On the same day the SEC announced its largest whistleblower award ever—$50 million to a former BNY Mellon trader who reported the bank’s pattern of overcharging big clients on currency trades—an advocacy group accused the agency of working to weaken the program’s efficacy.

Better Markets, a bipartisan nonprofit made up of money managers and former congressional staffers, warned in a new white paper that changes sought by SEC Chairman Jay Clayton were “dangerous and legally baseless” and risk discouraging whistle-blowers from reporting illegalities to the SEC.

The SEC has received a record-breaking 4,000 tips, complaints and referrals from mid-March to mid-May—a 35% increase from the same period last year.

John Berry, a partner at Munger, Tolles & Olson LLP, and former SEC enforcement attorney in the agency’s Los Angeles office, told Financial Advisor magazine that “even if the pace dies down a bit, the number of tips for [fiscal yaer] 2020 will be huge for the SEC.”

Better Markets contends in the white paper, “The SEC's Whistleblower Program: A $2B Success Story Under Threat,” that the changes Clayton seeks would expose investors to needless harm, discourage whistle-blowers and increase the chances that fraud would go unreported and undetected, leaving fraudsters on the loose to continue their scams.

The SEC “should act with maximum caution and humility in attempting to tamper with a wildly successful program that has helped millions of investors and punished lots of fraudsters,” Better Markets said in the white paper. The report is available here: https://bettermarkets.com/sites/default/files/Better_Markets_White_Paper_SEC%27s_Whistlebower_Program_06-04-2020-Upload.pdf

The group zeroed in on two proposed SEC changes it said would be counterproductive to the success of the whistleblower program:

1. A proposed cap of 10% of the collected sanctions for whistleblowers who are first to come to the commission with evidence of significant wrongdoing. Currently, whistleblowers can receive up to 30% of money collected when scofflaws are assessed with penalties exceeding $1 million.

2. No public sources. The proposal includes “interpretive guidance” that allows SEC staff to disqualify a whistleblower report if their information could have been inferred from public sources.

“In other words, when a whistle-lower provides original information to the commission that may contain a news article or other publicly available information, the commission could argue that this whistleblower’s information is unoriginal since bits and pieces of it are based on publicly available information which the commission—in due time—would have gleaned and acted upon,” the white paper said. “The proposals would make the Whistleblower Program user-unfriendly and contrary to Congress’s intent.”

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