On August 26th, the SEC adopted two amendments to Exchange Act Rules 21F-3 and 21F-6. These rules regulate the SEC’s whistleblower program, which was established in 2010. The first rule change expands the circumstances in which the SEC is allowed to pay whistleblowers for their information and assistance in connection with non-SEC actions in additional circumstances. The second rule affirms the SEC’s authority to consider the factors as well as the dollar amount of a potential award to increase an award but not to lower an award.
Under the Exchange Act, monetary awards are granted to eligible whistleblowers who voluntarily report original information pertaining to a securities law violation that leads to the SEC’s success in obtaining a monetary order greater than one million dollars in a covered judicial or administrative action brought by the SEC. The valuable tips provided to the SEC help the agency fight wrongdoing and better protect investors and the marketplace.
Rule 21F-3: Related Action Claims Covered by Other Federal Agencies’ or Entities’ Whistleblower Programs
The following changes have been made:
in compliance with the new amendments, a whistleblower must make an irrevocable waiver of any claim to an award from other whistleblower award programs
the SEC will deem the non-SEC action as “related” for purposes of the SEC’s award program (regardless of whether the alternative award program has a more direct or relevant connection to the action) if a claimant files a related-action award application, and the alternative award program is not comparable to the SEC’s program
under the amendment, a program is not comparable if that program’s statutory award range is more limited, its awards are subject to an award cap, or it is discretionary and not mandatory
the SEC will make an award on a potential related action without regard to which program had the more relevant connection to the action if the maximum award that the SEC could pay on the action would not exceed $5 million
the amendments authorize the SEC to make an award for a related action that might otherwise be covered by an alternative whistleblower program even where the alternative whistleblower program has the more relevant connection to the related action in certain circumstances
under Exchange Act Section 21F(b) and Rule 21F-11, a whistleblower who is granted an award based on an SEC-covered action also may be eligible for an award based on monetary sanctions that are collected in an action brought by other statutorily-identified authorities
Rule 21F-6: SEC’s Authority to Consider the Dollar Amount of the Award
The adopted amendments added terminology to Rule 21F-6 in 2020, stating that the SEC has discretion to consider the dollar amount of a potential award when making an award determination. The amendments also affirm the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount but eliminate the SEC’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.
The amendments to the whistleblower rules will be effective October 3, 2022.