SEC amends rules for whistleblowers, shareholder proposals

By Ken Tysiac

The SEC voted Wednesday to amend the rules governing its whistleblower program and change its shareholder proposal rule.

The whistleblower program amendments provide a mechanism for whistleblowers with potential awards of less than $5 million, subject to certain criteria, to qualify for a presumption that they will receive the maximum statutory award amount. Awards of less than $5 million historically have represented nearly 75% of all whistleblower awards.

Other awards will continue to be evaluated consistent with past practice.

In addition, the amendments affirm that award amounts are to be determined exclusively based on the application of the award factors set forth in the SEC’s whistleblower rules.

“Whistleblowers often take professional and reputational risks in reporting their information to the SEC, and we are committed to rewarding them for taking those risks and contributing to our enforcement efforts,” SEC Chairman Jay Clayton said in a news release. “Today’s rule amendments will help us get more money into the hands of whistleblowers, and at a faster pace.”

The whistleblower rule amendments will become effective 30 days after publication in the Federal Register.

The shareholder proposal rule governs the process for a shareholder’s proposal to be included in a company’s proxy statement for consideration by all the company’s shareholders. Under the new rules, any shareholder will be permitted to submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods.

The rules also provide for a transition period so that shareholders who currently are eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the proxy statement as long as they continue to maintain at least their current holdings through the date of submission and the date of the corresponding meeting.

In addition, the amendments update the levels of shareholder support a proposal must receive to be eligible for resubmission at future shareholder meetings.

The shareholder proposal amendments will take effect 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after Jan. 1, 2022.

The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held before Jan. 1, 2023.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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