously scheduled vote was already postponed last October because of a great number of comments that had been submitted: the new rules are reported (for instance, here) to have drawn over 100,000 negative comments. It was mostly the provisions regarding a cap on awards and new requirements applied to the whistleblowers claiming them that gave rise to criticisms. In particular, the SEC proposed to pay only a minimal award (10 per cent) when the amount of sanctions exceeds $300 million. Some experts (see, for instance, here) believe that such restrictions will undermine the positive effect of the whistleblower programme and deter potential reporting. The SEC’s proposal to consider as whistleblowers that can claim awards only those who initially submit their tips, complaints of referrals using the official TCR system may have even more negative implications. The problem is that in most cases the initial interaction between the person who wishes to report unlawful activities in a company and the SEC is informal, without resorting to the TCR system, and takes place through other multiple forms and contacts published on the website of the agency, for example:
- the SEC’s Contacting US channel,
- Email or fax contacts for correspondence
- Contact information of different divisions of the SEC, its Chairman and Commissioners,
- Investor Compliant Form and others.
The proposed changes will therefore exclude the individuals that timely report original and reliable information about violations from the pool of whistleblowers that can be rewarded only on formal grounds. According to experts in the field of whistleblower protection, such bureaucratization of the reporting process will considerably reduce the number of complaints and nurture widespread mistrust in the SEC.
Finally, the limitation of the power to protect whistleblowers against reprisals is yet another criticized proposal of the SEC. In particular, the agency suggests repealing exiting regulations that empower the SEC to sanction the company that dismisses its employee for making a disclosure, including the internal one, meaning that the whistleblower uses the internal reporting channels of the company without applying to any supervisory authorities (more detailed information about the origins of this proposal is available, for instance, here). Experts dealing with the protection of whistleblowers are firmly opposed to such changes, arguing that it is the internal channels that most whistleblowers use to make disclosures and they will be left unprotected against potential reprisals of their employers.
*It should be noted that awards are paid from the Investor Protection Fund specially set up by the SEC and predominantly replenished by the sanctions imposed in the framework of judicial or administrative proceedings against the violations of the securities legislation.