The Securities and Exchange Commission (SEC) had scheduled a Sept. 2 vote on controversial changes to its whistleblower program that, if passed, could weaken the agency’s prohibition of retaliation against whistleblowers and limit large rewards. The meeting has been canceled, and no new date has been set.

In 2018, the SEC proposed changes to its whistleblower rules geared toward running the awards application process more efficiently.

“We believe that the changes that we are proposing will build on the program’s success by continuing to encourage individuals to come forward and by permitting us to more efficiently process award applications, among other potential benefits,” the SEC wrote in the introduction to the proposed changes.

Whistleblower advocates are most opposed to the SEC’s proposal to weaken its prohibition on retaliation against internal whistleblowers by the companies they work for.

The SEC’s proposal is a reaction to a 2018 Supreme Court decision that limited retaliation protections to whistleblowers who report their company’s fraudulent activities directly to the SEC.

The proposal would limit the definition of a whistleblower—and therefore, the retaliation protections that accompany the definition—as “an individual who provides the Commission with information ‘in writing’ and only if ‘the information relates to a possible violation of the federal securities laws (including any law, rule, or regulation subject to the jurisdiction of the Commission) that has occurred, is ongoing, or is about to occur.’”

Stephen Kohn, whistleblower attorney for the firm Kohn, Kohn & Colapinto and chairman of the board of directors of the National Whistleblower Center, said the SEC can offer more retaliation protection, despite the Supreme Court’s order.

“Ensuring continued protection for internal whistleblowers can be fully accomplished under the existing regulatory and statutory provisions of the Sarbanes-Oxley Act,” he wrote in a blog on the center’s website.

Will new rule establish a cap on awards?

According to the proposal, the SEC isn’t looking to establish a cap on large awards, as many have speculated. It’s really seeking the authority to limit the size of whistleblower rewards over $100 million.

Current SEC regulations reward whistleblowers whose original information leads to an enforcement action penalty of over $1 million with between 10 and 30 percent of the fine.

The new proposal would give the SEC more control to adjust small rewards up and large rewards down.

Rewards of $2 million or less could be adjusted upward, mindful of the 30 percent limit, which “achieves the program’s objectives of rewarding meritorious whistleblowers and sufficiently incentivizing future whistleblowers who might otherwise be concerned about the low dollar amount of a potential award,” the SEC said in its proposal.

“Relatedly, in the context of potential awards that could yield total collected monetary sanctions of at least $100 million, the proposed rules would authorize the Commission to adjust the award percentage so that it would yield a payout (subject to the 10 percent statutory minimum) that does not exceed an amount that is reasonably necessary to reward the whistleblower and to incentivize other similarly situated whistleblowers; however, in no event would the award be adjusted below $30 million,” the proposal said.

Opponents interpret that wording to mean the SEC is attempting to limit rewards on sanctions above $100 million at 10 percent of the entire sanction amount, instead of the currently allowable 10-30 percent range. The lowest amount a whistleblower would receive in such an instance would be $30 million, according to the proposal. The SEC acknowledges it is attempting to change the rules to provide the agency with the ability to reduce the size of large whistleblower awards, in order to preserve the Investor Protection Fund, from which whistleblower awards are drawn.

SEC Chairman Jay Clayton has insisted in public comments that people interpreting a “soft cap” on large awards in the proposed changes are “misguided,” he told Congress.

Kohn, who asserts that a “soft cap” is indeed what the SEC is proposing, argues that limiting payout amounts will discourage whistleblowers from coming forward with information on fraudulent activity in their firms.

“Ultimately, the long-term deterrent effects on crime can save investors and the public far more than is recovered from specific prosecutions,” Kohn said in the blog.

There is straightforwardly good news for whistleblowers in the new rules. One new rule would allow whistleblowers to collect rewards on fines assessed by the Department of Justice or state attorneys general—something that is currently not allowed under the SEC’s whistleblower program rules. That would allow whistleblowers whose tips lead to enforcement actions by other agencies—like Royal Bank of Scotland whistleblower Victor Hong—to qualify for and collect a reward through the SEC whistleblower program.

Since 2011, the tips to the SEC’s whistleblower program have led to $2.5 billion in sanctions, provided over $750 million in restitution to investors, and compensated whistleblowers with over $500 million in awards, the SEC said.

Editor’s note: This story was updated to reflect that the SEC canceled the Sept. 2 meeting where changes to its whistleblower program were on the agenda.