SEC Will Not Limit Whistleblower Awards, Chairman Clayton Says

The Securities and Exchange Commission (“SEC”) will not introduce “caps” on whistleblower awards, SEC Chairman Jay Clayton told lawmakers on Tuesday.

When asked at a Senate hearing if the new rule would be “consistent with the statute,” which prohibits the SEC from capping awards, Chairman Clayton responded, “Absolutely.”

Mr. Clayton’s testimony is a crucial development for whistleblowers. Last year the SEC proposed rule amendments to the SEC Whistleblower Program that would limit large whistleblower awards, a move that whistleblower advocates predicted would have a “chilling effect” on the number of whistleblowers who came forward.

Currently, the SEC Whistleblower Program rewards tipsters who provide the Commission with original information of violations that exceed $1 million with between 10% and 30% of the penalties.

The proposed rules would have restructured the program allowing the SEC discretion to set caps on rewards exceeding $30 million.

SEC whistleblower attorney Stephen Kohn called the proposed rules “devastating” and said the changes would be “counter to every whistleblower law, rule, and policy.”

The SEC Whistleblower Program has been immensely successful, resulting in approximately $387 million in rewards to whistleblowers and more than $2 billion in recoveries for taxpayers. Weakening the program would only hinder the Commission’s ability to detect where fraud is occurring.

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