Whistleblower Program Rules
Summary
SIFMA provided comments to the SEC on proposed amendments to its Whistleblower Program Rules. SIFMA supports the SEC’s efforts to identify and address potential violations of the federal securities laws and regulations.
See also: Comments on Proposed Rule: Amendments to the Commission’s Whistleblower Program Rules
Excerpt
Via E-Mail to [email protected]
Mr. Brent Fields, Secretary
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090
Re: Whistleblower Program Rules, Exch. Act Rel. No. 83557, File No. S7-16-18
Dear Mr. Fields:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the Securities and Exchange Commission’s (“SEC’s” or “Commission’s”) proposed amendments to its Whistleblower Program Rules. SIFMA has supported and continues to support Congress’ and the SEC’s efforts to identify and address potential violations of the federal securities laws and regulations. SIFMA generally supported the SEC’s current whistleblower rules when they were first proposed in 2010,2 and SIFMA recognizes the value of robust and effective whistleblower rules.
SIFMA strongly encourages as the best practice for the SEC and other regulatory agencies periodically to conduct a retrospective review of their rules to evaluate whether they have been as effective and efficient as possible, and SIFMA applauds the SEC for doing so with respect to the whistleblower rules in such a timely fashion as the end of their first decade approaches. SIFMA is pleased that some of the negative consequences feared by critics of the original whistleblower rules – that they might undermine internal corporate compliance programs and encourage baseless complaints – appear to have been limited in practice. But we agree that it is always worthwhile to review whether changes are needed to preserve or improve upon the delicate balance intended by Congress and the Commission. In that spirit, SIFMA submits these comments on the Commission’s Proposing Release3 concerning possible amendments to its current whistleblower rules (the “Proposed Rules”).
I. Executive Summary
SIFMA supports many of the Commission’s ideas set forth in the Proposing Release.
• SIFMA agrees that the definition of “action” triggering a potential whistleblower award should be expanded to include Non-Prosecution Agreements or Deferred Prosecution Agreements entered into with the US Department of Justice (“DOJ”) or the SEC itself. These important prosecutorial tools should not deprive whistleblowers of an award where companies earn these resolutions through strong compliance programs, cooperation and substantial remediation.
• SIFMA finds merit in the Commission’s idea that (within the statutorily mandated 10% minimum whistleblower award and the 30% maximum whistleblower award), some very large whistleblower awards could be reduced so as to increase the size of some of the
smaller whistleblower awards.
• That being said, SIFMA is skeptical whether the Commission has legal authority to adopt a discretionary award program for whistleblowers who do not meet the statutory standards for a whistleblower award. There are strong policy reasons not to do so.
• SIFMA agrees that the Commission has inherent authority to sanction people who abuse the whistleblower program and waste both the Commission’s and the regulated community’s resources by filing baseless whistleblower claims.
• While SIFMA recognizes that the Commission must update its whistleblower rules to reflect the US Supreme Court’s decision in the Digital Realty Trust, Inc. v. Somers case, SIFMA continues to believe that the first and best line of defense against violations of the securities laws is a robust internal compliance program responding to internal reporting of whistleblower claims. In the wake of Digital Realty, it is critical that the Commission strengthen its rules to maximize the incentives to encourage internal reporting of potential violations, and if necessary work with Congress to achieve that objective.
• SIFMA encourages the Commission to provide clear guidance about what language private sector firms may use in employment agreements, severance agreements and during internal investigations to protect nonpublic customer information and trade secrets and preserve firms’ attorney-client privilege and work product protections, without running afoul of the whistleblower rules. The Commission has brought several settled enforcement actions in this area which have created a need for clearer industry guidance.
• SIFMA encourages the Commission to review whether the current provisions of the whistleblower rules relating to culpable participants, which in some cases permit awards to individuals who participated in the violations at issue, effectively achieve the goal of preventing misconduct in the first place.