On February 10, 2022, the US Securities and Exchange Commission proposed amendments to rules governing the SEC’s Whistleblower Program. The proposed amendments principally focused on two topics: (1) issues related to awards when a tip is eligible under both the SEC whistleblower program and another whistleblower program; and (2) the SEC’s ability to consider the absolute dollar amount of a potential award when deciding how much to award.
The impetus behind the proposed amendment regarding multiple tips was the SEC’s September 2020 amendment of Rule 21F-3 to prevent multiple recoveries for the same tip when made to both the SEC and another enforcement authority. The amended Rule required the SEC to assess whether the misconduct had a more “direct or relevant” connection to the SEC’s program or another program. If the SEC determined the misconduct was most closely related to violations of federal securities law, the claimant would be required to waive his/her right to an award under the other applicable whistleblower program before receiving an award from the SEC. If a claimant had already received an award from another program, he/she could not receive an award from the SEC.
In its February 10th release, the SEC acknowledged whistleblowers could receive very different awards for the same information under different whistleblower regimes because the maximum awards available under some whistleblower programs are substantially lower than those available under the SEC program. To address the seeming unfairness presented by different programs, the SEC is seeking public comment as to three possible revisions to this rule. Under what the SEC calls the “Comparability Approach,” the SEC proposes that the bar on multiple recoveries does not apply if the other whistleblower program does not offer whistleblower rewards “comparable” to those offered by the SEC. The new amendment also proposes that if the maximum award the SEC could provide was $5 million or less, the SEC would not consider the other potential award program in its decision as to whether to grant an award.
As an alternative to the Comparability Approach, the SEC is also seeking comment on what it calls the “Whistleblower’s Choice Option.” Under this approach, a claimant could only receive one award, but the claimant, not the SEC, would choose under which program he/she would receive the award. The SEC is also seeking comment on two other alternatives, the “Offset Approach” and the “Topping-Off Approach.” Under the Offset Approach, the SEC would provide an award to a claimant who received an award under another whistleblower program, but in doing so would calculate what it thought was the appropriate award, and then reduce the amount paid out by whatever the claimant had received from the other program. Under the Topping-Off Approach, the SEC could choose to “enhance or ‘top off’” an award from another whistleblower program up to the maximum allowed under the SEC whistleblower program.
The SEC’s second proposed change would amend Rule 21F-6 to provide the SEC with the authority to consider the dollar amount of a potential award for the limited purpose of increasing a whistleblower’s award amount. Under current rules, the SEC may consider the dollar amount of a proposed award in order to raise or lower the award.
In addition to the above changes, the SEC proposed “minor modifications” to Rules 21F-10 and 21F-11 so that those rules would “conform to the proposed changes” to Rules 21F-3 and 21F-6. In the same release, the SEC also proposed correcting two scrivener’s errors, one in Rule 21F-4 and one in Rule 21F-8. Rule 21F-4 contains definitions of certain terms used in the whistleblower rules. Rule 21F-8 discusses eligibility for whistleblower awards.
All of the proposed changes to the rules are open for public comment through April 11, 2022.
SEC Press Release | SEC Proposed Rule | Fact Sheet