The Whistleblower Program was created by Congress to provide monetary incentives for individuals to come forward and report possible violations of the federal securities laws to the Commission.[1] Today, the Commission is adopting final rules amending the Whistleblower Program rules. Specifically, the final amendments (1) expand the scope of related actions eligible for an award under the Commission’s Whistleblower Program, and (2) amend the rules so that the Commission may use its statutory authority to consider the dollar amount to increase, but not decrease, the award.[2] While I support the important work of the staff in the Office of the Whistleblower in their efforts to arrive at an appropriate result in evaluating claims, I am unable to support today’s amendments.

This past July, I expressed disagreement with the Commission’s decision to revisit recently adopted rules governing the practices of businesses providing proxy voting advice.[3] This objection was rooted in a belief that the decision to revisit recently adopted rules risks creating a regulatory seesaw. In contrast, administrative “best practices” should promote long-term reliance and confidence by market participants in the stability of important areas of securities regulation.[4] Today, I have similar concerns. The Commission is revisiting rules that were finalized a little over a year and a half ago.[5] Reversing rules shortly after adoption, in the absence of a regulatory weakness or failure,[6] sets a bad precedent, risks eroding the Commission’s regulatory credibility, and increases costs for market participants by requiring frequent reevaluations of compliance obligations.

To the extent that data points to a regulatory weakness or failure, it may be necessary to revisit an existing regulatory framework—whether that framework is decades old, or newly adopted. Robust evidence should, however, underpin decisions to revisit recently adopted rules. Absent such evidence, the Commission should monitor the effectiveness of recently adopted rules, with a view to refining any aspects that require adjustments, while avoiding destabilizing wholesale revisions.

Today’s amendments are not aimed at remediating any known or identified weaknesses with the current whistleblower rules. Indeed, the Adopting Release acknowledges that “[w]histleblower programs, including the SEC’s whistleblower program, have been studied by economists who report findings consistent with award programs being effective at contributing to the discovery of violations.”[7] As the economic analysis points out, the total amount of awards, and number of recipients, increased significantly since 2019. From 2020 to 2021, the total awards more than tripled, while the number of recipients also almost tripled.[8] These increases, reflected in the table below, suggest that the existing Whistleblower Program framework is properly incentivizing claimants.

The incremental improvements to the whistleblower rules from today’s amendments, if any, are unclear. The Adopting Release concedes that “[t]he benefits and costs … are difficult to quantify. For example, we do not have a way of quantitatively estimating the extent to which the final rules could affect our enforcement program by altering whistleblowing incentives.”[10] As would be expected, with certain evaluations based on behavioral economics, “the discussion of economic effects of the final amendments is qualitative in nature.”[11] As such, there is neither a negative trend for claims and awards justifying amendments nor clear benefits resulting from the revisions. Given that the prior amendments were only recently adopted, the Commission should have continued to monitor the whistleblower rules, rather than revise them without corresponding data substantiating the need for such amendments.

High-quality tips from whistleblowers represent an important tool in the Commission’s enforcement program. To the extent that the Commission seeks to improve the Whistleblower Program and its rules, it should perhaps consider promoting greater visibility into its claims and award determinations, and increasing the number of high-quality tips from unrepresented persons. Such a review could also evaluate the role played by lawyers representing whistleblowers on a contingency fee basis and how they present tips to the Commission.[12]

The Whistleblower Program has come under increasing scrutiny from some on the basis that it operates with a lack of transparency.[13] These concerns are understandable, given that the Whistleblower Program has paid out more than $1.1 billion in awards since inception from funds that would have otherwise benefitted taxpayers.[14]

While I am unable to support today’s amendments, I acknowledge the efforts of the staff in the Office of the Whistleblower, the Division of Economic and Risk Analysis, and the Office of the General Counsel for their work on these amendments.