SEC Pauses Enforcement of Some Whistleblower Program Rules

The SEC suspended enforcement of two whistleblower rules that were supposed to help SEC-registered companies get information from whistle-blowers who may have evidence of wrongdoing. The SEC is required by law to investigate possible wrongdoing in companies that file with the commission, and the rules were supposed to make it easier for the SEC to get information about potential wrongdoing from those who have it.

The Securities and Exchange Commission has temporarily paused enforcement of a rule from last year that could have required public companies to disclose more of their internal financial information.

The Securities and Exchange Commission is a federal agency under the U.S. Department of Justice that enforces rules prohibiting fraud and insider trading on Wall Street. The SEC’s whistleblower program allows companies to reward employees and others for reporting violations of securities laws. The SEC has vowed to take action against companies that fail to pay up.


The Securities and Exchange Commission said it would look at amending two changes to its whistleblower reward program rules, which were enacted last September, and that it would suspend enforcement of portions of the amendments in the meanwhile.

SEC Chairman Gary Gensler said earlier this week that he had directed staff to submit possible changes to the two amendments for the agency’s consideration later this year, in response to concerns that they might deter whistleblowers from coming forward. The two regulations were included in a package of changes adopted by the SEC last year on a 3-2 vote, with Democratic members Allison Herren Lee and Caroline Crenshaw voting no.

As part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC established a whistleblower program in 2011. A whistleblower may earn an award of between 10% and 30% of the penalties imposed in SEC civil enforcement proceedings resulting from a tip under the program, provided the fines amount more than $1 million.

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According to Mr. Gensler’s comments on Monday, one modification might be utilized by a future panel to reduce an award due to its magnitude. Another amendment would prohibit the SEC from issuing an award in comparable enforcement actions filed by other law enforcement and regulatory agencies if the activity is also covered by another whistleblower reward program.

Mr. Gensler said the SEC staff is contemplating revising the regulations to enable the agency to issue rewards for similar acts that would otherwise be covered by an alternate whistleblower program that isn’t comparable to the SEC’s program.

According to the statement released Monday, the SEC staff will also look into clarifying that the agency would not reduce an award based on its monetary amount.

The Securities and Exchange Commission (SEC) released a statement on Thursday establishing new procedures for the interim while it examines potential modifications. The SEC said that it will continue to examine monetary amounts solely in relation to the portion of the regulations that expressly permits such discretion to be used to increase awards.

If there were no negative circumstances, such as an unjustified delay in reporting suspected wrongdoing, a 30 percent limit would be applied automatically to awards anticipated to be $5 million or less.

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During the interim period, the SEC would exclude some qualified awards from the amendment’s restrictions or inform award winners that they are impacted by the changes in the case of the “related-action” rule.

According to the procedural notification, applicants may then seek a delay in the processing of their applications following the rule-making.

In a joint statement released Thursday, the two Republican commissioners slammed the procedural modifications. The procedural modifications essentially invalidated the existing SEC regulations, according to Hester Peirce and Elad Roisman, and were intended to guarantee that the two rules are substantively disregarded while suggested revisions are developed and evaluated. They claimed that such behavior lowers the law’s certainty.

In a statement, they added, “This course of action is foolish and maintains a dangerous and unproductive trend.” “The Commission’s abandonment of legally approved rules without notice or opportunity for discussion increases the possibility that the rules it adopts in accordance with the Administrative Procedure Act will be interim at best and transitory at worst.”

Jordan Thomas, who sued the SEC over the two changes in January, filed a joint petition with the SEC on Friday in federal court in Washington, D.C., to put the case on hold in light of the SEC’s commitment to examine altering the regulations.

“It’s a huge deal; we expressed our concerns in January, and less than six months later, the commission decided to modify the regulations we were challenging and stop enforcing the two rules,” he added. “This is a major victory for whistleblowers and a setback for those who have defended Wall Street interests.”

Other lawyers who defend whistleblowers applauded the SEC’s efforts.

In a statement released Friday, Stephen M. Kohn, chairman of the National Whistleblower Center’s board of directors, stated, “The policy statement published by the SEC on August 5, 2021 is a home run for whistleblowers.” “In safeguarding its very successful program against administrative abuses, the SEC has done the right thing.”

Mengqi Sun can be reached at [email protected].

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The Sarbanes-Oxley Act allows whistleblowers to receive 10% to 30% of the money recovered in settlements and judgments. This is a very attractive offer, but the rules are the rule. These rules, designed to ensure that the SEC can acquire any information that could help in its investigations, are now under scrutiny from the OSC, who says they aren’t enforced.. Read more about wall street journal risk and return and let us know what you think.

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