SEC amends tipster-award rules to pay for non-SEC actions
The US Securities and Exchange Commission (SEC) adopted new rules amending its whistleblower program, which pays monetary awards to individuals who voluntarily provide information about violations of the federal securities laws.
The two amendments relate to the rules governing monetary awards made to whistleblowers who report potential wrongdoing or provide assistance in connection with non-SEC actions. It also affirms the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award, but not to lower the bounty.
The second rule clarifies the regulator’s discretion in determining award amounts where those awards might otherwise be paid under other entities’ insider programs. This could change how the SEC pays out some of its largest whistleblower awards for certain actions brought by other entities, including designated federal agencies.
The amendments allow for such awards when the other entity’s program is not comparable to the SEC’s scheme or if its maximum award for the related action would not exceed $5 million.
The SEC, which began paying disbursements to tipsters in 2012, said the new rules would add clarity to its decade-old whistleblower program and bring efficiency and transparency to the award determination process.
SEC Chair Gary Gensler further explains that “today’s amendments enact two changes to help enhance the whistleblower program. The first amendment expands the circumstances in which a whistleblower who assisted in a related action can receive an award from the Commission for that related action rather than from the other agency’s whistleblower program. Under the second amendment, when the Commission considers the size of the would-be award as grounds to change the award amount, it can do so only to increase the award, and not to decrease it. I think that these rules will strengthen our whistleblower program. That helps protect investors.”
That marks yet another milestone for the top US cop’s whistleblower program, which was created by the 2010 Dodd-Frank Act and was then implemented in 2011.
The US regulators consider several factors in determining the size of whistleblower awards. As long as their internal disclosure prompted a company investigation, they can benefit from all the information discovered in that investigation. However, whistleblowers should also report to the SEC within 120 days of the internal disclosure. Then, the commission uses the date of the internal report in determining whether they provided original information.
Under the SEC’s program, whistleblowers can also be paid for information that prompts sanctions by other regulators, as long as they were eligible for an award in the underlying SEC action.