New SEC Rules Amendments Raise Concerns For Whistleblower
Attorneys: How Justified Are They?

Two recent, momentous announcements by the SEC grabbed the
attention of SEC whistleblowers and the whistleblower law firm
attorneys who represent them.

On September 28, 2020, the Securities and Exchange Commission
(SEC)
announced
that it granted its 100th whistleblower award.

On October 22, 2020, the SEC announced that it granted a $114
million whistleblower award. This was the largest
SEC whistleblower award
granted to date.

In a
statement about the 100th award, the SEC’s Chairman said:

Today’s award marks a milestone for the whistleblower
program. This whistleblower is the 100th individual to
receive an award under the program since its inception, and
the 33rd individual awarded so far this year.

The pace and the amounts of the awards in recent years
underscore the Commission’s commitment to increasing the
efficiency and effectiveness of the whistleblower program.
We remain dedicated to working quickly to get more money
into the hands of whistleblowers…

In an
SEC press release
about the record $114 million award, the Chairman stated:

Today’s milestone award is a testament to the Commission’s
commitment to award whistleblowers who provide the agency
with high-quality information… Whistleblowers make
important contributions to the enforcement of securities
laws and we are committed to getting more money to
whistleblowers as quickly and efficiently as possible.

Why Some Whistleblower Law Firm Attorneys Have Concerns About
The Timing Of These Two Awards

These two milestones represent truly landmark occasions for
the
SEC whistleblower program. Many
SEC whistleblowers
and
SEC whistleblower lawyers
rightly praised the Commission for its impressive
accomplishments.

However, these two milestones have not been without
controversy, with some whistleblower law firm attorneys
questioning their timing.

The SEC’s press release about the $114MM award

Some
whistleblower lawyers
pointed out that the Commission announced the 100th award just
five days after it voted to pass its controversial amendments
to the SEC whistleblower rules.

Other whistleblower law firm lawyers noted that the Commission
announced the $114 million award on October 22, 2020. In other
words, just one day before the earliest possible effective
date for the new amended rules. (The amendments actually
became effective on December 7, 2020.)

The Abandoned “Cap” Rule

The concerns regarding the new amendments stretch back to when
the Commission first proposed the amendments on June 28, 2018.
Analyzing all of them exceeds the scope of this article, but
the media widely covered one in particular.

That concern pertained to a proposal that many classified as a
“cap” on
SEC whistleblower rewards. Under that proposal, for cases in which the SEC collected
more than $100 million, it could reduce a whistleblower’s
award. The Commission could reduce the award to an amount that
it deemed “reasonably necessary”. However, the reduced award
still had to fall within the 10%-30% range required by the
Dodd-Frank Act.

Whistleblowers
and whistleblower law firm attorneys, and others, roundly
criticized this proposal to “cap” SEC Whistleblower awards.
So, too, did U.S. Senators from both the
Republican
and
Democratic parties.

The final amendments to the SEC whistleblower rules dropped
the “cap” rule.

Why Some Whistleblower Law Firm Attorneys Have Concerns About
The New Amendments To The SEC Whistleblower Rules

Previously, SEC award orders predominantly quantified awards
granted in terms of percentages of the overall amount
collected in the case. However, in connection with the
amendments, the Commission asserted its authority to issue
awards denominated in dollar figures. The Commission called
this a procedural clarification. Some lawyers wondered,
though, whether it really represented a backdoor attempt to
reintroduce a discretionary cap on awards.

At the risk of oversimplifying, the fear that those
whistleblower law firm attorneys have is that the SEC could
determine that a spectacular whistleblower meets the criteria
for a maximum 30% award, but could then issue an award in a
lower dollar amount without ever mentioning what percentage
the whistleblower was originally found to be entitled to.

Given the original “cap” proposal, these fears do not lack
basis. However, it has long been advisable for an
SEC whistleblower attorney, or any attorney for that matter, to maintain their
objectivity in order to provide the best advice they can to
their clients. This involves refraining from becoming so
emotionally involved in a particular matter or cause that the
lawyer’s advice becomes impaired.

Keeping that in mind, it is worthwhile to examine this issue
from the opposite perspective.

Issuing SEC Whistleblower Awards In Dollars

From the inception of the SEC whistleblower program, the
Commission has determined award percentages in closed door
hearings. Whistleblowers and their SEC whistleblower attorneys
may submit written award applications for review during those
closed door hearings. However, they do not have a right to
attend those hearings.

