At a highly anticipated open meeting held last week, the Securities and Exchange Commission (SEC) voted 3-2 to approve final rules for expanding and strengthening a program to reward whistleblowers who provide the agency with tips that lead to successful enforcement actions. Overall, despite facing significant pressure from industry groups to water down the program, the SEC was able to approve final rules that offer meaningful incentives and protections to whistleblowers, and will hopefully go a long way toward ensuring that the SEC has the information it needs to avert another financial crisis.
The SEC’s program is based on a simple but powerful premise: the Commission will be better positioned to protect investors and ensure the integrity of our financial markets if whistleblowers with direct knowledge of securities law violations are given the appropriate incentives and protections to disclose this information.
In last year’s Dodd-Frank financial reform legislation, Congress made vast improvements to the SEC’s whistleblower reward program, offering awards for tips related to any securities law violation that leads to a penalty or disgorgement of $1 million or more, guaranteeing that qualified whistleblowers will receive at least 10 percent of the amount recovered, and protecting whistleblowers from retaliation, among other key reforms.
Soon after the bill was signed into law, corporate lobbyists launched a massive effort to shape the SEC’s rulemaking on this issue. For example the Chamber of Commerce and other industry groups proposed that whistleblowers should generally be required to disclose wrongdoing internally to their employer before coming to the SEC.
Meanwhile, POGO and other groups have been urging the SEC to establish safe and open channels for whistleblowers to make direct disclosures, rather than requiring them to go through internal compliance programs—a dangerous proposal that would give lawbreaking companies the opportunity to retaliate against the whistleblower and keep their problems hidden from the SEC. We filed a public comment in December on the SEC’s proposed rules and have attended several meetings since then with SEC Commissioners and their staff to discuss our concerns. We also called on Congress to reject legislation introduced by Rep. Michael Grimm (R-NY) that would completely gut the SEC’s program just as key improvements are being put in place.