September 19, 2018

Whistleblowers and their attorneys claim the U.S. Securities and Exchange Commission's proposal to reduce significant awards would give tipsters little reason to put their livelihoods at risk by exposing corporate wrongdoing, according to public comments submitted before a Sept. 18 deadline.

The agency's proposed limit is part of a broader overhaul of its whistleblower program, which was introduced to incentivize tipsters as part of the Dodd-Frank Act in 2010. Some aspects, such as a plan to reduce "frivolous" claims, have been cheered, while many others have gotten a cooler reception.

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Gary Azorsky, co-chair of the Cohen Milstein Sellers & Toll PLLC's Whistleblower and False Claims Act practice group, told Law360 the SEC is probably trying to target whistleblowers who present relatively obvious conclusions based on public information.

"But there are a number of other cases where important and nonpublic conclusions can be uncovered through careful analysis of public data," he said. "It's important for them not to sweep those cases away with cases they feel are just too obvious."

The SEC's proposal to prevent multiple recoveries from different agencies adjudicating the same dispute has drawn ire as well. The goal is to prevent whistleblowers from recovering more than 30 percent of a penalty across different whistleblower programs, but Kohn worries that whistleblowers won't be granted the same anonymity protections the SEC offers if they seek awards from other agencies.

Azorsky views the proposal as "overbroad." He argues the SEC should independently calculate the percentage it believes a whistleblower is entitled to, and pay the difference if an award from a different program is below that amount. Such an approach would achieve the SEC's goal of preventing "multiple bites at the apple" while also ensuring whistleblowers receive the awards they deserve, he said.

On the whole, though, Azorsky has a mixed view of the proposed rule and is optimistic about certain aspects, including a plan to permanently bar whistleblowers who repeatedly make frivolous award claims and to allow awards for additional types of actions such as those involving deferred prosecution agreements and nonprosecution agreements.

The complete article can be accessed here.