SEC Finalizes Whistleblower Rule Amendments
By Thomas W. White, Retired Partner, WilmerHale
The Securities and Exchange Commission has adopted two amendments to the rules governing its whistleblower award program that were proposed in February 2022. (As noted in a previous item, the amendments were proposed to modify provisions of the rules that were previously amended in 2020.) The latest amendments, which were adopted by a 3–2 vote in August, did the following:
- Awards for Recoveries in “Related Actions”— Rule 21F-3(b)(3), as amended in 2020, restricted the circumstances in which a whistleblower can receive an award from the SEC based on monetary recoveries in “related actions” by certain other governmental agencies. Basically, the rule provided that a whistleblower could not recover under the SEC’s program where another agency maintains a whistleblower award program covering the action, unless the SEC finds “that its whistleblower program has the more direct or relevant connection to the action.” The SEC’s amendment will provide additional circumstances in which a non-SEC action may qualify as a related action without regard to whether the SEC’s program has a more direct or relevant connection to the action. These circumstances include:
- when the non-SEC award program has an award range or fixed-dollar award cap that could yield an award that is meaningfully lower than what could be awarded under the SEC’s program;
- when the decision to grant an award under the non-SEC program is discretionary, even when any specified award criteria and eligibility requirements have been satisfied, and
- when the maximum award the SEC could pay on the action would not exceed $5 million.
- Consideration of Dollar Amount of Awards—Rule 21F-6, as amended in 2020, provided that in all cases the SEC may consider the dollar amount of the award (as opposed to just the percentage of the monetary sanctions recovered), including, implicitly, adjusting the award downward based on its potential size. The new amendment eliminates the SEC’s ability to consider the dollar amount of a potential award for the purpose of decreasing an award.
Commissioners Hester Peirce and Mark Uyeda voted against adoption of the rule amendments.
SEC Adopts Amendments to Form N-PX
By Nicholas Martini, J.D. Candidate, Class of 2023, George Mason University – Antonin Scalia Law School
On November 2, the Securities and Exchange Commission voted 3–2 to adopt amendments to Form N-PX that will require increased disclosures about the proxy votes of mutual funds, exchange-traded funds, and other registered funds. The amendments add to a string of initiatives undertaken by the SEC in recent months to increase shareholder participation and voting transparency, including proposed changes to the shareholder proposal rule and a reversal of the 2020 rules governing proxy voting advice.
The amendments will standardize Form N-PX to require more consistent reporting of proxy votes. This is accomplished by requiring that each matter be categorized by type in the Form N-PX using one of fourteen categories (e.g., “Director Elections,” “Shareholder Rights and Defenses,” and “Environment or Climate”) and that when a proxy card is used, the same language as the issuer’s proxy card be used in the Form N-PX when disclosing the matters on which the funds and managers voted, following the same order as the proxy card. In addition, fulfilling a mandate under the Dodd-Frank Act, the amendments require institutional investment managers to disclose in Form N-PX how they voted on “say-on-pay” matters, pursuant to new Rule 14Ad-1. To provide greater insight into how involved funds are in the governance activities of their investments and the impact of lending activities on voting practices, registered funds will be required to disclose the number of shares voted or instructed to be cast, and the number of shares loaned but not recalled and, as such, not voted by the fund.
The amendments will be effective for votes occurring on or after July 1, 2023, with the first filings subject to the amendments due in 2024. When effective, funds will be required to file their reports with these enhanced disclosures using an XML-structured data language.