The Securities and Exchange Commission announced that it canceled its meeting to vote on controversial rule changes to its whistle-blower program.
The cancellation of the meeting, previously scheduled for October 23, was announced on the SEC's website yesterday. There are reports the meeting will be rescheduled for November.
The cancellation comes amidst steep opposition to the proposed rule changes, which whistle-blower attorneys and other critics say would diminish the likelihood that whistle-blowers would report financial malfeasance and fraud.
"We welcome the postponement of the October 23rd meeting," said Stephen M. Kohn, chairman of the National Whistleblower Center and founding partner of Kohn, Kohn and Caloptinto, a Washington, DC-based law firm that has specialized in whistle-blower cases since 1999. "It is vitally important that the SEC understands all of the issues and gets this rulemaking right."
Kohn said the SEC’s proposed 10% cap on large whistle-blower rewards above $30 million “will discourage potential whistle-blowers 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."
Critics also take issue with the proposed rule’s narrowing of who is entitled to an award. For instance, a whistle-blower who provides original information about a securities violation to anyone at the SEC without first having filed a formal reward claim with the SEC on the proper form would be automatically ineligible for an award in the proposed rule.
Over the past two weeks, Kohn, representatives from the National Whistleblower Center and Sherron Watkins, the Enron whistle-blower, met with SEC officials to discuss the importance of rejecting the proposed rule changes, and how they may impact whistle-blowers and enforcement.
“This is good news for whistle-blowers. The proposed rule changes could undermine the highly successful SEC whistle-blower program. At stake is the future of the SEC's ability to effectively use whistle-blowers to police securities fraud and violations of the Foreign Corrupt Practices Act,” Kohn said.
Under the SEC whistle-blower-reward program, the SEC is required to issue payouts to eligible whistle-blowers who provide original information that leads to successful SEC enforcement actions with total monetary sanctions exceeding $1 million. A whistle-blower may receive an award of between 10% and 30% of the total monetary sanctions collected.
To date, more than $2 billion in monetary sanctions have been ordered against wrongdoers based on actionable information provided by whistle-blowers. In 2018 alone, the SEC issued more than $168 million in awards to whistle-blowers.