Question of the Week -- Should the SEC Cap Whistleblower Awards?
Last month, the Securities and Exchange Commission voted to propose amending the rules governing its whistleblower program. The program encourages individuals with knowledge of violations of securities laws to share that information with the SEC by providing monetary incentives and protection against retaliation by employers. Currently, a whistleblower may receive an award of up to 30% of any government recovery based on the information provided.
Thanks to whistleblower tips, the SEC has recovered more than $1 billion from companies and individuals who have broken securities laws, returning most of that money to cheated investors or the U.S. Treasury. The SEC has awarded over $160 million to whistleblowers in connection with these successful efforts.
Now, the SEC proposes to effectively cap the monetary award that a whistleblower can receive at $30 million-regardless of the size of the fraud or the money ultimately recovered by the government. Although over 60% of awards given out under the program have been less than $2 million, a handful of whistleblowers have received awards greater than $30 million. The SEC has stated that the purpose of the amendment is “to make sure that the Commission is a responsible steward of the public trust while continuing to provide strong whistleblower incentives.”
But whistleblower advocates disagree, fearing that it will undermine existing incentives. The decision to report securities fraud isn’t easy; it carries a host of risks to potential whistleblowers, who often are fired by their employers and blackballed by the industries in which they’ve built their careers. Advocates note that capping awards adds uncertainty to the decision to blow the whistle, increasing the likelihood that individuals will remain silent rather than come forward.
What do you think? Should the SEC cap whistleblower awards?
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