Page 44 - Investment Advisor September 2021

However, through Gensler’s proce- as “illegal” changes Clayton made to amount equal to ‘not less than 10 per-
dural statement, the SEC is ensuring the agency’s whistleblower rules, which cent . . . [and] not more than 30 percent,
Congress’ mandate that “related action” “undermine the integrity and effective- in total, of what has been collected of
awards are paid to whistleblowers, ness” of the program. the monetary sanctions imposed in the
Stephen Kohn, chairman of the board of The changes to the SEC whistleblow- action or related actions.’”
directors of the National Whistleblower er rules, approved by a 3-2 vote last
Center and founding partner of the September, “add uncertainty to the cost- DODD-FRANK AND WHISTLEBLOWER
whistleblower rights law firm Kohn, benefit analysis” of SEC whistleblow- AWARD PERCENTAGES
Kohn & Colapinto told Investment ers, Thomas, a partner and chair of the Under the Dodd-Frank rules, the agen-
Advisor in an email. Whistleblower Representation Practice cy calculated whistleblower awards by
Related action awards, Kohn at the law firm Labaton Sucharow, told assigning an “award percentage” based
explained, “occur when a whistleblow- Investment Advisor in an interview. He on certain positive factors (e.g., the sig-
er’s original information is used by agen- was a principal architect of the SEC nificance of the information provided)
cies other than the SEC to hold fraudsters whistleblower program. and negative factors (e.g., the culpa-
accountable. The provision bility of the whistleblower),
is a key part of the Dodd- “[Gensler’s] statement also the lawsuit explains.
Frank Act as it incentivizes The commission then
whistleblowers to fully coop- clarifies that the amount of a issued an award by multiply-
erate with law enforcement whistleblower reward should not be ing the “award percentage”
agencies other than the SEC. by the total monetary sanc-
In this way wrongdoers who considered when the SEC provides tions collected by the SEC.
violate multiple laws can be compensation to a whistleblower. The commission, the law-
held fully accountable.” suit states, “did not take the
Kohn sees Gensler’s plan This is a recognition of the critical size of the monetary sanc-
as “a home run for whistle- tions into account when
blowers. Problems that were deterrent effect large awards have deciding the proper amount
caused in 2020 during an on Wall Street fraudsters.” of the whistleblower award.”
extensive SEC rulemaking After six months of liti-
process are being fixed.” — Stephen Kohn, the National gation, Thomas announced
Under the prior rule, Kohn Aug. 9 that he and the SEC
continued, the SEC “claimed Whistleblower Center filed a motion on Aug. 6
it had the authority to deny to stay the litigation until
related action awards in numerous “The new rules turn the commission Feb. 5, 2022, in light of Gensler’s
instances impacting money laundering, into a casino that courts high rollers announcement.
bank fraud, foreign bribery, illegal tim- with the promise of large jackpots but “This is a significant victory for cou-
bering, illegal imports of protected fish reserves the right to lower their win- rageous SEC whistleblowers and is an
and endangered species, among other nings if they are too large,” he said. important first step toward ensuring
crimes. This Statement fixes a gaping The 48-page lawsuit, filed in U.S. that Wall Street helps to rebuild Main
hole driven into the whistleblower pro- District Court for the District of Street, rather than harm it,” Thomas
gram in September 2020.” Columbia, states that despite its incred- said in a statement. “With new hope, I
The statement, he added, “also clari- ible success, “the Commission recently have directed my litigation team to stand
fies that the amount of a whistleblower amended its whistleblower rules for the down and work with the Commission to
reward should not be considered when express purpose of decreasing the size get the two contested rules right, once
the SEC provides compensation to a and number of whistleblower awards and for all.”
whistleblower. This is a recognition of it issues.” Gensler, as “the new sheriff on Wall
the critical deterrent effect large awards Under the Dodd-Frank Act, the Street,” Thomas said, “is taking concrete
have on Wall Street fraudsters.” Commission was ordered to “pay an steps to remove the poison pills inserted
award or awards to 1 or more whistle- into this critical investor protection pro-
LAWSUIT STAYED UNTIL FEBRUARY blowers who voluntarily provided origi- gram by his predecessor.”
The prominent whistleblower attorney nal information to the Commission that
Jordan Thomas filed a lawsuit on Jan. 13 led to the successful enforcement of a Washington Bureau Chief Melanie Waddell can
against the SEC to vacate what he saw covered action or ‘related action’ in an be reached at [email protected].

42 INVESTMENT ADVISOR SEPTEMBER 2021 | ThinkAdvisor.com