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On the Consequences of an Inconsequential Rulemaking: Statement Regarding Amendments to Whistleblower Program Rules

Aug. 26, 2022

I did not support the proposal to amend the Commission’s whistleblower rules, and cannot support the amendments adopted today.[1] The Commission’s whistleblower program is successful, increasingly so in recent years.[2] Today’s amendments, although themselves inconsequential and unlikely to inhibit that success, nonetheless carry harmful consequences both for the whistleblower program and for the Commission’s rulemaking processes.

Inconsequential Amendments

The amendments adopted today closely track those proposed in February, and continue to be solutions in search of a problem. Indeed, the adopting release indicates that the Rule 21F-3(b)(3) amendments adopted today are inconsequential. According to the economic analysis, if this amended version of Rule 21F-3(b)(3)—the “Multiple-Recovery Rule”—had been in effect since July 2010, “it would have resulted in an additional total payout [to whistleblowers] of less than $10.5 million.”[3] The Commission’s whistleblower program has paid out more than $1.1 billion since 2010.[4] A 1% increase in the total payouts is not much of an “additional incentive[] to encourage individuals to report potential violations of the federal securities laws.”[5] Granted, past awards are not perfectly predictive, but the adopting release provides no data or analysis to indicate that future related action awards will be different in type or amount from past awards. Instead, the release cites to “economic literature” of no apparent relevance that leads the Commission “to believe that changes such as these that increase whistleblowing incentives should have a positive effect on the frequency of whistleblowing activity.”[6]

The adopting release is equally unconvincing when it comes to explaining why we needed to amend Rule 21F-6(d). The amendment “cabin[s] the Commission’s use of its statutory authority to consider the dollar amount of an award when setting an award” by “restrict[ing] the Commission from considering the dollar amount of a potential award . . . to decrease a potential award.” The adopting release includes precisely one sentence stating the Commission’s rationale for disavowing a substantial portion of its statutory authority to set appropriate award amounts: “For the reasons set forth in the proposing release and supported by the comments received on this proposal, this amendment will help strengthen the whistleblower program by encouraging high-quality tips from insiders and others who have original information relating to potential securities law violations.”[7] This confident and conclusory assertion coexists rather uneasily with the economic analysis, which admits that the Commission “cannot determine with any reasonable degree of certainty if the revisions to Rule 21F-6 will affect a whistleblower’s willingness to report a potential securities law violation.”[8] In any event, the Commission’s disavowal of authority that it never used is inconsequential to whether whistleblowers will or will not continue to submit tips.[9] This conclusion coexists rather easily with the fact that the Commission received more tips the year the 2020 rule amendments were in effect than it received in any other year.[10]

Harmful Consequences

Although the changes to the rules are inconsequential because they are not logical solutions to any existing problems, they nonetheless further complicate the already byzantine rules governing our whistleblower program. The amendments to Rule 21F-3(b)(3) are particularly troubling because they introduce a needlessly complex analysis that rests on poorly defined terms. The key term, “comparable whistleblower award program,” includes four criteria, two of which are reasonably clear.[11] The two unclear criteria relate to the award potentially available from the non-Commission award program. Specifically, Rule 21F-3(b)(iv)(A)(2) states that a comparable whistleblower award program must not “have an award range . . . that is meaningfully lower (when assessed against the maximum and minimum potential awards that program would allow) than the award range that the Commission’s program could yield (i.e., 10 to 30 percent of collected monetary sanctions).” Rule 21F-3(b)(iv)(A)(3) states that a comparable award program must “not have a cap that could operate in a particular action to yield an award for a claimant that is meaningfully lower than the maximum award the Commission could grant for the action (i.e., 30 percent of collected monetary sanctions).” The latter appears to be a subset of the former—a statutory cap that is “meaningfully lower” than the 30% the Commission is authorized to award necessarily sets an “award range” that is “meaningfully lower” than the 10-30% the Commission is authorized to award. If the second prong is not a subset of the first, then what does it mean? Redundant criteria complicate an already overly complicated rule.

Further confounding the analysis of what constitutes a “comparable whistleblower award program” is the ambiguity that the release introduces around whether the “award range” or “award” is “meaningfully lower.” The most natural reading of the rule text ties the inquiry to the terms of the relevant statute—a comparable whistleblower award program is “meaningfully lower” when the award amounts available under the governing statute are meaningfully less than what the Commission’s program would pay out. Yet the discussion in the adopting release seems inconsistent with this straightforward reading of the rule. The release instead states that “meaningfully lower” is a “flexible standard” under which a “whistleblower might argue that the Commission should consider the particular whistleblower’s own economic situation at the time that the individual reported the securities-law violation.”[12] Tethering the question of what constitutes a “meaningfully lower” award to the whistleblower’s individual circumstances transforms what could be a reasonably objective analysis into a purely subjective assessment of each claimant’s personal facts and circumstances. While this result may end up working in favor of whistleblowers with legal representation to assist them in crafting the most effective narrative, whistleblowers who valiantly try to navigate our rule-maze on their own will not fare so well.

Finally, today’s adoption of the whistleblower rule is yet another installment in the Commission’s rule rewriting series. The whistleblower rules join the proxy advisor rules, shareholder proposal rules, and perhaps the resource extraction rules in being reopened even though the ink was barely dry on the last set of amendments.

Despite my concerns about the substance and process of the course the Commission has chosen, I am grateful to the staff in the Office of Whistleblower, Office of General Counsel, and Division of Economic and Risk Analysis for their work on this rulemaking and their unflagging commitment to rewarding whistleblowers for their valuable contributions to the integrity of the securities markets.

[1] Statement on Proposal to Revisit Recently Adopted Rule Amendments, I do not object to the technical amendments to Rule 21F-4(c) and Rule 21F-8(e).

[2] Whistleblower Program Rules, Rel No. 34-95620, at 29-30 (“Adopting Release”), available at As I noted in my dissenting statement when these amendments were proposed, supra n.1, the whistleblower program had its most successful year ever, as measured by number of tips, claims, and total payouts, while the rules now being revised were in effect.

[3] Adopting Release at 33.

[4] Whistleblower Program: 2021 Annual Report to Congress, 1-2 and 10-12 (2021),

[5] Adopting Release at 14-15.

[6] Id. at 33.

[7] Id. at 25-26.

[8] Id. at 35.

[9] See The Commission’s Whistleblower Program Rules, Rel. No. 34-94212, 87 Fed. Reg. 9280, 9290 (Feb. 18, 2022) (noting that the Commission historically only considered dollar amounts to increase awards and had “not considered the dollar amount to lower any awards since the rule was amended”).

[10] Whistleblower Program: 2021 Annual Report to Congress, 1-2.

[11] See Adopting Release at 41 (Rules 21F-3(b)(iv)(A)(1) and (4)).

[12] Id. at 18.

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