The SEC's change removes the Wall Street regulator's ability to deny awards to tipsters who would otherwise be eligible for a payout from another agency. The vote reverses a change made to the whistleblower program in 2020, when the SEC was led by Chairman Jay Clayton, who was nominated by President Trump.
On Friday, the SEC also approved a second amendment clarifying that the commission has the authority to consider the dollar amount of a potential award, but only for the purpose of increasing a payout. The move "will give whistleblowers additional comfort" that the SEC will not reduce an award simply because it is large, said Chairman Gary Gensler, who was nominated by President Biden. The second amendment clarifies language changes made to the award-program rules during the Trump administration.
Mr. Gensler stated last year that the SEC would take a break from enforcing the two Trump-era changes. The agency formally proposed changing its rules in February.
The SEC's tips-for-cash program was established as part of the Dodd-Frank Act of 2010. The statute allows whistleblowers to receive awards ranging from 10% to 30% of any fines imposed by the SEC as a result of a tip. While many awards are in the hundreds of thousands of dollars, some have exceeded $100 million.
Some Wall Street analysts have expressed skepticism about the largest awards. Whistleblower lawyers, for their part, have argued that large payouts motivate whistleblowers who are high-ranking, well-paid Wall Street executives.
According to a recent study, nearly a quarter of the awards given out between 2012 and 2020 went to clients represented by attorneys with close ties to the regulator, including those who previously worked for the SEC.
Stephen Kohn, a whistleblower lawyer who also founded the National Whistleblower Center, a nonprofit that advocates for whistleblower protections, welcomed the latest changes to the program.
He emphasized the significance of the change in related enforcement actions by agencies other than the SEC. Mr. Clayton's amendment allowed the SEC to deny a whistleblower award if the information was covered by another agency's award program.
Mr. Kohn stated that some award programs provide very small payouts when compared to the SEC's. The new SEC rule allows whistleblowers who are eligible for awards from multiple programs to choose the larger of the two, preventing "double dipping" by receiving payouts from two agencies.
"This is a significant victory for investors, whistleblowers, and the public," Mr. Kohn said.