SEC Whistleblower Actions Create Agency Rift, Halt Lawsuit

On August 5, 2021, reporter Al Barbarino released a follow-up article on about the SEC’s approach to two rules amendments enacted late last year. Earlier in the week, Mr. Barbarino reported on a statement released by SEC Chairman Gary Gensler revealing that he had directed agency staff to prepare revisions to the amendments for consideration later in the year. Now, the SEC has taken a welcome additional step and announced policy changes that effectively nullify the negative impact of the amendments on whistleblowers.

The first amendment stated that the SEC could not give an award to a whistleblower whose tip led to a successful action by another law enforcement or regulatory body if another whistleblower award program existed and applied, even though the other program may only allow for lower awards or have technical limitations that could result in no award whatsoever. The SEC announced that, under its new policy, it had exemptive authority as to this mandate and thereby whistleblowers could receive awards for their contributions to such related actions.

Also, the second amendment had given the SEC discretion to reduce an award calculated under the existing statutory formula if the amount was deemed too high. The SEC announced that it would not exercise its discretion to reduce any awards. Provision was also made for whistleblowers to have award claims held in abeyance while the SEC’s review of these amendments is ongoing.

As reported in the article, these policy changes allowed Jordan Thomas to agree to stay a federal lawsuit he filed contesting the amendments on behalf of his clients and the industry at-large. Jordan was quoted as calling the changes a “big victory for whistleblowers,” and he further stated that he anticipated “working closely with the commission to get the rules right.”

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