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SEC Finalizes New Rules on Whistleblower Awards

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The United States Security Exchange Commission (SEC) has announced changes to the rules of its whistleblower program. The new rules were adopted on August 26, 2022 and may increase the total amount of awards given to whistleblowers who report crimes or fraud to both the SEC and another agency.

Previously, the SEC had often limited or reduced some whistleblower awards when the report involved more than one agency. This change will allow the agency to consider outside involvement to increase the SEC award, or to allow the whistleblower to choose the higher award amount.

Securities and Exchange Commission Whistleblower Program Incentivized

In 2010, the Dodds-Frank Act authorized by Congress, directed the SEC to establish a whistleblower program. The program has offered awards to whistleblowers who report financial securities fraud to the SEC, allowing whistleblowers to receive some of the money recovered by the agency.

Though the program has awarded millions of dollars to whistleblowers, in some cases people who took the risk, may have received less than they might have under different rules.

If a case of fraud reported to the SEC also involved a non-SEC agency, the whistleblower award from the SEC may have been reduced because of an award by another agency, or the SEC may have declined to offer an award at all. In some cases, whistleblowers may have received less money or been waiting for long periods of time with no resolution, depending on the specific case.

For example, an SEC whistleblower action which also involves the IRS, may complicate and delay awards.  The IRS requires that final decisions not “be made until proceeds resulting from actions have been collected.” Even then, the awards may be delayed allowing for a multi-year statutory period which allows a refund to be applied to a tax bill. This would mean the whistleblower could be waiting for years.

New Rules for SEC Whistleblowers May Increase Award Amounts

With the new rules, the SEC may be able to grant the whistleblower award without waiting for constraints of other agencies.

In addition, the new rules also incentivize reporting of federal securities violations, even when another program may offer money for whistleblower protection. In the past, SEC rules prohibited SEC awards to whistleblowers whose complaint also included a non-SEC action, even if the SEC award would have been higher.

The new rule allows the SEC to take other agency awards into consideration to increase the award amount but not decrease the amount. In some cases, it offers the whistleblower the opportunity to choose which award would be applicable, so that the whistleblower will receive the highest award possible. This increases the chance that all appropriate agencies will be included in whistleblower complaints which will strengthen each agencies’ ability to enforce the law and protect against fraud. The new rules have been adopted as amendments and will go into place in October 2022, 30 days after September publication in Federal Register.

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