Attorneys at Kohn, Kohn & Colapinto have raised concerns that the SEC is at risk of undermining post-financial crisis efforts to promote the reporting of corporate wrongdoing.
Digital Realty Trust, Inc v Somers
The changes are proposed so that its whistleblower rules conform with a recent US Supreme Court ruling in Digital Realty Trust, Inc v Somers. In terms of retaliation protection, an individual would have to report information about possible securities laws violations to the commission ‘in writing.’ In late June the SEC proposed amendments to the rules governing its whistleblower program, which it established in 2010 under the Dodd-Frank Act to encourage individuals to report high-quality tips to the agency by offering potential cash rewards. Since the program came into effect, the commission has ordered that more than $266 million be paid out in 50 awards to 55 whistleblowers. The proposals include authorisation for the commission to adjust the award percentage so that it would yield a payout, subject to the 10 percent minimum, ‘that does not exceed an amount that is reasonably necessary to reward the whistleblower and to incentivize other similarly situated whistleblowers.’
Attorneys with Kohn, Kohn & Colapinto, which represents whistleblowers, argue in a comment letter that curbing awards would have negative effects. They note, ‘other whistleblower award laws that lack mandatory awards and/or cap awards have universally failed, as there is no incentive for whistleblowers to risk their careers to file complaints with the government under these ineffective programs.’ The lawyers add that what they refer to as the ‘SEC’s proposed 10 percent cap on large whistleblower rewards’ would ‘discourage potential whistleblowers in many of the largest or most important financial fraud cases. The cap would send the wrong message to both fraudsters and employees contemplating taking the risk of blowing the whistle on major corporate and financial fraud.’ The proposed limits would create an appearance of bias against whistleblowers, particularly given the risks they face and the lack of caps on executive compensation in the financial services industry, the attorneys conclude.