SEC Chairman Jay Clayton. (Photo: Brendan Smialowski/AFP/Bloomberg

Senators told Securities and Exchange Commission Chairman Jay Clayton that they were concerned the agency was considering “detrimental revisions” to its whistleblower rules, which the agency plans to vote on at a meeting that started at 10 a.m. Wednesday.

The planned changes, Sens. Elizabeth Warren, D-Mass.; Sherrod Brown, D-Ohio; and Christopher Van Hollen, D-Md., wrote in a recent letter, “regrettably, … could deter whistleblowers and impede an individual’s ability to recover an award for reporting wrongdoing. Upon its release, the Proposal created confusion because it suggests the SEC could cap awards.”

The agency says its proposed amendments would enhance claim processing efficiency, and clarify and bring greater transparency to the framework used by the commission in exercising its discretion in determining award amounts.

SEC watchers are concerned that the proposed changes could disqualify many potential whistleblowers.

The senators reminded Clayton that during his Dec. 10, 2019, testimony before the Senate Banking Committee, “when asked to commit that the final whistleblower rule will be consistent with the statute and not create a cap, you assured the Committee that, ‘[a]bsolutely, and any characterization of our proposal as a cap is completely misguided.’”

The commission “must preserve the whistleblower program’s incentives and structure to ensure that it remains effective as a means to uncover fraud and misconduct,” the senators wrote. “As you know, the Dodd-Frank Wall Street Reform and Consumer Protection Act created the SEC’s whistleblower program to expose securities law violations and identify risks to prevent another financial crisis.”

The SEC’s plan, the senators continued, would also “permit the SEC to create an insurmountable hurdle for a whistleblower to establish original information based on ‘independent analysis.’”

They continued: “Even the Commission itself concedes that its Proposal creates uncertainty in stating that, ‘[w]hile we recognize that this standard does not constitute a bright line, we believe that it should provide a solid foundation for the Commission to apply when assessing awards.’ The Commission’s proposed approach has it backward — an individual that could report otherwise unknown violations needs a bright line in order to come forward at great personal risk.”