U.S. SEC Votes On Expanded Tipster Program To Consider More Bounties, But With Heightened Conditions

WASHINGTON: The U.S. Securities and Exchange Commission on Wednesday finalized new conditions for its whistleblower bounty program, which will result in rewards being issued faster and some rewards rising in value, agency officials said.

Approved in a 3-2 vote along party lines, the changes aim to ensure that eligible whistleblowers automatically get the current maximum 30% award of the resulting fine, a presumption that is not the case under current rules, according to agency officials.

The new conditions, first proposed by the agency in 2018, would give staff more discretion to dish out rewards under the program taking into consideration a number of new factors.

These include the significance of the tipster’s information; the level of assistance they offer the SEC; the severity of the alleged misconduct; and the whistleblower’s level of involvement in internal compliance systems, among others

Even with these new considerations, SEC Chair Jay Clayton told reporters that he expected most rewards to “stay the same or increase, and to be able to issue them faster.”

Created following the 2009 financial crisis, the program allows the SEC to reward tipsters whose original information leads to a penalty exceeding $1 million with between 10% and 30% of the fine. Wednesday’s new rule will presume that a tipster is eligible for the maximum 30%, pending these considerations.

It also relaxes a proposal to impose discretionary caps on bounties and to tighten deadlines for formally filing tips, as reported https://reut.rs/3iTHpTr by Reuters on Tuesday.

The agency had proposed requiring that whistleblowers file their formal tip, a long legal document required to claim a bounty, within 30 days of first making contact with SEC staff. On Wednesday, the SEC relaxed that proposed deadline in cases where the whistleblower had not been aware of the agency’s formal filing rule.

Created in the wake of the 2009 financial crisis, the program has resulted in more than $2.5 billion in penalties and $523 million in tipster rewards.

The program attracts thousands of tips annually, public data shows, overwhelming SEC staff who can take years to assess all the claims and issue awards. The agency has said it views the program as vital, however.

Corporate lobbyists have been pushing the SEC to revise the program for years. They say excessive awards have spawned a cottage industry of tipsters and their attorneys who get a cut of the reward, overwhelming SEC staff with unhelpful and sometimes bogus tips.

The SEC measure also expands the program’s “related actions” provision, which allows it to distribute awards on behalf of other agencies, to include deferred prosecution agreements and non-prosecution agreements, as well as similar non-judicial settlements made by the Department of Justice.

The SEC will give tipsters who would have been eligible if this rule had been in effect when the program began in 2011 90 days to file a claim.

Whistleblowers were previously ineligible for awards in these cases, the agency officials said.

While some of the agency’s changes may be considered a win for whistleblowers, critics say other measures aimed at efficiency do not outweigh its potential overreliance on agency discretion.

Democratic Commissioner Allison Lee said on Wednesday that “I cannot support these new rules that in too many ways increase discretion and restrict access to our program without providing essential clarity, transparency and accountability.”

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