A MarketWatch article titled SEC proposes to limit whistleblower awards quotes SEC whistleblower lawyer Jason Zuckerman about proposed amendments to the rules governing the SEC Whistleblower Program. The article reports that one of the proposed amendments to the SEC whistleblower rules would limit SEC whistleblower awards and quotes Zuckerman as to some of the reasons why this proposal is misguided:
One of the whistleblower attorneys, Jason Zuckerman, told MarketWatch, “This is a bad idea because it could deter whistleblowers from disclosing the largest frauds. Significantly, whistleblowers have been instrumental in halting ongoing fraud schemes. Congress wisely chose not to impose a cap on SEC whistleblower awards and the SEC should refrain from doing so.”
Under the proposed amendment, where a covered action yields collected monetary sanctions of at least $100 million, the SEC would have discretion to reduce the award percentage so that it would yield an award “that does not exceed an amount that is reasonably necessary to reward the whistleblower and to incentivize other similarly situated whistleblowers.” The SEC would not, however, have discretion to award less than 10% of the collected monetary sanctions (the minimum award percentage set forth in the statute). Among other factors that the SEC would take into account to determine whether to reduce an award over $30 million are “the value of the whistleblower’s information and the personal and professional sacrifices made in reporting the information.”
During the June 28, 2018 public meeting, Commissioners Jackson and Stein strenuously opposed this proposed discretionary award cap and voted against it. Commissioner Stein’s written statement about the proposed rules offers several compelling reasons why the SEC should decline to impose a cap on awards:
- The broad discretion to reduce an award could be “used as a means to weaken the Whistleblower Program.”
- There is no evidence that awards are too high and the SEC has not assessed how a $30 million threshold would affect the incentives or behavior of whistleblowers.
- Whistleblower awards are paid from an account funded by the monetary sanctions the Commission collects from wrongdoers, not by taxpayers. “[T]he amount of money the Commission has sent to Treasury alone as a direct result of whistleblower tips far exceeds the $266 million provided to whistleblowers for bringing wrongdoing to light. Simply put, the Whistleblower Program has more than paid for itself. There are not many government programs that can make that claim.” To date, the SEC has ordered more than $1.6 billion in monetary sanctions against wrongdoers based on actionable information received by whistleblowers.
- The Whistleblower Program embodies good government. “It incentivizes the private marketplace to better surveil itself and has resulted in the government bringing cases against fraudsters it might not have otherwise discovered. Incentivizing market participants and others to provide information about wrongdoing has helped protect more investors, preserve the integrity of our capital formation process, and ensure that our markets are fair and efficient. In many ways it has aligned incentives so that the government is able to use its scarce resources in a more efficient manner.”
To learn more about the SEC Whistleblower Program, download Zuckerman Law’s eBook: SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
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Tips for SEC Whistleblowers to Maximize a SEC Whistleblower Award
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