Federal Register Whistle Blower Rule SEC 4-27-11

Wednesday,
November 17, 2010
Part III
Securities and
Exchange
Commission
17 CFR Parts 240 and 249
Proposed Rules for Implementing the
Whistleblower Provisions of Section 21F
of the Securities Exchange Act of 1934;
Proposed Rule
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70488 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Proposed Rules
SECURITIES AND EXCHANGE if e-mail is used. To help us process and in Regulation 21F. Second, Regulation
COMMISSION review your comments more efficiently, 21F as proposed would provide a
please use only one method. The complete and self-contained set of rules
17 CFR Parts 240 and 249 Commission will post all comments on relating to the whistleblower program.
[Release No. 34–63237; File No. S7–33–10] the Commission’s Internet Web site This means that in some places, we
(http://www.sec.gov/rules/ have proposed rules within the
RIN 3235–AK78 proposed.shtml). Comments are also Regulation that largely restate key
available for Web site viewing and provisions of the statute. Although we
Proposed Rules for Implementing the printing in the Commission’s Public recognize that this approach leads to
Whistleblower Provisions of Section Reference Room, 100 F Street, NE., some duplication between the statue
21F of the Securities Exchange Act of Washington, DC 20549, on official and the rules, we believe that overall it
1934 business days between the hours of 10 will assist potential whistleblowers and
AGENCY: Securities and Exchange a.m. and 3 p.m. All comments received add clarity, by providing in one place
Commission (‘‘Commission’’). will be posted without change; we do all the relevant provisions applicable to
not edit personal identifying whistleblower claims.
ACTION: Proposed rule.
information from submissions. You In fashioning these proposed rules,
SUMMARY: The Commission is proposing should submit only information that the Commission has considered and
rules and forms to implement Section you wish to make available publicly. weighed a number of potentially
21F of the Securities Exchange Act of FOR FURTHER INFORMATION CONTACT: In
competing interests that are presented
1934 (‘‘Exchange Act’’) entitled the Division of Enforcement: Sarit Klein in implementing the statute. Among
‘‘Securities Whistleblower Incentives (202) 551–4577. In the Office of the them was the potential for the monetary
and Protection’’ and seeking comment General Counsel: Brian A. Ochs (202) incentives provided to whistleblowers
thereon. The Dodd-Frank Wall Street 551–5067, Securities and Exchange by Section 21F of the Exchange Act to
Reform and Consumer Protection Act, reduce the effectiveness of a company’s
Commission, 100 F Street, NE.,
enacted on July 21, 2010 (‘‘Dodd- existing compliance, legal, audit and
Washington, DC 20549.
Frank’’), established a whistleblower similar internal processes for
SUPPLEMENTARY INFORMATION: investigating and responding to
program that requires the Commission
to pay an award, under regulations I. Background potential violations of the Federal
prescribed by the Commission and securities laws. With this possible
Section 922 of Dodd-Frank added new
subject to certain limitations, to eligible tension in mind, we have included
Section 21F to the Exchange Act, provisions in the proposed rules
whistleblowers who voluntarily provide entitled ‘‘Securities Whistleblower
the Commission with original intended not to discourage
Incentives and Protection.’’ 1 Section whistleblowers who work for companies
information about a violation of the 21F directs that the Commission pay
Federal securities laws that leads to the that have robust compliance programs
awards, subject to certain limitations to first report the violation to
successful enforcement of a covered and conditions, to whistleblowers who
judicial or administrative action, or a appropriate company personnel, while
voluntarily provide the Commission at the same time preserving the
related action. Dodd-Frank also with original information about a
prohibits retaliation by employers whistleblower’s status as an original
violation of the securities laws that source of the information and eligibility
against individuals that provide the leads to a successful enforcement of an for an award. At the same time, the
Commission with information about action brought by the Commission that proposed rules would not prohibit a
potential securities violations. results in monetary sanctions exceeding whistleblower in a compliance function
DATES: Comments should be submitted $1,000,000, and of certain related from reporting information to the
on or before December 17, 2010. actions. Commission where the company did not
ADDRESSES: Comments may be We are proposing Regulation 21F to provide the information to the
submitted by any of the following implement Section 21F of the Exchange Commission within a reasonable time or
methods: Act. As described in detail below, the acted in bad faith.
