The Securities and Exchange Commission is aggressively interpreting and enforcing its rule against impeding whistleblowers. Rule 21F-17(a) provides:
No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) and § 240.21F-4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.
In prior posts, I have maintained that the rule is overbroad. On its face, the rule applies to any person without regard to intent or knowledge. In recent settlements, the SEC has broadened the rule further by taking the position that a person can impede a whistleblower simply by obtaining a waiver of a potential recovery under the SEC's whistleblower reward program. See Company Punished for Severance Agreements That Removed Financial Incentives for Whistleblowing and Company Paying Penalty for Violating Key Whistleblower Protection Rule.
The chances are that your chances are awfully poor
Unless someone successfully challenges the SEC's enforcement position, it is likely that companies will eliminate waivers from their severance agreements. One might hypothesize that companies will reduce severance compensation as a result. But how much is a waiver worth to a former employee? Through fiscal 2015, the SEC paid out $54 million since its whistleblower rules went into effect in August 2011. While that is a sizable sum, only 22 tippers received payment. Moreover, two awards comprised $44 million of the total (a $30 million award in September 2014 and a $14 million award in October 2013). During the same period, the SEC received a total of 14,116 whistleblower tips. Based on those numbers, the probability of receiving an award is 0.00155301. If you walked into a Las Vegas casino and placed a bet on a single number at the roulette table, the probability of winning would be 0.02631579. However, even that very low probability is nearly 17 times better than the probability of obtaining a whistleblower award. The data concerning whistleblower awards were obtained from the SEC's 2015 Annual Report on the Dodd-Frank Whistleblower Program.
There are a number of reasons that an award may not be paid. First, the whistleblower may not be providing "original information" to the SEC. See Rule 21F-4(b). Second, the tip may simply not lead to an enforcement action, either because the tip is worthless to the SEC or because the SEC has other enforcement priorities. Third, the SEC may not succeed in obtaining a final judgment or order. Fourth, the SEC the award may not exceed $1 million. See Section 21F of the Securities Exchange Act. Fifth, the whistleblower may not be eligible (See Rule 21F-8). Finally, the SEC may not be able to collect the award.
