Whistleblower Reward Rules

For the second time this year a vote on proposed SEC Whistleblower rules changes was postponed. It was supposed to happen today. Those of us in whistleblower reward law have been watching the progress of these proposed changes carefully.

We are at least as concerned about attitudes towards whistleblowers reflected in the proposed changes as any of the specific proposals laid out by the Commission. It now appears it will be some time before the proposals as promulgated are enacted if ever. Once it the new date to vote on them is set I’ll follow up with more detail on them.

Some of the proposed rules involve the kind of changes lawyers get paid to track, technical and maybe or maybe not so consequential.  There is a proposed change, not to the statutory amounts but to the way the SEC may consider what to award whistleblowers in the biggest cases, which is worth thinking considering.

Whistleblower lawyers have been fierce in trying to protect the rights of whistleblowers to collect awards and we better be. There is always going to be an effort to reduce these awards and there is always going to be an effort to make such reductions work to destroy such programs.

The trick is that most initial efforts sound reasonable and may even be reasonable. Everyone always starts out reasonably. At the reasonable proposal stage, nobody asks why it’s ok to consider new ways to limit awards, why it’s ok to admonish a whistleblower for wanting an award, when the whole point is we are up against un-restrained greed on the part of the fraudsters in the first place.

Yes, I’m saying there is a very, very slippery slope.  The SEC’s rule as proposed probably is not the end of the world. They would have the discretion to reduce the awards of the biggest collections. There is a statutory minimum of 10% and it seems this new rule would not allow for an award that goes below that.  The 10% however is lower than the statutory minimum of an award under the False Claims Act of 15%. It is also worth nothing that the SEC often takes the position that costs of collecting the money, when a receiver is appointed for example to liquidate assets, go against the total. To me that is not fair.  It is the government’s money at stake when it’s a False Claims Act case so generally the government collects the money and such costs are not counted against the award.

Obviously, though 10% of a really big, collection can be a lot of money, but people in a position to know about that kind of securities fraud that involves a huge collection, probably already have a lot of money.

The SEC is also proposing that they would consider raising the awards in smaller collections again however, that is within the stator amounts.

What bothers me about all this is the increased demands on the whistleblower to do more than blow the whistle if she or he wants an award. The Department of Justice Factors used to consider what they want to do to make an offer to the whistleblower (who may spend a lot of time litigating an awrd amount if they fight the DOJ on this) similarly rewards the continual efforts of the whistleblower to pursue a case through to judgment, as a witness as an aide to prosecuting the Defendant. Then the amount of the collection is also at least according to their factors, considered by the DOJ in its offer.

Maybe all of this is reasonable, but everyone involved, lawyers for whistleblowers, lawyers for the SEC, lawyers for the DOJ and of course the whistleblowers, spend time squabbling over percentages, when in all whistleblower reward cases, any whistleblower has reported something the government needed to know to get any award.  That is what should count.

The whistleblower and the government in any of these actions are on the same side. Why do we invest such effort on a structure that then divides their interests at the end?

You have to wonder why the SEC is spending so much time creating more rules to make it more complicated for them to award a whistleblower, when there are back logs of cases filed that need to be pursued.

I’m alone in the Whistleblower Reward Bar in saying we should negotiate for a flat rate. One amount for if we bring the case to trial, another if there are multiple whistleblowers bringing the case together who negotiate any agreement between themselves. Then the DOJ and the SEC and the CFTC could worry about prosecuting the cases whistleblowers bring them.

In any event the incentives should be clear to encourage the whistleblower. That after all, is the point as stated by Congress, in enacting all such laws.