Statement on the Commission’s New and Improved Whistleblower Program Rules
Sept. 23, 2020
Good morning. I am happy to vote in favor of the staff’s recommendation to update the rules governing our whistleblower program.
The Chairman has already thanked everyone individually, but I would like to add my thanks to the staff in the Office of the General Counsel, the Division of Enforcement—particularly the Office of the Whistleblower (“OWB”)—and the Division of Economic and Risk Analysis for this fine work.
Since the Commission first adopted rules implementing the whistleblower program in 2011, we have seen an impressive impact on our enforcement efforts. Notably, we recently broke the half-billion dollar mark—having now awarded over $523 million to 97 individuals since the program was established. Each of these whistleblowers provided the Commission with valuable information and often extensive assistance. Their efforts contributed to successful enforcement cases addressing harmful conduct that we might not have uncovered on our own. Information provided by whistleblowers has enabled the Commission to recover $1.4 billion in violators’ ill-gotten gains. Of the total financial remedies ordered, nearly $750 million has been or will be returned to harmed investors. In some instances, whistleblower information has led to related cases being brought by other authorities. Needless to say, contributions from whistleblowers have leveraged the efforts of our Enforcement division and other agencies, enabling us to protect investors ever more effectively. To call this program a success is an understatement.
It is exciting to think that we can build upon this success to achieve even more. We have gained extensive experience operating our whistleblower program over the past nine years, learning both what works well with the existing rules, and how the existing rules could be improved. This experience has informed both the proposed amendments and the final rule we are considering today. The goal of the final rule is to build on the early successes of the whistleblower program, further incentivizing productive whistleblower activity, and increasing efficiency, so that our staff can more easily identify and reward meritorious whistleblowers. I believe the final rule advances these goals, representing a significant victory for good governance as well as transparency—both for whistleblowers themselves, and ultimately for harmed investors.
Increasing Incentives for Whistleblowers
The initial proposal included a process for the Commission to adjust small awards upward in certain circumstances. The final rule will create a presumption that, when the maximum authorized award amount is $5 million or less, and there are no negative factors present, the award amount generally will be set at the statutory maximum of 30%. I believe this provision will have the effect of increasing awards for more whistleblowers than the proposed rule would have—and based on historical awards and the Commission’s experience, I expect it will apply to the majority of all whistleblowers. In all, these changes will hopefully further incentivize prospective whistleblowers to come forward with information, especially in cases in which the dollar amount of the fraud may be relatively small.
The final rule also includes guidance to help clarify the statutory requirement that whistleblowers provide the SEC staff with “original information” derived from “independent knowledge or analysis.” In particular, the adopting release describes circumstances in which a prospective whistleblower could satisfy this requirement using publicly available information. This guidance should encourage individuals who glean helpful information from public sources to come forward and report possible wrongdoing to the SEC.
Increased Efficiency for OWB
The final rule, like the proposal, includes several mechanisms designed to increase the efficiency and effectiveness of our hard-working colleagues in OWB who focus on getting awards to whistleblowers. For example, the rules provide for a summary disposition mechanism that will allow the staff in OWB to issue a preliminary award denial of certain common invalid award claims. This change and others will free up resources in OWB, so that the staff can more efficiently process valid claims.
Finally, the new rule adds clarity in a number of ways, including by describing the rationale for certain current practices. The rule also clarifies and re-affirms the general scope of the Commission’s discretion in determining award amounts, including the discretion to consider and apply the award factors in percentage terms, dollar terms, or some combination thereof. These additions and refinements promote transparency, understanding, and accountability and will benefit the whistleblower program and its participants.
Again, I would like to thank the staff and express my appreciation for all of the feedback from commenters who took the time to engage with us on the rulemaking. I am happy to vote to approve the recommendation.