SEC Proposes Whistleblower Rule Amendments

FOR IMMEDIATE RELEASE

2018-120

Washington D.C., June 28, 2018 —

The Securities and Exchange Commission today voted to propose amendments to the rules governing its whistleblower program.  The whistleblower program was established in 2010 to incentivize individuals to report high-quality tips to the Commission and help the agency detect wrongdoing and better protect investors and the marketplace.

The Commission's whistleblower program has made significant contributions to the effectiveness of the agency's enforcement of the federal securities laws.  Original information provided by whistleblowers has led to enforcement actions in which the Commission has ordered over $1.4 billion in financial remedies, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been, or is scheduled to be, returned to harmed investors.

After nearly seven years of experience administering the whistleblower program, the SEC has identified various ways in which the program might benefit from additional rulemaking.  The proposed rules would, among other things, provide the Commission with additional tools in making whistleblower awards to ensure that meritorious whistleblowers are appropriately rewarded for their efforts, increase efficiencies in the whistleblower claims review process, and clarify the requirements for anti-retaliation protection under the whistleblower statute.   

"Whistleblowers have made significant contributions to the SEC's enforcement efforts, and the value of our whistleblower program is clear," said SEC Chairman Jay Clayton.  "The proposed rules are intended to help strengthen the whistleblower program by bolstering the Commission's ability to more appropriately and expeditiously reward those who provide critical information that leads to successful enforcement actions.  I look forward to public feedback and encourage everyone with an interest to give us their ideas on the proposed rules."

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

FACT SHEET

SEC Open Meeting

June 28, 2018

Background

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 21F to the Securities Exchange Act of 1934 (the "Exchange Act"), establishing the Commission's whistleblower program.  Among other things, Section 21F authorizes the SEC to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful SEC enforcement actions resulting in monetary sanctions over $1 million and successful related actions.  Awards must be made in an amount equal to 10 to 30 percent of the monetary sanctions collected.  Congress established a separate fund at the Treasury Department, called the Investor Protection Fund (IPF), from which whistleblower awards are paid.  Since the program's inception, the Commission has ordered over $266 million in 50 awards to 55 whistleblowers, including individuals filing jointly, whose information and cooperation assisted the Commission in bringing successful enforcement actions.

The proposed whistleblower rule amendments would make certain modifications and clarifications to the existing rules, as well as several technical amendments.

Highlights

Additional Tools in Award Determinations

Uniform Definition of "Whistleblower"

In addition to the foregoing recommendations, the Commission proposes rule amendments in response to the Supreme Court's recent decision in Digital Realty Trust, Inc. v. Somers.  In that decision, the Court held that the whistleblower provisions of the Exchange Act require that a person report a possible securities law violation to the Commission in order to qualify for protection against employment retaliation under Section 21F.  The Court thus invalidated the Commission's rule interpreting Section 21F's anti-retaliation protections to apply in cases of internal reports. 

The proposed rules would modify Rule 21F-2 so that it comports with the Court's holding by, among other things, establishing a uniform definition of "whistleblower" that would apply to all aspects of Exchange Act Section 21F—i.e., the award program, the heightened confidentiality requirements, and the employment anti-retaliation protections.  For purposes of retaliation protection, an individual would be required to report information about possible securities laws violations to the Commission "in writing".  To be eligible for an award or to obtain heightened confidentiality protection, the additional existing requirement that a whistleblower submit information on Form TCR or through the Commission's online tips portal would remain in place.

Increased Efficiency in Claims Review Process

Two further proposed changes are designed to help increase the Commission's efficiency in processing whistleblower award applications.

Clarification and Enhancement of Certain Policies and Procedures 

The proposed amendments would clarify and enhance certain policies, practices, and procedures in implementing the program.  These recommendations include the items listed below.

Interpretive Guidance

In addition to the foregoing proposed rule amendments, the Commission is publishing proposed interpretive guidance to help clarify the meaning of "independent analysis" as that term is defined in Exchange Act Rule 21F-4 and utilized in award applications.  Under the proposed guidance, in order to qualify as "independent analysis," a whistleblower's submission must provide evaluation, assessment, or insight beyond what would be reasonably apparent to the Commission from publicly available information.   

What's Next?

The proposal seeks public comment and data on a broad range of issues relating to the whistleblower program.  After careful review of the comments, the Commission will consider what further action to take on the proposal.

 

[1] Whenever the reserve in the Commission's Investor Protection Fund ("IPF") falls below $300 million, the Commission by law must replenish the IPF with any collected monetary sanctions that are not paid to the victims of the violations.  These funds otherwise would be directed to the United States Treasury, where they could be made available for use in funding other valuable public programs.