SEC is under fire from legal experts after it put forward a number of amendments to the whistleblower program that caps the reward for those willing to disclose corporate fraud to the authorities.
The Washington DC-based whistleblower protection law firm, Kohn, Kohn & Colapinto (KKC), filed a 27-page letter with the Securities and Exchange Commission (SEC) challenging the proposed legislation.
The new rules would potentially limit the size of awards that whistleblowers are entitled to.
Under current directives, a whistleblower who provides information that leads to an SEC enforcement action receives 10%-30% of the recovery by the agency. This monetary provision incentivises potential whistleblowers to disclose rather than remain silent.
“The proposed rules will have a serious crippling effect on corporate compliance and reporting high level fraud. Without large rewards to incentivise Wall Street whistleblowers, there will be less accountability and more corruption in the workplace.
Placing a cap on the percentage of an award to highly compensated executives will impair the goal of persuading key employees to step forward and report wrongdoing. Reducing whistleblower rewards will open the door for continued major corporate fraud and turn away those with valuable evidence of crime from stepping forward,” Stephen M. Kohn, partner at KKC, said in a statement.
Whistleblowers could see their payouts reduced to “the value of the information and the personal and professional sacrifices made in reporting the information.” In other words, the SEC has full discretion as to how much the whistleblower gets.
The SEC has previously reported that whistleblower disclosures have led to over $1.4bn in financial recoveries, including $415m from Merrill Lynch earlier this year.
The proposed rules amendments are open for public comment until September 18, 2018.