Stephen Kohn on the Corporate Drive to Cripple the SEC’s Whistleblower Program

You work for a multinational corporation.

You have detailed information about your company paying bribes overseas.

Stephen Kohn Kohn Kohn & Colapinto Washington DC

You sit down at your computer and write an email to the Chairman of the Securities and Exchange Commission urging the SEC to investigate.

You hit send.

The SEC investigates, brings a Foreign Corrupt Practices Act case against the company and recovers $50 million.

Under the current SEC whistleblower program, you are due 10 percent to 30 percent of that recovery – $5 million to $15 million.

But under a proposed rule pending before the SEC, by sending that email, and not filing your complaint first in the SEC’s form TCR (Tip, Complaint or Referral), you have lost your right to the whistleblower reward.

Stephen Kohn is a partner at Kohn, Kohn & Colapinto in Washington, D.C. and chairman of the National Whistleblower Center.

Kohn estimates that the proposed SEC rule could wipe out 75 percent of SEC whistleblower cases. Is the Chamber of Commerce behind the proposed SEC rule?

“We filed a FOIA to find out all of the lobbying the Chamber did to create the proposed rules,” Kohn told Corporate Crime Reporter in an interview last week. “The SEC FOIA office granted us a fee waiver and expedited processing. But we still have received no documents. We filed it in about September 2018.”

“Some of these amendments would have to have come in from sophisticated defense lawyers who understood how you could tweak these whistleblower laws in a way that could have massive detrimental impact. That’s what I’m afraid of. They can fix some of the problems in the proposed rules but still have a devastating impact.”

“The way they crafted some of these proposals back in 2018 mirrored the lobbying positions of the Chamber of Commerce. This technical change – if you don’t file the TCR, you can be disqualified –  that’s precisely how the False Claims Act was killed in 1943.”

“The False Claim Act was originally proposed by President Lincoln. But it was destroyed in 1943 by an amendment that said if the government knew about the fraud before you filed your lawsuit, you automatically lost the case even if the whistleblower was the source of the government knowledge.”

“That provision was eliminated in 1987. In the 1987 amendments, they actually encouraged people to contact the government before they filed their official qui tam action.”

“Whoever drafted this proposed SEC rule must have known what happened in 1943, they must have understood that that the 1943 amendment destroyed the False Claims Act. They were attempting to bring it back by regulation within the SEC.”

The proposed rule would also cap large rewards. Kohn is no stranger to large rewards having reeled in the record – a $104 million whistleblower reward to IRS whistleblower Brad Birkenfeld.

“In 2018, the SEC made proposed changes,” Kohn said. “And a number of those changes would have devastating impacts and undermine the program – if not completely destroy it.”

“They were creating a regulatory scheme so that the bigger rewards would get the lowest percentage recovery to the whistleblower,” Kohn said. “They have to give at least ten percent. But if you were going to get an award of $30 million or more, they were going to keep you at the ten percent level. As we pointed out, that would discourage the big fish –  the employees higher up in the corporation who make a lot of money. They are some of the best sources. It would have a devastating impact.”

What is the status of the SEC rulemaking?

“We have the largest petition drive in the history of SEC rulemaking. Over 110,000 people wrote emails or signed petitions opposing the proposed rules. We were able to demonstrate significant public support. We have met with Senator Charles Grassley’s staff and they are strongly supporting the whistleblower in this context and trying to make sure the rules protect whistleblowers.”

“The first breakthrough was when the Commission said they wanted to meet with us on the issue of the cap. We met with the Commission staff back in December 2018 and did a briefing on the cap. We continued the press. We have met with personal staff of all five commissioners. We also met with four of the five commissioners one on one in private meetings, including with the Chairman. The meeting with the Chairman was in late October on the date they cancelled their public meeting.”

“That was a major event. They were going to have a public meeting in which they were going to vote on the proposed rule and they cancelled it. It was clear that they cancelled it because of the pressure. The Commissioners are not experts in whistleblowing. Much of the staff might be good intentioned, but they are going to view the program from a more bureaucratic basis.”

“One of the rationales for reducing large awards was that they didn’t want the pool of money to pay whistleblowers to be exhausted. We explained that you could easily structure it so that pool of money would not get exhausted. You could see from a bureaucrat’s perspective why they might be concerned about that.”

“On the question of the TCR form, from a bureaucrat’s perspective, you are getting rid of 75 percent of your cases overnight. Isn’t that fun? I don’t think they understood how whistleblowers blow the whistle and the devastating impact this proposed rule would have.”

“I don’t want to reveal what was said at the meetings. But I will say that we received very positive feedback and they were clearly listening.”

What is the next step?

“They are going to publish these rules.”


“Originally it was going to be in November. Now they are talking sometime in 2020.”

Are you feeling good about the outcome?

“I’m on a wait and see on the outcome. The devil is in the details. They can meet us halfway. But on some of these, halfway is a disaster. But we will fight to the end. If the outcome is bad, we will litigate it and we will take it to Congress.”

[For the complete q/a format Interview with Stephen Kohn, see 33 Corporate Crime Reporter 46(11), November 25, 2019, print edition only.]

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