Proposed Changes to the Dodd-Frank Act Whistleblower Law Could Undermine Key Protections
The U.S. Securities and Exchange Commission (“SEC” or “Commission”) will meet at 9 a.m. on September 2nd, 2020 to vote on proposed changes to the SEC’s highly successful Dodd-Frank Act whistleblower reward program. If approved as originally written, the proposed changes will undermine vital whistleblower protections, and place investors at significant risk of being harmed by increased fraud.
The whistleblower rights law firm of Kohn, Kohn and Colapinto has taken a leadership role in trying to convince the SEC Commissioners to reject all of the anti-whistleblower proposals. Since the rules were originally proposed in 2018 whistleblower attorneys from the firm met with members of the Commission and their staffs. Joining the KKC attorneys at some of these meetings were representatives from the National Whistleblower Center and ENRON whistleblower/Time Magazine Person of the Year Sherron Watkins.
KKC partner Stephen M. Kohn, who met directly with SEC Chairman Jay Clayton, Commissioners Robert J. Jackson, Jr., Allison Herren Lee, and Hester M. Peirce, and with the responsible staff persons for Commissioner Elad L. Roisman, the Office of General Counsel, and the Office of the Whistleblower to discuss the proposed changes issued the following statement:
“The Commissioners and their staffs were open to hearing our concerns. We sincerely hope that the Commission does not approve the rules as originally proposed. The changes will cause untold harm to whistleblowers and undermine the current SEC program.”
“Instead, we hope that the Commission has acted on the recommendations submitted by my firm, numerous whistleblowers, and numerous advocacy groups for whistleblowers and investors, and will use this opportunity to improve the program.”
“Especially in light of the large scale frauds being committed due to COVID-19 issues, the time is right to improve the whistleblower program, not undermine its effectiveness.”
“We are particularly concerned over three proposed rules. The first would permit the SEC to reduce the amount of rewards in large cases. The second would eliminate the current authority of the SEC to sanction public companies that retaliate against internal corporate whistleblowers. The third would create a procedural barrier to obtaining an award simply due to communicating fraud concerns to the Commission without using a highly technical form to initially report the violations. This third rule-change could result in numerous otherwise fully qualified whistleblowers losing their right to a reward.”
The success of the Dodd-Frank Act whistleblower program was recently highlighted in a release issued by the SEC Office of the Whistleblower. The Office acknowledged that since 2011, the SEC had already recovered over $2.5 billion in sanctions from fraudsters based on whistleblower disclosures, provided over $750 million in restitution to investors, and compensated whistleblower with over $500 million in awards.
The importance of incentivizing whistleblowers was affirmed by the former Chairman of the Commission, Mary Jo White, in Remarks at the Securities Enforcement Forum:
“[Whistleblower rewards] persuade people to step forward.
“They put fraudulent conduct on our radar that we may not have found ourselves, or as quickly.
“And they deter wrongdoing by making would-be violators ask themselves – who else is watching me?
“The program also incentivizes companies to report misconduct before a whistleblower comes to us first.
“We believe this program is already a success. And, as more awards are made, we expect more people to come forward, which will dramatically broaden our presence.”
The SEC’s Notice of Public Meeting to vote on the proposed rules is linked here.
Kohn, Kohn and Colapinto detailed rulemaking comments on the proposed Dodd-Frank Act whistleblower reward program:
- January 8, 2020 – Ninth Supplemental Comment: Proposed Rules
- December 23, 2019 – Eighth Supplemental Comment: Proposed Rules
- December 10, 2019 – Seventh Supplemental Comment: Proposed Rules Overview
- November 22, 2019 – Sixth Supplemental Comment Proposed Rule 21F-9(e)
- October 21, 2019 – Fifth Supplemental Comment: Proposed Rules 21F-6(d) and 21F-9(e)
- October 16, 2019 – Fourth Supplemental Comment: Proposed Rule 21F-9(e)
- October 8, 2019 – Third Supplemental Comment: Proposed Rule 21F-9(e)
- Dodd-Frank Act Whistleblower Letter filed on May 6, 2019
- Dodd-Frank Act Whistleblower Letter filed on September 12, 2019
- The letter filed by Stephen Kohn on behalf of National Whistleblower Center on September 18, 2018
- Dodd-Frank Act Whistleblower Letter filed on July 24, 2018
- The letter filed by Senator Grassley’s SEC referencing KKC’s concerns over Long Delays in reward decisions
National Whistleblower Center and Senator Grassley Letters to SEC on the Proposed Rule:
- Comment filed by National Whistleblower Center on September 18, 2018
- Comment filed by Senator Grassley
Speech of former SEC Chairman Mary Jo White, “The SEC as the Whistleblower’s Advocate. “