The Commission recently issued two whistleblower award determinations awarding an aggregate $122,000,000 among four claimants.[1] We did not support these determinations, but we are unable to explain our reasons because the public final orders determining the awards redact certain information necessary to the explanation. The text surrounding the redactions describes how the Commission calculated the total amount collected for purposes of determining the award amount.[2] 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 in final orders of the Commission determining that $122,000,000 should be paid from the Investor Protection Fund at the Treasury of the United States is immunized from effective public scrutiny. These awards illustrate why the Commission’s redaction decisions are consequential not only for whistleblowers, but also for oversight of the Commission’s operation of the whistleblower program.
Whistleblowers are important, and confidentiality is important to whistleblowers. To that end, the whistleblower provisions in the Securities Exchange Act provide that “the Commission and any officer or employee of the Commission shall not disclose any information, including information provided by a whistleblower to the Commission, which could reasonably be expected to reveal the identity of a whistleblower.”[3] This confidentiality directive, however, is not absolute. The statute protects only a limited category of information—that “which could reasonably be expected to reveal the identity of a whistleblower”—and even that information can be disclosed in certain circumstances.[4]
In accordance with statutory directives, our public final orders determining awards should not disclose whistleblower-identifying information. But what information is that? As noted, the statute prohibits disclosing “any information,” including “information provided by a whistleblower to the Commission,” if the information “could reasonably be expected to reveal” the whistleblower’s identity. Neither the statute nor any Commission rule delimit what specific information “could reasonably be expected to reveal the identity of a whistleblower.” Whether a particular piece of information fits that category, in the end, comes down to an exercise of judgment.[5]
Despite the undeniable importance of the information the Commission includes as part of its public final orders, the Commission’s releases, statements, and labyrinthian whistleblower rules are silent on how the Commission determines what information it can and cannot disclose. From the public’s perspective, as evidenced by the appearance on the Commission’s website of heavily redacted award determinations, someone at the Commission determines that this or that information should be redacted. The public is left with only limited, curated information to consider when assessing whether the award determination raises potential legal issues related to the interpretation and application of the whistleblower statutes and whether the Commission is applying its rules in a reasonable and consistent matter when it awards substantial sums of money from the public fisc.
Unnecessary redaction of final award determinations in the name of whistleblower confidentiality limits public information about the awards, and that, in turn, insulates the awards from scrutiny. And the whistleblower program needs scrutiny. Most direct participants in the program share a common incentive—to maximize awards. Whistleblowers have incentives to obtain the largest award possible; 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. Ensuring that the Commission’s public final award determinations disclose, to the greatest extent possible, the facts supporting the determination and articulate the legal reasoning underpinning the Commission’s interpretation and application of the whistleblower statute and rules is a necessary and helpful check on the potential negative consequences of such an alignment of incentives. The whistleblower program is important to the Commission, so we should do everything possible to protect its integrity, including allowing appropriate outside scrutiny.
[1] In the Matter of Claims for Awards in connection with [Redacted Redacted Redacted Redacted] Notice of Covered Actions [Redacted], Rel. No. 34-100809 (August 23, 2024, available at https://www.sec.gov/files/rules/other/2024/34-100809.pdf; In the Matter of Claims for Award in connection with [Redacted Redacted] Notice of Cover Action [Redacted], Rel. No. 34 100818 (August 26, 2024), available at https://www.sec.gov/files/rules/other/2024/34-100818.pdf.
[2] Specifically, the redactions appear in footnote one of Rel. No. 34-100809 and footnote three of Rel. No. 34-100818. The whistleblower statute authorizes awards of “not less than 10 percent” and “not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.” Section 21F(b)(1), 15 U.S.C. § 78u-6(b)(1).
[3] Securities Exchange Act Section 21F(h)(2)(A), 15 U.S.C. § 78u-6(h)(2)(A).
[4] The Commission is allowed to disclose such information “in accordance with” the Privacy Act of 1974, 5U.S.C.§552a, when it is “required to be disclosed to a defendant or respondent” in connection with an enforcement action brought by the Commission, and when used by the United States Attorney General for certain purposes. Additionally, the Commission has discretion to share confidential whistleblower information with certain other entities, which must in turn treat the information as confidential. See Section 21(f)(h)(2)(A), (C), and (D).
[5] The Commission has delegated to the Director of the Division of Enforcement authority “to disclose information, in accordance with Section 21F(h)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-6(h)(2)), that would reveal, or could reasonably be expected to reveal, the identity of a whistleblower.” 17C.F.R.§200.30-4(a)(16). This delegated authority is exercised by the Director or “under his direction by such other person or persons as may be designated from time to time by the Chairman of the Commission.” Additionally, “in any case in which the Director of the Division of Enforcement believes it appropriate, he may submit the matter to the Commission.” 17 C.F.R. § 200.30-4(b).
