WASHINGTON — A federal agency is moving with little fanfare to revamp one of the most successful whistleblower programs 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 program 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 program was created in 2010 by the Democrats’ Wall Street oversight law. 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 program 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 program 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 program,” said Stephen Kohn, chairman of the National Whistleblower Center 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.