United States: SEC Proposes Amendments to the Whistleblower Program

Last Updated: July 16 2018
Article by Mark D. Cahn and Joseph M. Toner

In 2011, pursuant to authority granted under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (SEC or Commission) adopted rules implementing the whistleblower provisions of Section 21F of the Securities Exchange Act of 1934 (the Whistleblower Program). The Whistleblower Program allows the Commission to provide monetary rewards to whistleblowers who provide the Commission with information that leads to successful enforcement actions. Over the past seven years, the Commission has trumpeted the successes of its Whistleblower Program—namely, that information provided by whistleblowers has led to almost $1.5 billion in disgorgement and penalties and over $275 million has been paid out in whistleblower "awards."

At the same time, the Whistleblower Program has come under increasing scrutiny. After years of litigation, the anti-retaliation provisions of the Whistleblower Program were recently struck down by the U.S. Supreme Court, which held unanimously in Digital Realty Trust, Inc. v. Somers that the Commission had exceeded its authority by extending the protections to whistleblowers who only reported violations internally.1 The size of some of the most recent awards has also attracted considerable attention. Indeed, while the Commission has ordered almost 50 awards, over 40% of that money was awarded in three very sizeable awards.

After seven years, the Commission has decided it's time to step back and revisit certain features of the Whistleblower Program.

On June 28, 2018, a divided Commission proposed amendments to the Whistleblower Program.2 Most significantly, the proposed amendments are designed to provide the Commission with greater discretion with respect to awards at the extremes of the Whistleblower Program (on collected monetary sanctions over $100 million and awards under $2 million)—essentially to enhance the Commission's ability to limit very large (and increase modest) awards. The proposed amendments also provide interpretive guidance on the meaning of "original information," clarify the types of government actions that can qualify for whistleblower awards and conform the anti-retaliation provisions to Digital Realty.

The proposed amendments will be open for comment for 60 days following publication in the Federal Register.

Proposed Rule Amendments

1.  Size of Awards

When a whistleblower is entitled to receive an award, the Commission is required, by statute, to pay the whistleblower between 10% and 30% of the sanctions recovered. Currently, Rule 21F-5(a) nominally states that "[t]he determination of the amount of an award [within that range] is in the discretion of the Commission." However, existing Rule 21F-5(b) provides that the Commission "will decide the percentage of the award applying the criteria in [Rule 21F-6]" and identifies the factors that the Commission must consider. The Commission's discretion is therefore limited to those certain enumerated factors in determining the percentage of an award. The factors that may increase a percentage are limited to: (i) the significance of the information provided by the whistleblower; (ii) the assistance provided by the whistleblower; (iii) law enforcement interest; and (iv) participation in internal compliance systems. The factors that may decrease a percentage are limited to: (i) the whistleblower's involvement in any violation; (ii) any unreasonable delay in reporting; and (iii) any interference with internal compliance and reporting systems. Notably, the Commission is not presently able to consider the size of an award in determining the percentage amount.

The Commission is now proposing to change that with amendments to Rule 21F-6 regarding (i) awards in cases yielding at least $100 million in collected monetary sanctions and (ii) awards to a single whistleblower below $2 million. The Commission believes additional flexibility, within statutory bounds, is appropriate in situations of extremely large and small awards. The Commission proposed the addition of paragraphs (c) and (d) to Rule 21F-6 to provide that additional flexibility.

Proposed paragraph (d) to Rule 21F-6 would permit the Commission to consider the dollar amount of an award and whether and how to adjust the award if the whistleblower has provided information that led to at least $100 million in collected monetary sanctions. The Commission would be required "to consider whether [the amount determined under current criteria] exceeds what is reasonably necessary to reward the whistleblower and to incentivize similarly situated whistleblowers."3 If the Commission makes a determination that the proposed amount is excessive, it would be permitted to adjust an award downward to an "amount that is reasonably necessary."4 The flexibility would be limited so that no departure could reduce an award below $30 million and the Commission could not reduce an award below the statutory floor of 10% of collected monetary sanctions.

Commissioner Jackson argued that this change would alter the incentive for prospective whistleblowers to provide tips; he argued that whistleblowers need certainty and that "[a]dding uncertainty to [the] process risks that would-be whistleblowers will stay quiet."5 But the economic analysis in the Proposing Release argues that such a floor would not impact the incentives to prospective whistleblowers as a practical matter.6 The Commission requests comments on the appropriateness of the floor and how to address the floor in a situation with multiple whistleblowers.

On the other end of the spectrum, proposed paragraph (c) to Rule 21F-6 would provide the Commission flexibility to adjust an award upward if the award would potentially be below $2 million. The Commission seeks the additional flexibility to ensure that an award "reflects a dollar amount that the Commission determines is appropriate to achieve the program's objectives of rewarding meritorious whistleblowers and sufficiently incentivizing future whistleblowers who might otherwise be concerned about the low dollar amount of a potential award."7 An award may not be increased above $2 million and would still be subject to a cap of 30% of the collected monetary sanctions, per the statutorily permissible range. Also, in order to be eligible for this upward adjustment, the whistleblower must not have participated in the violative conduct, delayed reporting or interfered with compliance. The economic analysis to support the upward flexibility is sparse.8 There is limited discussion on how this potential for a larger award may encourage additional whistleblowers, and there is no discussion regarding the potential additional burden on corporate entities.

