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August 13, 2021 at 02:25 PM
What You Need to Know
- Two amendments made to whistleblower rules could discourage whistleblowers from coming forward, Gensler said.
- Problems that were caused in 2020 during an extensive SEC rulemaking process are being fixed, attorney Kohn says.
- The lawsuit against the SEC whistleblower rule has been stayed until February 2022.
Securities and Exchange Commission Chairman Gary Gensler is seeking to reverse this year changes made to the agency’s whistleblower rules under its former chairman, Jay Clayton.
Last September, the agency, under Clayton, adopted amendments to the SEC’s whistleblower program rules that some complained discourage whistleblowers from coming forward and were a gift to Wall Street.
The agency under Clayton said the changes to the whistleblower rules 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.
Gensler noted in an early August statement that members of the whistleblower community, as well as Democratic SEC Commissioners Allison Herren Lee and Caroline Crenshaw, “have expressed concern that two of these amendments could discourage whistleblowers from coming forward.”
One amendment “would preclude the Commission in some instances from making an award in related enforcement actions brought by other law-enforcement and regulatory authorities if a second, alternative whistleblower award program might also apply to the action,” Gensler said.
The second could be used by a future commission to reduce an award because of the size of the award in absolute terms.
Gensler said that he’s directed SEC staff to prepare for the commission’s consideration later this year “potential revisions to these two rules that would address the concerns that these recent amendments would discourage whistleblowers from coming forward.”
In particular, Gensler explained, the staff is considering “whether our rules should be revised to permit the Commission to make awards for related actions that might otherwise be covered by an alternative whistleblower program that is not comparable to the SEC’s own program, and to clarify that the Commission will not lower an award based on its dollar amount.”
Along with those statements, Gensler issued in early August a procedural statement on how the SEC would proceed regarding certain whistleblower rules while the staff is preparing and the commission is considering potential amendments to those rules.
Gensler Move Out of Bounds, GOP Commissioners Say
The two SEC commissioners, Hester Peirce and Elad Roisman, shot back in a joint statement that Gensler’s action is out of bounds.
While the agency is within its authority to engage in a notice and comment rulemaking to amend its whistleblower rules, Peirce and Roisman said, Gensler’s “new procedures designed to ensure that two rule provisions, which are subject to litigation, are substantively ignored while proposed amendments are formulated and considered” effectively nullifies standing commission rules.
Stephen Kohn, chairman of the board of directors of the National Whistleblower Center and founding partner of the whistleblower rights law firm Kohn, Kohn & Colapinto, told ThinkAdvisor in an email, however, that through Gensler’s procedural statement, the SEC is ensuring Congress’ mandate that “related action” awards are paid to whistleblowers.
