SEC looking for better ways to reward, protect whistleblowers

Regulators from the U.S. Securities and Exchange Commission have a potent weapon in their war against fraud that harms American investors and roils the financial markets.

That is the whistleblower, marked collectively by persons commanding insider knowledge of illicit behavior. Those individuals have stepped forward time and again to spotlight wrongdoing and enable innocent third parties to recover lost monies.

SEC officials don’t hesitate to acknowledge the rewards gained from information supplied by whistleblowers. The commission reports that its whistleblower program established in 2010 has yielded more than $1.4 billion in recoveries secured through whistleblower-assisted enforcement actions.

Whistleblowers willing to come forward with information often risk much. Consequently, they are financially rewarded for their efforts in select recovery matters that qualify them for money awards.

The SEC doesn’t begrudge that. In fact, Commission Chairman Jay Clayton stresses that whistleblowers might reasonably require ramped-up reward amounts and further bolstered protection against retaliation than what is currently provided them. That view resulted recently in an agency vote endorsing new proposals that would bring material changes to the SEC’s whistleblower program. As noted in a recent article spotlighting the details, the commission will soon be seeking public comment on the following and additional recommendations:

  • Awards given to whistleblowers even following SEC-authored settlements obtained “outside the context of a judicial or administrative proceeding”
  • Upward adjustment of money awards in certain instances

The SEC is further soliciting input on whether it should set up a discretionary mechanism pursuant to which it could award whistleblowers providing information in cases that currently do not render them eligible for money recoveries. Such matters include cases where cited fraud is below a stated threshold or where sanctions being levied upon wrongdoers are notably minimal. The commission concedes that whistleblowers often provide great assistance even in such matters.

We will track the progress of the above proposals for readers as they move through and beyond the public comment period.