Did the SEC change its rules governing the Dodd-Frank Act reward program?
Yes. On September 23, 2020 the U.S. Securities and Exchange Commission (“SEC”) voted 3-2 to amend its current rules governing the Dodd-Frank Act (“DFA”) whistleblower law. The DFA whistleblower law requires the Commission to pay rewards in the range of 10%-30% of any “sanctions” obtained by the SEC in administrative, civil or criminal enforcement proceedings. Sanctions also includes payments based on payments for disgorgement. The basic law remains unchanged, but a number of procedural requirements and definitions were changed.
Did the new rule “cap” or limit the amount of rewards payable in large cases?
No. The Commission initially proposed limiting rewards in large cases. However, this proposal was vigorously contested. See comments filed by KKC on October 21, 2019, December 10, 2019, January 16, 2020, and by Senator Charles Grassley, who also strongly opposed this change. However, in the final rule approved by the Commission this proposal was not included. There is no explicit authority to reduce large awards simply based on their size.
If I am qualified to obtain a large reward should I take any action to protect this right?
Yes. During the Commission’s public debate on the “cap” proposal the two Democratic Commissioners voiced strong opposition to an opinion issued by the SEC Office of General Counsel stating that the Commission could reduce large awards. However, the General Counsel’s opinion is not supported by either the specific language in the Dodd-Frank Act, or in the current regulations [i.e. Rule 21F-6(b)] that remain unchanged. Whistleblowers should address this issue if they qualify for a large reward and explain how the actual rules prohibit reductions based on the size of a reward.
Can Rewards be increased in smaller cases?
Yes. If no negative factors exist for reducing an award, whistleblowers are now presumptively eligible for a 30% reward in cases where the sanctions obtained from the SEC are $5 million or less.
Do the new rules change the requirement for filing a TCR complaint?
The new rule requires that all whistleblowers file a form TCR. Filing this form not only helps qualify the whistleblower for compensation but also permits the Office of the Whistleblower to properly administer the thousands of complaints that are filed, and place them into a computer system so various investigators can access the information.
When must a TCR be filed?
The new rules create a timing requirement for filing a TCR. They must be filed within 30-days of a whistleblower’s first contact with the SEC. However, this 30-day requirement is predicated on a whistleblower having actual or constructive knowledge that a Form TCR must be filed.
Importantly, the Commission specifically states that obtaining counsel in connection with an SEC submission constitutes constructive notice. In other words, from the moment a whistleblower contacts counsel for the purpose of making a submission to the SEC the clock begins to run on this 30-day grace period.
All attorneys who practice in this area must be aware of this requirement and ensure that whistleblowers file reward claim TCRs within 30-days of first contacting the lawyer. Whistleblowers must also be made aware of this requirement and make sure that they file a TCR form within the 30-day deadline.
Were there other changes to the rules?
Yes. The amended rules made changes to the “related action” provisions of the regulations, established summary dismissal proceedings, and contained “guidance” in analyst cases. It is important to review these amended rules prior to blowing the whistle.
Each year the U.S. Securities and Exchange Commission (SEC) Office of the Whistleblower releases an Annual Report to Congress detailing the activities of the highly successful SEC Whistleblower Program. The annual report for the 2022 Fiscal Year (FY 2022), which ended on September 30, reveals that the SEC Whistleblower Program had a record-setting fiscal year. The SEC received a record 12,300 whistleblower tips in FY 2022 and issued 103 whistleblower awards totaling approximately $229 million. Here are some key takeaways from the report: SEC Whistleblower Program Continues Success of Record-Shattering FY 2021 “Fiscal Year (FY) 2022 continued to build on the record-breaking success of FY 2021 for the U.S. Securities and Exchange Commission’s Whistleblower Program,” the report begins. In fact, FY 2021 was not just a record-breaking year but a record-shattering one. That year, the SEC received a record 12,200 whistleblower tips and issued a record $564 million in whistleblower awards to a record 108 individuals. Over the course FY 2021, the whistleblower program issued more awards than in all previous years combined. The SEC Whistleblower Program’s Annual Report for FY 2022 shows that FY 2021 was not a fluke. In FY 2022 the SEC received a new record 12,300 whistleblower tips. It also once again issued over 100 whistleblower awards. While the overall monetary amount awarded to whistleblowers dipped, the difference can almost entirely be attributed to two $100 million-plus awards issued by the ...
On November 28, the U.S. Securities and Exchange Commission (SEC) issued a $20 million whistleblower award to an individual whose disclosure contained “new and critical information that led to the success of an enforcement action,” according to the SEC. "Today’s whistleblower played a crucial role in the ultimate success of the enforcement proceeding," said Creola Kelly, Chief of the SEC’s Office of the Whistleblower. "Whistleblowers can help advance existing investigations in meaningful ways when their information saves the agency time and resources, and when their contributions allow SEC staff to better understand complicated issues." Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide the SEC with original information that leads to a successful enforcement action, are entitled to an award of 10-30% of the sanctions collected by the SEC in the case. The SEC weighs a number of factors in determining the exact percentage to award a whistleblower. In this case, the SEC “considered that the whistleblower provided significant information and continuing assistance that helped Enforcement Division staff more quickly and efficiently investigate complex issues,” according to the agency’s press release. However, according to the award order, the SEC also negatively assessed the facts that the whistleblower “was involved for a short period and at the direction of his/her supervisor in the conduct underlying part of the Covered Action” and “delayed reporting for over two years after being ...
The U.S. Securities and Exchange Commission (SEC) Whistleblower Office’s Annual Report to Congress for the 2022 Fiscal Year details a record fiscal year for the agency’s highly successful whistleblower program. During the 2022 Fiscal Year, the SEC Whistleblower Program received 12,300 whistleblower tips and issued 103 whistleblower awards totaling $229 million. This was the most whistleblower tips received by the program in a fiscal year and the second-highest amount of money awarded by the program in a fiscal year. "The SEC's whistleblower program continues to be a model of success,” said whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto. “Investors and taxpayers are the biggest winners. Fraudsters are the biggest losers. Congratulations to the hard working staff at the Whistleblower Office." “The significant increase in the number of whistleblower tips and awards since the program’s inception shows that the program, with its enhanced confidentiality protections, is effectively incentivizing whistleblowers to make the often difficult decision to come forward with information about potential securities-law violations,” said Creola Kelly, Chief of the Office of the Whistleblower. “Regardless of whether a whistleblower is a corporate insider, a main street investor, or an unrepresented claimant, the Commission vigorously safeguards their identity while rewarding eligible individuals who identify bad actors in our markets.” The record number of whistleblower tips received by the SEC in the 2022 Fiscal Year cover a wide-range of types of securities fraud. According to the report, ...
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