The Securities and Exchange Commission (“SEC”) recently voted to accept long-anticipated revisions to the rules governing its whistleblower program. While not all of the changes present a boon to whistleblowers, one modification clearly does—because under revised Rule 21-F6, there is now a presumption that, for many awards, the SEC will pay a whistleblower the statutory maximum award of 30 percent of the monetary sanctions collected. This change should benefit many of the courageous corporate insiders who bring evidence of securities or accounting fraud to the SEC’s attention; for, while the presumption only applies for potential awards of $5 million or less, that covers most of the awards made.
The SEC’s Whistleblower Program
The revisions, adopted on September 23, 2020, modify the rules governing the SEC’s whistleblower program, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). Following the 2008 financial crisis and the collapse of Bernie Madoff’s Ponzi scheme, Congress sought to create strong incentives for insiders with knowledge of violations of the laws enforced by the SEC to come forward and disclose corporate wrongdoing to the government. To this end, it created the SEC Office of the Whistleblower by adding Section 21F to the Securities Exchange Act of 1934.
The rules governing the SEC’s whistleblower program are set out in Regulation 21F. Under the program, the SEC has the authority to pay monetary awards to whistleblowers who have voluntarily provided original information that leads to a successful enforcement action, if the enforcement action results in monetary sanctions of $1 million or more. Under the program, a whistleblower is entitled to receive an award that is equal to an amount between 10 and 30 percent of the monetary sanctions collected by the SEC, and any other federal agencies involved in related enforcement actions.
The SEC’s whistleblower program has undeniably been highly successful. In the ten years since the program was created, the SEC has ordered wrongdoers in enforcement matters brought with information from meritorious whistleblowers to pay over $2 billion in monetary sanctions. By the end of 2019, the program had already paid out a total of $387 million in awards to whistleblowers. While a final tally is not available yet, the total amount of awards paid out will have increased considerably by the end of 2020, in light of the various awards made this year—including a record-setting award of $114 million in October of this year, as well as an award of $50 million in June, and awards of $28 million and $27 million in November and April of this year, respectively.
The SEC’s New Rule Governing Potential Awards of $5 Million or Less
Among the revisions adopted by the SEC in September 2020 is a revision of Rule 21-F6, which governs the criteria for determining the amount awarded to a whistleblower who provided information that led to a successful enforcement action.
Under the old version of Rule 21-F6, the SEC had the discretion to make an award equal to 10 to 30 percent of the monetary sanctions imposed on a corporate wrongdoer. The rule did not provide for a presumption in favor of the statutory maximum award of 30 percent under any circumstance—even when an award would be relatively small. Under the revised version of Rule 21-F6, by contrast, the presumption is that, for any potential award of $5 million or less, the SEC will award the statutory maximum.
As the SEC notes, “a majority of awards should, based on historical experience, be subject to this new rule.” Indeed, cases with potential awards of less than $5 million have historically represented nearly 75% of all whistleblower awards made by the SEC—meaning that most of the individuals who provide the SEC with information leading to a successful enforcement action can enjoy the benefit of the presumption that the maximum should be awarded.
Factors That Influence the Amount Awarded to Whistleblowers
While the revised version of Rule 21-F6 creates a clear presumption in favor of awarding the statutory maximum amount in many cases, it is important to note that the new rule does not mandate the maximum award. Under the new rule, the SEC still has the authority to reduce the amount awarded—but it can only do so for specific reasons.
Specifically, for the presumption to apply, a whistleblower must not have been an integral part of the fraudulent scheme that they bring to the SEC’s attention, and not have interfered with an internal compliance program’s investigation of the fraud. Importantly, however, a mere “unreasonable delay” in reporting the wrongdoing to the SEC “will not automatically disqualify the individual from receiving the enhancement under the new rule.”
What this means is that whistleblowers who have played little or no role in the fraud they expose, and who have not hampered internal compliance efforts, can now reasonably expect to receive the 30 percent maximum whenever the potential award from a successful action will be $5 million or less. As the SEC notes in the release accompanying the revised rule, this presumption will reduce uncertainty about the size of an award, and thereby incentivizing whistleblowers to come forward with their inside knowledge.
If you believe you have information relating to securities or accounting fraud, and are considering bringing this information to the attention of the SEC or other government agencies, you may want to contact a whistleblower attorney.
 See Press Release, Secs. & Exch. Comm’n, SEC Adds Clarity, Efficiency and Transparency to Its Successful Whistleblower Award Program (Sept. 23, 2020), available online at https://www.sec.gov/news/press-release/2020-219.
 Codified at 15 U.S.C. § 78u–6.
 Rule 21F is currently codified at 17 C.F.R. §§ 240.21F-1 through F-17.
 See 17 C.F.R. § 240.21F-3.
 See 17 C.F.R. § 240.21F-5.
 See SEC, 2019 Annual Report to Congress on the Whistleblower Program, available online at https://www.sec.gov/files/sec-2019-annual%20report-whistleblower%20program.pdf.
 See id.
 See Press Release, Secs. & Exch. Comm’n, SEC Issues Record $114 Million Whistleblower Award (Oct. 22, 2020), available online at https://www.sec.gov/news/press-release/2020-266; Press Release, Secs. & Exch. Comm’n, SEC Awards Record Payout of Nearly $50 Million to Whistleblower (June 4, 2020), available online at https://www.sec.gov/news/press-release/2020-126; Press Release, Secs. & Exch. Comm’n, SEC Awards Over $28 Million to Whistleblower (Nov. 3, 2020), available online at https://www.sec.gov/news/press-release/2020-275; Press Release, Secs. & Exch. Comm’n, SEC Awards Over $27 Million to Whistleblower (Apr. 16, 2020), available online at https://www.sec.gov/news/press-release/2020-89.
 See Secs. & Exch. Comm’n, Whistleblower Program Rules, Release No. 34-89963; File No. S7-16-18, available online at https://www.sec.gov/rules/final/2020/34-89963.pdf.
 Id. at pp. 50–57.
 Id. at p. 53.
 See Press Release, supra note 1.
 These two conditions are covered by Rule 21F-6(b)(1) and Rule 21F-6(b)(3), respectively. See 17 C.F.R. § 240.21F-6(b)(1) and § 240.21F-6(b)(3). Note that Rule 21F-16, codified at 17 C.F.R. § 240.21F-16, must also not be triggered, in order for the presumption to apply. Rule 21F-16 covers a sub-set of cases also covered by Rule 21F-6(b)(1), namely, those situations in which whistleblowers are (1) themselves ordered to pay a monetary sanction as a result of the enforcement action, or (2) were in charge of the entity that is ordered to pay a sanction.
 Whistleblower Program Rules, supra note 9, at pp. 52–53.
 Id. at p. 56.