September 18, 2018
The SEC's June 2018 proposed whistleblower rules and other interpretive guidance must be revised to only apply to TCRs filed after June 28, 2018. They violate federal common law by attempting to retrospectively destroy the legitimate expectations of bona fide whistleblowers that detrimentally relied on existing SEC rules and guidance in filing TCRs before their public release.
In deciding whether to stop an agency from retrospectively applying a rulemaking activity, federal courts look at (1) whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard.
For example, these factors cut against the SEC retrospectively applying its proposed rulemaking (rules and other interpretive guidance) in the case of pre-existing TCRS in large cases that would face limitations on the size of their awards and TCRs based on independent analysis.
This aspect of the proposed rulemaking is not a case of first impression because the Obama era SEC thoughtfully rejected restrictions on the size of awards or TCRs solely based on independent analysis of public information. The proposed rulemaking is an abrupt departure from the pre-existing rules that rejected imposing the caps and use of public information the pre-existing SEC rules.
These TCRs were filed by people that risk divorce, suicide, firing, blacklisting at jobs in corporate America, bankruptcy, alcoholism, and worse. Drastic problems faced by whistleblowers are well documented by public servants, like Tom Devine. The risks are as much faced by industry insiders as company insiders. Harry Markopolos was an industry insider and has spoken about the risks and injuries he suffered. The life changing damages and risks faced by company insiders and industry insiders outweigh the SEC's interest in its proposed rules, which the SEC laid out in its proposals. The SEC did not even articulate reasons for its proposals to apply to its existing inventory of TCRs.
The SEC has a well documented reputation granting so few awards that there are minimal incentives for company and industry insiders to suffer or risk suffering the well documented damages that whistleblowers face, absent the existing SEC rules that do not limit awards based on the size of the case and that do not deny TCRs based on independent analysis except in phenomenally rare circumstances.