SEC Proposes Whistleblower Rule Amendments

The SEC has proposed two amendments to the rules governing its whistleblower program. The first proposed amendment concerns award claims for related actions that would be otherwise covered by an alternative whistleblower program. The second affirms the Commission's authority to consider the dollar amount of a potential award for the limited purpose of increasing an award but not to lower an award. The proposed amendment to Rule 21F-3 would allow the SEC to pay whistleblower awards for certain actions brought by other entities, including designated federal agencies, in cases where those awards might otherwise be paid under the other entity's whistleblower program. The proposed amendments also would affirm the Commission's authority under Rule 21F-6 to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, and it would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.

According to SEC Chair Gary Gensler, "The first proposed rule change is designed to ensure that a whistleblower is not disadvantaged by another whistleblower program that would not give them as high an award as the SEC would offer. Under the second proposed rule change, the SEC could consider the dollar amounts of potential awards only to increase the whistleblower's award. This would give whistleblowers additional comfort knowing that the SEC could consider the dollar amount of the award only in such cases." Commissioner Hester Peirce opposed the proposals stating that “there is no new information that compels reopening the recently adopted rules” since the rules were last amended in 2020.

In a client alert discussing the proposals law firm Goodwin wrote: “These latest proposed amendments are consistent with the SEC’s overall efforts to expand its whistleblower program by further incentivizing whistleblowers to come forward. They also underscore the importance of companies establishing appropriate mechanisms to encourage internal reporting of alleged misconduct, as well as robust processes to investigate and address reports of potential concerns.”

The public comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.