Changes to the SEC’s whistleblower rules that allow for smaller awards are unlawful and should be undone, a Labaton Sucharow LLP attorney who helped develop the agency program told a federal court in D.C. Wednesday.
The changes allow the Securities and Exchange Commission to lower award amounts when they’re based on relatively higher monetary sanctions, Jordan A. Thomas’s complaint in the U.S. District Court for the District of Columbia says. Thomas is “one of the most prominent whistleblower attorneys in the country,” the suit says.
“Courageous whistleblowers have put their careers and lives on the line to assist” the SEC, “wearing FBI wires, testifying in high-profile trials, and smuggling key documents out of foreign countries,” the complaint says. “Now, in the middle of the proverbial football game, the Commission has moved the goal posts on literally hundreds of SEC whistleblowers.”
The agency announced plans to adopt a new rule giving it authority to lower large awards, then in 2020 “reversed course” following criticism and said it “already had discretion to consider the potential dollar amount of the whistleblower award when calculating the award.” The SEC ultimately “adopted new language to ‘clarify’ that the agency already had authority” to lower awards.
The amendments also “imposed new barriers to whistleblowers recovering awards for ‘related actions.’” These changes will have “devastating effects” on the whistleblower program and “disincentivize knowledgeable individuals from coming forward and blowing the whistle,” according to the suit.
The final rule wasn’t a “‘logical outgrowth’ of the proposed rule,” the complaint says. The SEC enacted it “without ever acknowledging that it was changing its position,” failed to weigh benefits and costs, didn’t provide a “reasoned explanation” for the changes, and “had no statutory authority to enact the rule.”
Causes of Action: Administrative Procedure Act.
Relief: Declaratory judgments; permanent injunction prohibiting the SEC from “enforcing or implementing” the changes
Response: The SEC didn’t immediately respond to a Wednesday request for comment.
Attorneys: Consovoy McCarthy PLLC represents Thomas.
The case is Thomas v. SEC, D.D.C., No. 1:21-cv-00108, complaint filed 1/13/21.