Businessman Blowing Whistle Isolated on White Background

Whistleblower advocates are expressing relief at reforms to the U.S. Securities and Exchange Commission’s (SEC’s) program that pays financial rewards for enforcement tips. Some had feared the regulator was preparing to undermine the highly successful initiative.

In a 3-2 decision, the commission voted in favour of amendments to the whistleblower rules, which, the SEC said, “are designed to provide greater clarity to whistleblowers and increase the program’s efficiency and transparency.”

The amendments include measures to make the processing of whistleblower claims more efficient and to introduce additional tools to “appropriately reward” whistleblowers for their efforts, the commission said in a release.

The amendments also confirm that award amounts will be solely determined by the factors set out in the commission’s whistleblower rules, and won’t be subject to further review to determine whether amounts are too large or small.

“Today’s rule amendments will help us get more money into the hands of whistleblowers, and at a faster pace,” said SEC chair Jay Clayton in a statement.

“Experience demonstrates this added clarity, efficiency and transparency will further incentivize whistleblowers, enhance the whistleblower award program and benefit investors and our markets,” he said.

To date, the SEC has awarded over US$523 million to tipsters in cases that have returned over US$2.5 billion to investors.

In response to the SEC’s action, Stephen Kohn, a whistleblower attorney at Washington, D.C.–based Kohn, Kohn & Colapinto and the chairman of the National Whistleblower Center, issued a statement expressing relief that the commission didn’t make damaging changes to the program.

“Whistleblowers scored a major victory today when the SEC backed down from two proposals that would have devastated its whistleblower reward program,” Kohn said.

“The commission did not approve proposals that would have triggered an automatic reduction in the amount of rewards issued in large enforcement actions,” he noted, adding that the commission also “changed a proposal that would have disqualified countless numbers of whistleblowers who simply failed to file a mandatory form.”

“The commission modified its proposal to ensure that qualified whistleblowers would remain eligible despite minor technical deficiencies,” Kohn said.

He also noted that all the commissioners expressed support for the concept of paying significant financial rewards for tips that lead to successful enforcement action.

“The unanimity of support for the basic principles underlying the whistleblower reward law sends a powerful message to Wall Street,” Kohn said. “Despite their best efforts to undermine whistleblower protections, the worst features contained in the proposed rule changes were not implemented.”

However, Kohn noted that one provision will likely face a court challenge.

“We are extremely troubled by the commission’s adoption of a ‘related action’ rule that is contrary to the statute and public interest,” he said. “The rule as approved opens the door to stripping whistleblowers from obtaining rewards under numerous laws administered by other agencies.”

The proposals adopted today will take effect 30 days after publication in the Federal Register.