Disclaimer

The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.

Skip to Content

SEC Reforms Whistleblower Program

Changes Follow 10-Year Check-Up

In the decade’s waning months, the Securities and Exchange Commission awarded the largest payout so far — $114 million — under its whistleblower program. This reflects the program’s continued growth since Congress established it in 2010.

The SEC also recently adopted reforms to its whistleblower program in an attempt to streamline the award evaluation process. Outgoing SEC Chairman Jay Clayton promised that these “rule amendments will help [the SEC] get more money into the hands of whistleblowers, and at a faster pace.” It appears the Commissioner will keep this promise. The SEC’s fiscal year that began October 1, 2020, has already seen more than $150 million of whistleblower payouts, which is well on the way to obliterating the previous year’s $175 million.

Key changes include:

  • Expanding the bases for awards to include deferred prosecution or non-prosecution agreements with the Department of Justice and settlement agreements with the SEC outside of a judicial or administrative proceeding.
  • Clarifying that an award can be based on a tipster’s “independent analysis” only if it provides “evaluation, assessment, or insight beyond what would be reasonably apparent to the Commission from publicly available information.” While the SEC issued this interpretive guidance, this SEC position is not, in fact, new.
  • Narrowing the circumstances under which whistleblowers are protected from retaliation. This revision simply brings the SEC rule in line with what the U.S. Supreme Court had already required in Digital Realty Trust, Inc. v. Somers.
  • Creating a presumption in favor of awarding the statutory maximum 30% award amount for awards under $5 million, subject to possible exclusions. The SEC notes that most of its payouts are for awards at or under this threshold.
  • Explaining that the SEC does indeed have discretion to consider the dollar amount (and not merely percentage amount) of the award when applying its award criteria under the rule.

Overall, the SEC’s whistleblower reforms may, if anything, somewhat increase the risks to which firms are exposed, and firms should persist in their efforts to ensure securities law compliance and to handle with care any potential or actual whistleblowers.

©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.