Dive Brief:

• Securities and Exchange Commission members Hester Peirce and Mark Uyeda took a jab at their agency Sept. 19 for withholding more information than it needs to about the money it awards to whistleblowers. 
• “The whistleblower awards need scrutiny,” the commissioners say in a public statement. “Unnecessary redaction of final award determinations in the name of whistleblower confidentiality limits public information about the awards and that, in turn, limits the awards from scrutiny.”
• With some exceptions, the agency is prohibited from disclosing information that could expose the identity of whistleblowers, but what that information is, and how the agency makes decisions about it, isn’t spelled out in the law or program rules, the commissioners say. That gives the agency wide latitude in the information it includes in its award orders, they say, and it’s stretching that latitude.

Dive Insight:

Congress created the whistleblower program in 2010 as part of sweeping corporate reforms in the Dodd-Frank Act. Since then, according to data the agency tracks, the program has paid out more than $2 billion from a pool of money that’s collected by the agency from its enforcement actions against companies. 

The program is largely seen as a success. Last year the agency received some 18,000 whistleblower tips, a record, according to the agency’s 2023 annual report to Congress. 

Whistleblowers who provide information that leads to a successful action can receive up to 30% of the money that the agency recoups. That can lead to headline-grabbing awards, including an award of $82 million last month to one person. 

The program’s strict confidentiality protections are considered key to the program’s success, because it gives confidence to insiders who might otherwise be hesitant to come forward. But the agency is going too far, say Peirce and Uyeda, the SEC’s two Republican-appointed commissioners. 

“Our public final orders determining awards should not disclose whistleblower-identifying information,” the commissioners say in their statement. “But what information is that?”

The commissioners say they disagreed with the agency on the award amounts in the last two cases, but because of redactions, they’re unable to explain the source of their concerns. In the two cases, $98 million was given to two people on Aug. 23, including the $82 million awarded to one person, and $24 million was given to two people on Aug. 26 for a combined $122 million. 

“The text surrounding the redactions describes how the commission calculated the total amount collected for purposes of determining the award amount,” the commissioners said. “We did not believe that the redactions were necessary or appropriate under the relevant statutory authority because the redacted information could not reasonably be expected to reveal the whistleblowers’ identity. As an inadvertent result of these redactions, the legal reasoning [behind the $122 million in awards] is immunized from effective public scrutiny.”

Scrutiny is needed, they say, because all of the parties involved in the awards have an interest in seeing the amounts go as high as possible. 

“Whistleblowers have incentives to obtain the largest award possible,” they said, “the Division of Enforcement has an incentive to maximize awards as an inducement for whistleblowers to come forward, and the Commission has an incentive to maximize awards as a metric to illustrate the success of the program.”

The commissioners didn’t say what changes they want to see but, going forward, it’s likely they’ll push for fewer redactions and more sharing of substantive information when award orders are released. 

The agency didn’t immediately respond to a request for comment.