rules contained in proposed Regulation Another important policy issue raised
Electronic Comments 21F define certain terms critical to the by the statute is the potential for the
• Use the Commission’s Internet operation of the Whistleblower Program, monetary incentives provided by
comment form (http://www.sec.gov/ outline the procedures for applying for Section 21F to invite submissions from
rules/proposed); or awards and the Commission’s attorneys, independent auditors, and
• Send an e-mail to rule- procedures for making decisions on compliance personnel who may attempt
comments@sec.gov. Please include File claims, and generally explain the scope to use information they obtain through
Number S7–33–10 on the subject line; of the whistleblower program to the their positions to make whistleblower
or public and to potential whistleblowers. claims. This exclusion focuses on those
• Use the Federal eRulemaking Portal In this proposal, we have taken several groups with established professional
(http://www.regulations.gov). Follow the steps to address Congress’s suggestion obligations that play a critical role in
instructions for submitting comments. that the Commission’s whistleblower achieving compliance with the Federal
rules be clearly defined and user- securities laws. Our proposed rules
Paper Comments
friendly.2 First, to the extent possible, include certain exclusions for these
• Send paper comments in triplicate
we have tried to adopt a plain English professionals and others under the
to Elizabeth M. Murphy, Secretary, approach in writing the rules contained definition of ‘‘independent knowledge,’’
Securities and Exchange Commission, and we seek comment on whether the
100 F Street, NE., Washington, DC 1 Pub. L. 111–203, § 922(a), 124 Stat 1841 (2010). proposed exclusions are appropriate
20549–1090. 2 See Dodd Frank sec. 922(d)(1), which specifies and whether they should be extended to
that a study of the whistleblower program by the
All submissions should refer to File Inspector General of the Commission shall consider
other types of privileged
Number S7–33–10. This file number whether the final rules and regulations have made communications or other types of
should be included on the subject line the program ‘‘clearly defined and user-friendly.’’ professionals who frequently have
Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Proposed Rules 70489
access to confidential client Commission with information about potential violations of the securities
information. actual, proven securities violations, then laws ‘‘by another person’’?
Finally, we have attempted to either the Commission would be
maximize the submission of high- C. Proposed Rule 21F–3—Payment of
required to determine at the time
quality tips and to enhance the utility of Award
information is submitted whether the
the information reported to the alleged conduct constitutes a violation Proposed Rule 21F–3 summarizes the
Commission. More frequent reporting of of the securities laws, or the status of general requirements for the payment of
high-quality information promotes the person as a ‘‘whistleblower’’ would awards set forth in Section 21F(b)(1) of
greater deterrence by enhancing the be unknown. We do not believe that this the Exchange Act.6 As set forth in the
efficiency and effectiveness of the is the intended result. statute, paragraph (a) states that, subject
Commission’s enforcement program. To In addition, use of the term ‘‘potential to the eligibility requirements in the
achieve this goal, the proposed rules violation’’ makes clear that the Regulations, the Commission will pay
would impose certain procedural whistleblower anti-retaliation an award or awards to one or more
requirements designed to deter false protections set forth in Section 21F(h)(1) whistleblowers who voluntarily provide
submissions, including a requirement of the Exchange Act do not depend on the Commission with original
that the information be submitted under an ultimate adjudication, finding or information that leads to the successful
penalty of perjury, and requiring an conclusion that conduct identified by enforcement by the Commission of a
anonymous whistleblower to be the whistleblower constituted a Federal court or administrative action in
represented by counsel who must certify violation of the securities laws. As which the Commission obtains
to the Commission that he or she has noted in the Senate Report monetary sanctions totaling more than
verified the whistleblower’s identity. accompanying the legislation, ‘‘[t]he $1,000,000. Paragraph (b) of this
Whistleblower Program aims to proposed rule describes the
II. Description of the Proposed Rules circumstances under which the
