TheCorporateCounsel.net

I joked in my other blog today about redactions in whistleblower orders. The reason these orders have so much information blocked out is because Exchange Act Section 21F(h)(2)(A) directs the Commission to keep identifying information about whistleblowers confidential. The SEC seems to interpret that directive very broadly – but a recent joint statement from Commissioners Peirce and Uyeda point out that going overboard with redactions may have serious consequences. Here’s an excerpt:

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.

I’ve always thought it would be fun to be the person who handles the redactions. It would be the closest I’d ever get to becoming a CIA agent, and until now, it had seemed there was little downside to going too far. But the Commissioners make a good point. Maybe that job is going to get more difficult in the future.

– Liz Dunshee