U.S. Securities and Exchange Commission Will Vote on Radical Changes to Whistleblower Incentive Rules Impacting Reward Claims by Foreign Nationals

Vote on Proposed Changes to the Dodd-Frank Act Whistleblower Law has been CANCELED

The U.S. Securities and Exchange Commission (“SEC” or “Commission”) will meet at 9 a.m. on September 2, 2020, to vote on proposed changes to the SEC’s highly successful Dodd-Frank Act whistleblower reward program. If approved as originally proposed, the changes could undermine vital whistleblower protections and anti-corruption efforts under the Foreign Corrupt Practices Act. The proposed changes will impact all whistleblower reward claims filed by foreign nationals under the FCPA.

The FCPA is the most widely used transnational whistleblower law. It generally prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. Since the beginning of the SEC Whistleblower Program, individuals in 123 countries outside the United States filed whistleblower tips with the SEC. In 2019 alone, individuals from 70 foreign countries filed whistleblower submissions with the SEC. After the US, the highest number of whistleblower tips came from individuals in Canada, Germany, and the United Kingdom. In 2019, fifteen whistleblower awards were paid to foreign nationals or residents of foreign countries.

“Whistleblowers are now the backbone of the international anti-bribery laws,” says leading whistleblower attorney Stephen M. Kohn, a founding partner of the whistleblower rights law firm of Kohn, Kohn and Colapinto. “The FCPA whistleblower reward law has transnational application. Whistleblowers from any country worldwide can anonymously and confidentially report foreign bribery and other securities violations and qualify for a large financial reward. Over 3,000 foreign whistleblowers have already entered the SEC’s confidential whistleblower program,” Kohn adds.

Kohn took a leadership role in convincing the SEC Commissioners to reject all of the anti-whistleblower proposals in the proposed rules and set forth numerous counter-proposals to advance the whistleblower-protection mission of the Commission. Since the proposed rules were announced, Kohn submitted several written proposals and met directly with Jay Clayton, the Chairman of the Commission and Commissioners Robert J. Jackson, Jr., Allison Herren Lee, and Hester M. Peirce. Kohn and representatives from his law firm and the National Whistleblower Center also met with the staff members from Chairman Jay Clayton’s office, Commissioner Elad L. Roisman, the Office of General Counsel, and the Office of the Whistleblower. Additionally, Kohn and the NWC staff meet joined with ENRON whistleblower/Time Magazine Person of the Year Sherron Watkins in meetings with Commissioners Jackson, Lee, and Peirce.

“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,” stated Kohn.

“We are particularly concerned over three proposed rules. The first would disqualify numerous whistleblowers who contact the Commission with highly valuable information on securities frauds. The second would disincentivize highly placed executives from blowing the whistle on major frauds by reducing the amount of compensation in large fraud cases. The third would change the rules governing ‘analysts’ who provide actionable intelligence triggering enforcement actions. The fourth would strip the SEC of the authority to sanction companies that retaliate against internal whistleblowers,” Kohn said.

“It is not surprising that Wall Street strongly supports the radical re-writing of the Dodd-Frank Act. Since the law was passed, Wall Street has heavily lobbied to strip the SEC whistleblower law of its most vital components,” Kohn added.

The 2019 SEC Whistleblower Office’s Annual Report highlights the success of the current program. Since 2012, the SEC has recovered over $2 billion in sanctions from fraudsters in whistleblower cases, including more than $1 billion in disgorgement of ill-gotten gains and interest, of which almost $750 million has been, or is scheduled to be, returned to harmed investors. The SEC has paid over $505 million in whistleblower awards to 87 individuals. This includes awards to 20 individuals in the last ten months, totaling almost $119 million.

In a 2019 public statement on the SEC Whistleblower Program, Chairman Jay Clayton affirmed the importance of incentivizing whistleblowers, “Our whistleblower program has made substantial progress since its inception and has proven to be an invaluable component of our enforcement efforts.” “Whistleblowers have proven to be a critical tool in the enforcement arsenal to combat fraud and protect investors,” says Jane Norberg, Chief of the SEC’s Office of the Whistleblower.

“If approved as originally written, the proposed rules will undermine the most successful program protecting investors from frauds. We appreciate the fact that the Commissioners and their staff were very open to hearing voices from the whistleblower community and carefully considering our counter-proposals. We hope that they will use this rulemaking as an opportunity to improve the current program,” Kohn said.

More Information:

The SEC’s Notice of Public Meeting to vote on the proposed rules is linked here.

Kohn, Kohn and Colapinto’s detailed rulemaking comments on the proposed Dodd-Frank Act whistleblower reward program and meetings with the SEC are available in the SEC Whistleblower Rule Change Resource Center.

Related links:

• Speech of former SEC Chairman Mary Jo White, “The SEC as the Whistleblower’s Advocate. “
• Whistleblower Program Reaches $500 Million in Total Awards