Statement of Commissioner Caroline Crenshaw on Whistleblower Program Rule Amendments
Sept. 23, 2020
The remarkable Justice Ginsburg once wrote that the Commission possessed a “robust whistleblower program designed to motivate people who know of securities law violations to tell the SEC”.[1] Our nation has a long history of motivating whistleblowers to come forward, dating all the way back to 1777, when the Continental Congress passed our first whistleblower protection law.[2] And over time our laws have evolved to not just protect whistleblowers, but also to incentivize and encourage them to take personal and professional risks to help our government stop wrongdoing.
I am proud of the Commission’s whistleblower program. In 10 years, we have received more than 1,500 submissions, resulting in more than $2.6 billion in financial remedies. Over the last two years, the Commission has worked to streamline and accelerate the awards determination process. To date, we have paid more than $523 million to whistleblowers who risked their livelihoods to do the right thing. I want to thank the Commission’s staff and the Office of the Whistleblower for making that happen.
From today’s discussion, it is clear that my fellow Commissioners and I agree that whistleblowers are of tremendous value to the agency. They are a critical part of our enforcement program and allow us to cover more ground in our efforts to protect investors. In the course of this rulemaking, we received many comments from the public confirming that our program is effective in encouraging whistleblowers to come forward, while protecting them as they potentially risk their careers. We are grateful that people are willing to take this risk and I am happy that the program has been so effective in motivating people to do so.
The comment file demonstrates that our program’s effectiveness depends on providing potential whistleblowers with certainty about how they will be treated, including award eligibility and determinations. It also depends on the efficiency with which we carry it out.[3] I believe today’s rule takes steps towards increasing efficiency. After today, the Commission will be able to focus resources on meritorious submissions rather than frivolous claims. This will help ensure that the whistleblowers really risking their careers and livelihoods will be compensated more quickly. We are also taking additional steps to increase the pace with which we process awards under $5 million.[4]
Although today’s rule makes improvements on the initial proposal,[5] there are still aspects of the rule that leave inefficiencies and create uncertainties for potential whistleblowers. I am therefore, unfortunately, and for the following reasons, unable to support today’s rulemaking.
First, I share Commissioner Lee’s serious concerns about the discretion to consider the dollar amount, and I hope that future Commissioners will exercise the discretion as carefully as we do.
Second, we are providing interpretive guidance on the meaning of “independent analysis,” which is a concept that impacts whether certain information provided by a whistleblower to the Commission is award-worthy. I worry this guidance will inadvertently impact the perception of the type of information the Commission considers valuable. In the guidance, we describe “independent analysis” as information that is not reasonably accessible and that is not “reasonably inferable” by the Commission. Our focus, instead, should be on the quality of the information and the analysis provided by the whistleblower. The amount of data and information available to the Commission is extensive. Given that, we should not focus on whether the staff “could have” inferred the information from what was provided, but whether the staff did infer the information prior to getting the submission.[6]
Third, I am concerned about whether the rule sufficiently protects certain whistleblowers who experience retaliation. In Digital Realty, the Supreme Court held that the anti-retaliation protections in our rule apply only to those who provide information to the Commission before they experience retaliation. But the Court gave us express discretion to say how whistleblowers can come forward. [7] Today, by limiting the anti-retaliation protections to whistleblowers who submit information in writing, we fail to do all we can to protect those who cooperate with our exams and investigations. In other words, if a whistleblower provides information to the Commission through interviews or testimony, that whistleblower does not necessarily get the benefits of the anti-relation provision.[8] I think we could have approached our response to Digital Realty differently in light of our nation’s strong history of protecting whistleblowers, and our agency’s interest in continuing to do so.
As I hope I have made clear, I am proud of our whistleblower program. And with the exception of the areas I have identified, I continue to believe the program admirably serves the interests of whistleblowers and the Commission, and by extension, the investing public. I had hoped to get to yes because I believe unanimity sends an important message, but because I must vote not only on the whole, but also on its parts, I am unable to support today’s rule.
But, as always, the staff has done exceptional work, and I want to thank the teams from the Office of the Whistleblower, the Office of the General Counsel, the Division of Economic and Risk Analysis, and of course the Division of Enforcement for your thoughtfulness on this rulemaking. I also want to thank our dedicated Commission staff for its hard work in support of our robust whistleblower program. I always value and support your work and know our whistleblower program is better because of your role in it.
[1] Digital Realty Trust v. Somers, 138 S.Ct. 767, 778 (2018) (quoting S. Rep. No. 111–176, p. 38 (2010)). While I do not like the result the Court reached in Digital Realty, I wholeheartedly agree with Justice Ginsburg’s description of the purpose and intent behind the Commission’s program. I also greatly admire her and am profoundly saddened by her passing. We are all very privileged that she chose to serve her country for so long and with such fervor.
[2] Christopher Klein, “U.S. Whistleblowers First Got Government Protection in 1777,” The History Channel (Sept. 26, 2019).
[3] The comment letters made clear that certainty and efficiency are key to the program’s continued success, and identified improvements we can make toward that goal.
[4] Historically, the majority of awards fall in this range. See Whistleblower Program Rules Adopting Release, Rel. No. 34-89963 (“Adopting Release”) at 8, n.4 (“While the Commission has made a number of larger awards, the substantial majority of all awards were $5 million or less.”).
[5] For example, the final rule changes the definition of “administrative action” to include certain non-prosecution and deferred prosecution agreements and settlement agreements, see Rule 21F-4(d)(3); creates a presumption that meritorious whistleblowers will receive the statutory maximum award when that amount would be $5 million or less and there are no negative award factors, see Rule 21F-6(c); and clarifies the procedures for submitting information to the Commission and gives claimants 30 days to submit a form TCR from obtaining notice of the submission requirements, see Rule 21F-9.
[6] See Adopting Release at 129.
[7] Digital Realty, 138 S.Ct. at 781 (“If the whistleblower definition is applied to §78u–6(h), the Solicitor General states, ‘an employer could fire an employee for giving . . . testimony [to the SEC] if the employee had not previously reported to the Commission online or through the specified written form’—i.e., the methods currently prescribed by Rule 21F–9 for a whistleblower to provide information to the Commission. Brief for United States as Amicus Curiae 20–21 (citing 17 CFR §240.21F–9(a)(1)–(2)). But the statute expressly delegates authority to the SEC to establish the “manner” in which information may be provided to the Commission by a whistleblower. See §78u–6(a)(6). Nothing in today’s opinion prevents the agency from enumerating additional means of SEC reporting—including through testimony protected by clause (ii).”).
[8] Specifically, if that whistleblower is subsequently retaliated against by their employer, but has not yet submitted anything to the Commission in writing, that whistleblower is not protected by today’s rule. The whistleblower may be protected from retaliation under the Sarbanes-Oxley Act of 2002, which applies to employees, private contractors and subcontractors or agents of public companies, their affiliates and subsidiaries or of nationally recognized statistical rating organizations. 18 U.S.C. § 1514A. The protections under Sarbanes-Oxley do not extent to other private entities such as investment advisers or broker-dealers.