Moreover, the Commission has the discretion to determine award
amounts. The Commission does not use a mathematical formula to
determine appropriate award percentages.

From a skeptical perspective, to date there has been nothing
preventing the Commission from assigning even a superb
whistleblower a percentage figure lower than the percentage
that the whistleblower arguably deserved. No one outside of
the Commission would likely ever know.

Therefore, if the SEC wants to deceptively “cap” large awards,
it could already do that by manipulating the percentages. The
Commission would not need to announce a new procedure about
issuing awards in dollar amounts to do so.

The Timing Of The 100th SEC Whistleblower Award

Some whistleblower law firm attorneys posited that the
announcement of the 100th SEC whistleblower award less than a
week after approving the amended rules may have been an
attempt to divert attention away from that vote. For several
years, whistleblower law firm lawyers have been complaining
about how long it takes for the Commission to grant awards.
The Commission itself has acknowledged the lengthy delays and
stated (or implied) its intention to try to find ways to speed
up the award process.

The timing of the 100th award may have been fortuitous, but to
criticize the SEC for issuing it (as opposed to sitting on it
and not granting it, and backing up the other awards waiting
in line to be issued behind it, for months longer) seems a bit
inconsistent. In fact, in a little more than a month following
that 100th award, the Commission granted ten more awards (as
of November 3, 2020).

The Timing Of The $114MM SEC Whistleblower Award

Likewise, some SEC whistleblower attorneys questioned whether
the SEC issued the record $114 million award the day before
the new amended rules could have first gone into effect for
public relations reasons. They reason that the Commission
intended the announcement to deflect attention away from those
new rules.

However, if the Commission intentionally timed this
announcement, it may have done so to send a different message.
The Commission recognizes the fear and controversy surrounding
its abandoned “cap” rule. The announcement of this record
award may have been the Commission’s way of trying to reassure
everyone that it does not intend to artificially or unfairly
cap large awards.

Who Is Correct?

So who has the correct view? Well, if you have faith in how
the current SEC leadership is implementing its whistleblower
program, you may be justified. The SEC did recently announce
the record $114 million award. Moreover, during the 2020
fiscal year, the SEC gave out more
individual whistleblower awards
than in any prior year.

If you are skeptical or concerned, you, too, may be justified
based on the recent rules amendments. In addition, the SEC did
propose the “cap” rule, only dropping it after a vigorous and
sustained public outcry.

Bear in mind, though, that when Presidential administrations
change, the new President nominates a new SEC Chairman. Each
of the SEC Commissioners serve defined terms of office. They
then either resign or have to be reapproved for another term.
Different SEC Chairmen, and different Commissioners, hold
different views.

So if you feel concerned, remember that one Commission might
do things one way. But that does not mean that a future
Commission will do things the same way.

Some people like the recent changes; others remain skeptical.
Either way, only time will tell how the Commission will
implement them in practice. The amended rules and their
related pronouncements are too new for there to be reliable
data yet about how the Commission may go about applying them
going forward.

For Part 2 of this article, please click
here
–>

For a more detailed memo about the 2020 SEC whistleblower
amendments, please click
here.

* * *

About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on
representing clients involved with investigations conducted by
the U.S. Securities and Exchange Commission, FINRA, and other
securities regulators.

The Pickholz Law Offices has represented employees, officers,
and others in SEC whistleblower cases involving financial
institutions and public companies listed in the Fortune Top
10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global
2000. We were the first law firm ever to win an SEC
whistleblower award for a client on appeal to the full
Commission in Washington. Inside Counsel magazine named this
achievement one of the five key events of the SEC
whistleblower program. Examples of the
Firm’s SEC whistleblower cases are available here.

In addition to representing SEC whistleblowers, since 1995 the
Firm’s founder, Jason R. Pickholz, has also represented many
clients in securities enforcement investigations conducted by
the SEC, FINRA, the U.S. Department of Justice and US
Attorney’s Offices, State authorities, and more. Examples of
some of the many
securities enforcement cases that Mr. Pickholz has been
involved with are available here.

You can see what actual clients have had to say about The
Pickholz Law Offices by going to the
Client Reviews page on our website or by clicking here.

How to Contact the Pickholz Law Offices LLC

If you would like to speak with a securities lawyer or SEC
whistleblower attorney, please feel free to call Jason R.
Pickholz at 347-746-1222.

The Pickholz Law Offices remains open and will be fully
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