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SEC Proposes Rules That Will Undermine Whistleblower Rights

On Thursday, June 28th, the Securities and Exchange Commission (SEC) voted to propose amendments to its Whistleblower Program rules.  The proposed changes could take away incentives to blow the whistle for high-level executives and target lower-level employees to report smaller corporate frauds. These proposed amendments could limit the size of monetary whistleblower rewards, the primary incentive for reporting wrongdoing.

Since 2010, the SEC has received tips and issued awards through its Whistleblower Program, exposing large-scale fraud and resulting in wrongdoers paying hundreds of millions of dollars in sanctions. Kohn, Kohn, & Colapinto (KKC) is very concerned that the proposed amendments could weaken this program and discourage well-compensated employees from reporting misconduct to the SEC, opening a door for high-level Wall Street fraud.

Leading whistleblower attorney Stephen M. Kohn said the following regarding the news: “The SEC whistleblowers program is facing its most significant test since it was created in 2010. The Chamber of Commerce and other Wall Street firms have aggressively attempted to undermine corporate whistleblower rights. The SEC proposed rule is another step in the direction of repealing Wall Street whistleblower rights.”

KKC has released the documents related to the SEC rule amendments as well as the statements of the SEC and its commissioners.  

Read the SEC proposed rule here

Read the SEC Press Release

Significantly, there was bipartisan concern over the proposed regulations, with two commissioners voting no on whether to release the proposed rules.

SEC Commissioner Kara M. Stein expressed her concern over the proposed amendments in her statement. “…I am deeply troubled that the proposal would give the Commission authority to depart from its normal analysis for determining the amount of an award in certain circumstances.” Stein, who was nominated by former President Barack Obama in 2013, continued to say “We have no evidence that there is a problem. Nor do we have any evidence of how the proposed $30 million threshold would affect the incentives or behavior of whistleblowers…I worry that we are creating a $30 million glass ceiling.”

Commissioner Robert J. Jackson, Jr., who was nominated by President Donald Trump in 2017, voiced his concern in his statement as well. “Less than one percent of whistleblower tips actually lead to any award, so when they do, the rewards must be significant and clear. Adding uncertainty to that process risks that would-be whistleblowers will stay quiet.”

Read the other commissioners statements here:

Chairman Jay Clayton, nominated by Donald Trump in 2017, said the following.

Commissioner Hester M. Pierce, nominated by Donald Trump in 2018, said the following.

Commissioner Michael S. Piwowar, who was appointed as a commissioner in 2013 by Barack Obama and designated chairman by Donald Trump in 2017, said the following.

For persons who want information on filing a comment, you may use the SEC’s website to file electronically. To submit a form regarding the ruling, use the following link: https://www.sec.gov/cgi-bin/ruling-comments

You may also send an email to rule-comments@sec.gov . If you choose to do this, make sure to include File Number S7-16-18 on the subject line.

If you want to submit a paper comment, make the letter out to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-16-18.

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The Whistleblower Blog is an editorially independent news and information source, sponsored by a pro bono public service project by Kohn, Kohn & Colapinto, LLP. The blog highlights important news, legal developments and policy issues critical to whistleblowers and their advocates, both in the United States and internationally. The contributors to this blog are respected leaders in their fields, including the authors of key whistleblower law books, current and former legal professors, spokespersons before Congressional committees and other public bodies, directors of non-profit whistleblower advocacy groups, and prominent attorneys specializing in representing/assisting whistleblowers in the United States and throughout Europe, Asia, Africa and South America.