SEC Temporarily Reverses Two Rules Amid Fears They Could Scare Off Potential Whistleblowers

The whistleblower programme, where an employee could report financial abuses by the company they are working at, has been highly successful since its introduction in 2011. Yet, its effectiveness was endangered by two recent amendments to rules about rewarding whistleblowers for stepping forward.

The Securities and Exchange Commission (SEC) has paused the application of two amendments adopted in September 2020 to its whistleblower programme out of concerns they might scare off people potentially ready to report abuses in their companies. The SEC plans to review these two amendments and might change them in the future, but, for now, the commission has decided to exempt whistleblowers from their effects.

One of the amendments would have potentially allowed the SEC to lower the reward given to whistleblowers for coming forward – usually, they receive between 10% and 30% of the fines levied by the commission as a result of a probe prompted by the tip. The SEC plans to clarify this amendment so it will not be used to lower the payouts, but for the time being whistleblowers can count on a maximum, 30% share in levied fines if the latter do not exceed $5,000,000.

The second amendment prevented the SEC from paying whistleblowers if their tip was relayed to the commission by other federal agencies and the person, who reported the misconduct, was eligible for a reward via another whistleblower programme. The SEC now plans to revise this amendment and, in the meantime, it will exempt certain rewards for whistleblowers under other programmes from the rule and will notify the eligible individuals that they can count on a little extra from the commission.

The issue of the potential negative effects of the two new amendments had been previously raised by the National Whistleblower Centre and Jordan Thomas – a man who sued the SEC in federal court in Washington, DC, over the new rules. He has already filed a motion to pause the case in court in light of the commission announcing the revision of the amendments less than half a year after receiving a complaint from Thomas.

"It's a big event; we raised concerns in January, and less than six months later, the commission agreed to change the rules we challenged and abandoned enforcement of the two rules", The Wall Street Journal cites Thomas as saying regarding the SEC's decision.