The SEC proposed several rule amendments to its whistleblower program under Exchange Act Section 21F, including clarification of existing rules and technical amendments. In addition, the SEC issued proposed interpretive guidance on the terms "independent analysis" and "unreasonable delay" under Exchange Act Rules 21F-4 and 21F-6, respectively.
The rule amendments would:
- allow awards based on deferred prosecution agreements ("DPAs") and non-prosecution agreements ("NPAs") entered into by the DOJ or a state attorney general in a criminal case, or settlement agreements entered into by the SEC outside of a judicial or administrative proceeding;
- enable the SEC to adjust the award percentage in certain circumstances;
- remove the potential double recovery under the definition of "related action";
- establish a uniform definition of "whistleblower" in response to the Supreme Court's decision in Digital Realty Trust, Inc. v. Somers;
- prevent repeat whistleblower submitters from "abus[ing] the award application process"; and
- enact summary disposition procedures for certain types of likely denials.
The proposed interpretive guidance makes clear that in order to qualify as "independent analysis," a whistleblower's submission must provide "evaluation, assessment, or insight" beyond what would otherwise be "reasonably apparent" to the SEC from public information.
Finally, the SEC requested public comment and data on a "broad range of issues" relating to the SEC whistleblower program. Comments must be submitted 60 days after publication in the Federal Register.
Commentary / Lex Urban
The proposed amendments to the SEC whistleblower program likely will be met with mixed emotions. On one hand, the proposed amendments would clarify that "related actions" would include DPAs and NPAs entered into by the DOJ. Given the prevalence of DPAs in the DOJ's criminal enforcement of the FCPA, this could produce an uptick in whistleblowers reporting foreign corruption. On the other hand, the amendments would give the SEC the ability to reduce an award that would exceed $30M. While there is a floor to this reduction (10%), this amendment could have the unintended consequence of discouraging reporting the most serious and egregious of frauds because the whistleblower decides that risk of being blacklisted in the profession outweighs the reward.
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