Securities Regulation Daily SEC sued over changes to whistleblower program
Thursday, January 14, 2021

SEC sued over changes to whistleblower program

By Amy Leisinger, J.D.

A notable whistleblower attorney has challenged the Commission’s changes to its rules governing awards.

The SEC has amended its whistleblower rules to decrease the size and number of awards issued, according to a prominent attorney. The attorney brought an action to vacate the Commission’s changes to whistleblower rules adopted in accordance with the Dodd-Frank Act. Under prior rules, the agency calculated whistleblower awards by assigning an "award percentage" based on certain positive factors to encourage whistleblowers to come forward. However, the Commission changed course, he alleged (Thomas v. SEC, January 13, 2021).

Whistleblower changes. In September 2020, the Commission determined it had discretion to consider the potential dollar amount of a whistleblower award. According to the complaint, "[d]isregarding its rules and its prior public statements, the Commission adopted new language to ‘clarify’ that the agency already had authority to give lower whistleblower awards based on the size of the monetary penalties collected."

The SEC also amended its rules governing whistleblower awards for "related actions" despite the Exchange Act mandate that the Commission "shall pay an award" in the successful enforcement of a "related action, in an aggregate amount" of 10 to 30 percent and imposed new restrictions.

More important, according to the complaint, the amendments to Rule 21F-6 are unlawful because the Commission enacted the rule without acknowledging its change of position and failed to weigh the costs and benefits.

The SEC’s changes to its whistleblower rules have harmed and will continue to harm the plaintiff, the complaint alleges, by reducing the amount of awards current clients recover and increasing marketing costs and related expenses. In addition, the amendments require additional award applications, and clients may be denied whistleblower awards by the SEC on the basis that another agency already denied an award. The changes could also result in fewer potential clients choosing to report possible securities violations because of uncertainty, the complaint concludes.

The case is Civil Action No. 1:21-Cv-108.

Attorneys: John Michael Connolly (Consovoy McCarthy Park PLLC) for Jordan A. Thomas.

MainStory: TopStory GCNNews WhistleblowerNews DistrictofColumbiaNews

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More

Securities Regulation Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on securities regulation legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.