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SEC proposes new leeway to limit largest whistleblower payouts

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Wall Street’s main regulator wants to give its politically appointed leaders more power to determine how much to pay corporate insiders for providing tips that lead to large fines for companies’ wrongdoing.

The SEC voted 3-2 Thursday to seek comment on a plan that would let them reduce whistle-blower awards in cases where penalties are $100 million or more. The proposal gives commissioners flexibility to adjust tipsters’ payouts within the legal requirement that they range from 10% to 30% of total fines in the case they aided. SEC members wouldn’t be allowed to push awards below $30 million and they could boost payments that would be less than $2 million.

“Our whistle-blower program is a critical component in our investor-protection toolbox,” SEC Chairman Jay Clayton said before the vote. “The proposed rules would enhance the commission’s ability to more appropriately and expeditiously reward those who voluntarily provide critical information that leads to successful enforcement actions."

Whistle-blowers have collected more than $250 million from the program, which was created by the Dodd-Frank Act of 2010, but only a few payouts have been greater than $30 million apiece. Backers of the proposed changes argue that the additional flexibility will make the program more efficient, but commissioners in the SEC’s Democratic seats panned the plan.

Kara Stein said she was “deeply troubled” that the proposal would give the commission authority to depart from its normal analysis for determining awards. And Robert Jackson Jr. said he was worried the changes would add “political uncertainty” to the process.

The proposal would also give the SEC new authority to make whistle-blower awards based on some agreements reached with prosecutors or certain types of settlements.

Bloomberg News