SEC Chair Gary Gensler directed staff to review two September 2020 adopted amendments on the (i) criteria for determining the amount of whistleblower awards and (ii) related actions under other whistleblower award programs. In a policy statement, the agency described how it will use its authority on whistleblower compensation pending the review.
Mr. Gensler stated that his decision to reconsider SEA Rules 21F-3(b)(3) (regarding potential recovery under other whistleblower awards programs in related actions) and 21F-6 ("Criteria for determining amount of award") was prompted by stakeholders who asserted that the amendments could discourage whistleblowers from coming forward because they (i) preclude the SEC from making an award in certain instances if an alternative whistleblower program administered by another federal agency also applies to the action and (ii) could be used to lower the amount that the SEC would award.
Under the policy statement, for claims subject to Rule 21F-3(b)(3), the staff will:
- use Section 36(a) of the Exchange Act for an award on a potential related action, "irrespective of the limitations" of Rule 21F-3(b)(3); and
- inform a claimant of a determination that an alternative whistleblower program has a more relevant connection, with the understanding that the claimant can then request to hold the related-action award claim in abeyance during the interim period.
With regard to Rule 21F-6, the staff will "continue its practice of considering dollar amounts only in connection with provisions of the rules that explicitly contemplate the use of such discretion to raise awards."
The policy statement is effective immediately.
SEC Commissioners Hester M. Peirce and Elad L. Roisman asserted that the policy statement is "unwise and continues a troubling and counterproductive precedent," referring to Mr. Gensler's recent staff directive to revisit proxy rule changes. Ms. Peirce and Mr. Roisman criticized both actions as the SEC majority abandoning duly-adopted rules via public statements, "reduc[ing] the certainty of the law" by implying that rules adopted in compliance with the Administrative Procedure Act "may be interim at best, and transitory at worst."
Commentary by Steven Lofchie
As to prior rule amendments, there is a regulatory process for repeal. It would seem better to follow that process. As with the SEC's recent approval of a Nasdaq rule that essentially mandates board diversity, no one really has an incentive to challenge the whistleblower policy statement in court. In this instance, accused parties that settle a case are not informed of the identity of a whistleblower, and whistleblowers are to be paid more.
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