2. Actions Covered by the Whistleblower Program

In addition, the Commission is proposing to amend the definition of "action" in Rule 21F-4(d) to permit an award in the context of (i) deferred prosecution agreements and non-prosecution agreements entered by the U.S. Department of Justice or a state attorney general and (ii) settlement agreements entered by the Commission outside the context of judicial or administrative proceedings. These amendments offer the Commission flexibility to provide an award to a whistleblower regardless of the resolution the government seeks because such government action is outside the control of the whistleblower. The Commission has already interpreted its authority to include the ability to pay an award in the context of a deferred prosecution agreement; the proposed amendments clarify this authority and expand that authority to other appropriate administrative actions.9 The Commission requests comment on whether these types of actions are appropriate to include within the scope of the Whistleblower Program and whether there are other arrangements that should be included as well.

The Commission is also proposing to limit the definition of "related action" to exclude actions that would potentially entitle a whistleblower to double recovery under a different whistleblower program (e.g., the Internal Revenue Service, the Commodity Futures Trading Commission and state programs). The Proposing Release states that this scenario has yet to occur, but in administering the Whistleblower Program the Commission has become aware of the possibility.10 Whether another program is applicable is subject to the Commission's determination on a case-by-case basis; the Commission requests comment on whether an objective, categorical exclusion would be more appropriate.

The Commission also requests comment on whether to conduct future rulemaking to include actions that do not result in monetary sanctions of $1 million or actions where a whistleblower's tip consisted of publicly available information. These items are not covered by the present proposed amendments, but the Commission is interested in public comment. Interestingly, the Commission includes in the request a question about whether it has the statutory authority to make awards that are not tied to monetary payments where a whistleblower has provided information and the collected amount is too small to make the whistleblower eligible.

3. Individual Eligibility

The Commission is also proposing to amend the Whistleblower Program in order to conform with the Supreme Court's decision in Digital Realty. The proposed amendment would provide a uniform definition of "whistleblower" and that a whistleblower must report to the Commission "in writing" to be eligible for an award, and to be protected from retaliation by an employer. We have previously discussed the decision prompting this change.

The Commission also proposed amendments to bar certain individuals from being eligible for an award. Individuals who submit false information or repeatedly11 submit frivolous award applications will be permanently barred from receiving an award. The proposed amendment is to ensure that the process remains efficient and to avoid the waste of SEC resources. In a similar attempt to ensure efficiency, the Commission proposed a summary disposition process for claims that are likely to be denied (i.e., late applications or applications that did not follow the proper form).

4. Interpretive Guidance

The Proposing Release also adds guidance to the "independent analysis" standard.12 The Whistleblower Program requires that the whistleblower provide "original information," which is information that is based on either "independent knowledge" or "independent analysis."13 The proposed guidance is to clarify the type of analysis of publicly available information that constitutes "independent analysis." The Commission proposes the standard be that "to qualify as 'independent analysis,' a whistleblower's submission must provide evaluation, assessment or insight beyond what would be reasonably apparent to the Commission from publicly available information."14 The determination thus depends on whether the violations could be inferred from publicly available facts. The Commission acknowledges that this is not a bright line, but a "solid foundation."15 Commissioner Stein was unconvinced that the additional 15 pages discussing this issue clarifies the applicable standard.16

* * * * *

Ultimately, the proposed amendments are the Commission's attempt to amend the Whistleblower Program to incorporate seven years of experience. The Commission is divided about whether the program needs any improvement. The public comment period is an opportunity for the public to provide their observations on whether these items improve the Whistleblower Program. The most significant amendments focus on how to tinker—at the extremes—with the rewards while continuing to incentivize whistleblowers.

  1. 138 S.Ct. 767 (2018) (Digital Realty).
  2. Amendments to the Commission's Whistleblower Program Rules, Securities Exchange Act Release No. 83557 (June 29, 2018) (the Proposing Release).
  3. Proposed Rule 21F-6(d)(2).
  4. Id.
  5. Robert J. Jackson, Jr., Commissioner, Securities and Exchange Commission, Statement on Proposed Rules Regarding SEC Whistleblower Program (June 28, 2018).
  6. Proposing Release at 136. The economic analysis focuses on the impact to potential whistleblowers but does not consider any impact to an employer.
  7. Proposing Release at 41.
  8. Proposing Release at 133-34.
  9. Proposing Release at 18.
  10. Proposing Release at 30.
  11. The proposed standard is three or more award applications that were frivolous or lacking a connection between the tip and the Commission action.
  12. Proposing Release Section III.
  13. Rule 21F-4(b).
  14. Proposing Release at 97.
  15. Proposing Release at 98.
  16. Kara M. Stein, Commissioner, Securities and Exchange Commission, Statement on Proposed Amendments to the Commission's Whistleblower Program Rules (June 28, 2018).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions