Over the past ten days, several clients and more than one SEC whistleblower lawyer have asked me what I think the recent national Presidential election results portend for the future of the SEC whistleblower program. In the first two Parts of this post, I have attempted to give legislative and historical context to this question. In this concluding Part, I turn to the current environment and the election itself.
As I stated in both prior Parts of this post, nothing herein should be construed as legal advice or considered as a substitute for consulting with your own SEC whistleblower lawyer. The thoughts and ideas expressed herein are my own personal opinions based on information presently available to me, combined with my experience representing clients as an SEC whistleblower lawyer since shortly after the passage of the Dodd-Frank Act, and over two decades of experience as a practicing attorney.
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Less than two months before the Presidential election, the SEC’s Director of Enforcement praised the SEC whistleblower program as having a “transformative impact” and called it a “game changer”. In his remarks, he noted that in fiscal year 2015 the SEC received 30% more whistleblower tips than it had received in fiscal year 2012, and encouraged SEC whistleblowers to report as early as possible to the SEC. (As an aside, if you are an SEC whistleblower lawyer, you may also be interested to know that in his remarks, the Director praised and welcomed the assistance of SEC whistleblower lawyers.)
Approximately three months earlier, the Chair of the SEC informed the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs that SEC whistleblower tips had increased each year since the SEC whistleblower program came into existence in 2010. During her testimony, she told the Committee that the SEC whistleblower program has had a “transformative impact” on the SEC’s enforcement program.
In August, the SEC announced to great fanfare that it had given out more than $100 million in SEC whistleblower awards. For approximately two months, the SEC posted a large green banner on the landing page of its website announcing the milestone. A smaller version of that banner is currently posted on the home page for the SEC’s Office of the Whistleblower. In remarks about the milestone, the SEC Chair repeated her statement that the SEC whistleblower program has had a “transformative impact”; the Director of Enforcement reiterated that the program has been a “game changer”; and the then-Acting Chief and now Chief of the Office of the Whistleblower referred to the milestone as proof of “the program’s resounding success.”
Less than one month before the Presidential election, the SEC announced that it gave out a record $57 million in awards to whistleblowers during fiscal year 2016, more than in all previous years combined.
As I reflected on in Part 1, entire Acts or huge sections of Acts tend to be susceptible to wholesale repeal when there is overwhelming or unanimous consensus that the Act or those sections of it have failed to achieve, or no longer serve, their intended purpose. The exact opposite is true with regard to the SEC whistleblower program. The SEC whistleblower program has been widely praised as an overwhelming success.
With regard to the recent Presidential election itself, it has been reported that President-elect Donald Trump drew a lot of support from the working class and middle class — in other words, voters who tend to be employees, or former employees whom the recession has forced out of work. The SEC whistleblower program’s protections and award provisions are designed to protect, encourage, and reward employees, along with others, who report securities frauds and violations to the SEC. Repealing the SEC whistleblower program would be viewed as striking out at employees and the working/middle classes — a very sizeable component of the electorate that voted President-elect Trump into office — in favor of protecting the very “establishment” that Mr. Trump campaigned so vigorously against. While nothing is certain, it seems unlikely to me that the President-elect would do something that could be construed against him in this way and potentially alienate a large percentage of his supporters.
So what are the possible outcomes for the Dodd-Frank Act? First off, it is possible, even if less likely post-election, that nothing will be done and the Act will be left as is. It could be that certain sections of the Dodd-Frank Act will be amended or removed, leaving the remainder of the Act, including the SEC whistleblower provisions, intact. Or it could be that the entire Act will be repealed and replaced with a new financial reform Act. Finally, and least likely for reasons I have discussed, the Act could be repealed without the passage of a new Act to replace it.
It is important to remember that, as I mentioned in Part 1, the SEC whistleblower provisions are stand-alone provisions. They are separate from the financial and reporting provisions that seem to be the focus of the repeal movement. It is entirely possible to amend or repeal those other provisions of the Dodd-Frank Act while leaving the SEC whistleblower provisions intact. It is also possible to move the SEC whistleblower provisions into a new Act without interrupting the operation of the SEC whistleblower program. It may also be possible to lift the SEC whistleblower provisions out of Dodd-Frank and place them into the Securities Act of 1933 or the Securities Exchange Act of 1934 through direct stand-alone amendments to those Acts, without attaching them to the Dodd-Frank Act or any replacement Act as a vehicle. The SEC whistleblower provisions could even be crafted into their own stand-alone Act separate from everything else, without disrupting the continuity of the SEC whistleblower program.
For the reasons I have explained above and in Parts 1 and 2, while nothing can be predicted with certainty or guaranteed, whatever the ultimate outcome for the Dodd-Frank Act may be, it strikes me that the most probable outcome will be that the President-elect and Congress will find a way to carve out and preserve the well-regarded and highly successful SEC whistleblower program. How the whistleblower provisions actually look when all is said and done will likely depend on whether Congress chooses to amend the Dodd-Frank Act or repeal it in its entirety and replace it with something else.
As I am sure many of you will be, I will be keeping an eye on future developments, as the legislative process continues under the new Presidential administration and new information comes to light. In the meantime, I encourage everyone to have faith and stay the course until we all see what actually happens next year and beyond.
<- For Part 1 of this Post, click here.
<- For Part 2 of this Post, click here.
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As an SEC whistleblower law firm, 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, an achievement that Inside Counsel magazine named one of the five milestones of the SEC whistleblower program.
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