The U.S. Securities and Exchange Commission announced changes to its whistleblower program but discarded a controversial proposal to allow staff to reduce awards of more than $30 million.
The proposal for a discretionary “cap” on large awards had sparked an outcry among whistleblower advocates and lawyers, who said it would discourage tipsters from flagging the most egregious awards.
The whistleblower program, which allows the SEC to reward tipsters whose original information leads to a penalty exceeding $1 million with between 10% and 30% of the fine, has so far resulted in more than $2 billion in penalties and $523 million in tipster rewards.
The amendments adopted by the commission on Wednesday did not include the cap. The SEC also modified a proposal that would have disqualified whistleblowers who contacted anyone from the commission before filing a formal complaint.
The commissioners recognized “the importance of paying awards to whistleblowers and the invaluable contributions whistleblowers make to protecting investors,” Stephen M. Kohn, an attorney and chairman of the National Whistleblower Center, said in a news release. “The unanimity of support for the basic principles underlying the whistleblower reward law sends a powerful message to Wall Street.”
The proposed cap applied to a whistleblower suit resulting in monetary sanctions of at least $100 million. In such cases, SEC staff would have the discretion to reduce the award percentage so that an award “does not exceed an amount that is reasonably necessary to reward the whistleblower and to incentivize other similarly situated whistleblowers.”
An award could not be reduced to less than 10% of the sanctions.
Sean McKessy, the founding chief of the SEC’s Office of the Whistleblower, had commented that the cap was “contrary to the statute and injects a level of uncertainty in how the awards will be assessed, which will act as a disincentive for some whistleblowers from coming forward.”
The business community had encouraged the SEC to revisit its evaluation of potential large awards and some commissioners were also worried that large awards would drain the independent fund from which whistleblower payouts are drawn.