WASHINGTON: A federal agency is moving with little fanfare to revamp one of the most successful whistleblower programmes in the government, alarming advocates who warn the changes will set back efforts to police Wall Street and punish corporate fraud.

Much like the whistleblower system for intelligence agencies that triggered the impeachment inquiry of President Donald Trump, the programme grants anonymity to people who come forward with allegations of wrongdoing. But unlike that system, it deals with the private sector, offering cash payouts to people who provide information that helps the Securities and Exchange Commission identify fraud and wrongdoing.

The programme was created in 2010 by the Democrats’ Wall Street oversight law. Tips, and substantial cash payouts, have flowed since it started in 2011.

The SEC has collected some 26,000 tips and complaints, resulting in more than $2 billion in penalties and restitution.

More than $300 million has been distributed in roughly 50 awards to people who provided actionable information. And taxpayers don’t foot the bill because the award money comes directly from funds the SEC collects in settlements.

The SEC’s programme has also provided a windfall for the FBI and Justice Department. The SEC, a regulatory agency with only civil authority, often sends them referrals for criminal action that have brought convictions and jail terms for serious violators.

Now, with the backing of the business community, the two Republicans on the five-member SEC and the one independent are looking to make changes to the programme that Chairman Jay Clayton says will make it more effective. Final adoption of the plan is expected this month, with only a majority vote on the five-member agency needed for approval.

Critics are aghast.

“It would destroy the prog­ramme,” said Stephen Kohn, chair­­man of the National Whist­leblower Centre and a partner in the law firm Kohn, Kohn & Colapinto.

The proposed changes, Kohn said, are “counter to every whistleblower law, rule and policy.” It’s just U.S. regulators’ latest move to unwind the stricter financial rules that were put in place after the 2008 financial crisis. Through scores of rulemaking actions, administration officials and regulators appointed by Trump have worked to reverse components of the law, dismissing Democratic warnings about the possibility of another financial meltdown. Republicans say that the law has slowed economic growth and needlessly restricted lending.

Business groups support the SEC’s plan to change the whistleblower programme but downplay its likely impact. The U.S. Chamber of Commerce, the lead lobbying organisation for corporate America, called the proposal “a small but nonetheless important step” toward improvement. It says the SEC “has found itself overwhelmed at times by a large number of low-quality complaints advanced by ... bounty seekers more concerned with enriching themselves than truly protecting investors.” Wall Street’s biggest trade group, the Securities Industry and Financial Markets Association, endorsed the proposal generally. It urged regulators to review the rules to encourage whistleblowers to report violations within their companies rather than going to the SEC.

The proposal would give the SEC discretion to set the smallest and largest cash awards to whistleblowers, among other changes. Critics say that change would likely discourage employees from reporting major frauds by lowering the chances of a huge payout. The payment for successful cases is now 10 per cent to 30pc of fines or restitution collected by the agency which means the bigger the fraud, the larger the bounty.

The SEC also wants to impose new requirements for filing a whistleblower complaint. To receive legal protection from the SEC against retaliation a core concern for people risking their careers and livelihoods a whistleblower would have to report violations in writing, rather than the oral disclosures now permitted at the SEC and other federal agencies.

Published in Dawn, October 13th, 2019