motivate those with inside knowledge to
A. Proposed Rule 21F–1—General come forward and assist the Commission will also pay an award to
Proposed Rule 21F–1 provides a Government;’’ 5 affording broad anti- the whistleblower based upon monetary
general, plain English description of retaliation protections to whistleblowers sanctions that are collected from a
Section 21F of the Exchange Act. It sets furthers this legislative purpose. ‘‘related action.’’ Payment based on the
forth the purposes of the rules and states Paragraph (b) of Proposed Rule 21F– ‘‘related action’’ will occur if the
that the Commission’s Whistleblower 2 would further make clear that the anti- whistleblower’s original information led
Office administers the whistleblower retaliation protections set forth in the Commission to obtain monetary
program. In addition, the proposed rule Section 21F(h)(1) of the Exchange Act sanctions totaling more than $1,000,000,
states that, unless expressly provided apply irrespective of whether a the related action is based upon the
for in the rules, no person is authorized whistleblower satisfies all the same original information that led to the
to make any offer or promise, or procedures and conditions to qualify for successful enforcement of the
otherwise to bind the Commission with an award under the Commission’s Commission action, and the related
respect to the payment of an award or whistleblower program. We believe the action is brought by the Attorney
the amount thereof. statute extends the protections against General of the United States, an
employment retaliation in Section appropriate regulatory agency, a self-
B. Proposed Rule 21F–2—Definition of a 21F(h)(1) to any individual who regulatory organization, or a state
Whistleblower provides information to the Commission attorney general in a criminal case.
The term ‘‘whistleblower’’ is defined about potential violations of the Paragraph (c) of Proposed Rule 21F–
in Section 21F(a)(6) of the Exchange securities laws regardless of whether the 3 explains that the Commission must
Act.3 Consistent with this language, whistleblower fails to satisfy all of the determine whether the original
Proposed Rule 21F–2(a) would define a requirements for award consideration information that the whistleblower gave
whistleblower as an individual who, set forth in the Commission’s rules. to the Commission also led to the
alone or jointly with others, provides Proposed Rule 21F–2(c) makes clear, successful enforcement of a related
information to the Commission relating however, that, in order to be eligible to action using the same criteria used to
to a potential violation of the securities be considered for an award, a evaluate awards for Commission
laws. A whistleblower must be a natural whistleblower must submit original actions. To help make this
person; a company or another entity is information to the Commission in determination, the Commission may
not eligible to receive a whistleblower accordance with all the procedures and seek confirmation of the relevant facts
award. This definition tracks the conditions described in Proposed Rules regarding the whistleblower’s assistance
statutory definition of a 21F–4, 21F–8, and 21F–9. from the authority that brought the
‘‘whistleblower,’’ except that the Request for Comment: related action. However, the proposed
proposed rule uses the term ‘‘potential 1. In other provisions of these rule states that the Commission will
violation.’’ Because the statute requires Proposed Rules—e.g., Proposed Rule deny an award to a whistleblower if the
the Commission to afford confidential 21F–15—we propose that Commission determines that the criteria
treatment to information ‘‘which could whistleblowers not be paid awards for an award are not satisfied or if the
reasonably be expected to reveal the based on monetary sanctions arising Commission is unable to obtain
identity of a whistleblower,’’ 4 it is from their own misconduct, based on sufficient and reliable information about
important to be able to determine the notion that the statue is not the related action.
whether a person is a ‘‘whistleblower’’ at intended to reward persons for blowing Paragraph (d) provides that the
the time he or she submits information the whistle on their own misconduct. Commission will not make an award in
to the Commission. If the term Consistent with this approach, should a related action if an award already has
‘‘whistleblower’’ were defined to include we define the term ‘‘whistleblower’’ to been granted to the whistleblower by
only individuals who provide the expressly state that it is an individual the Commodity Futures Trading
who provides information about Commission (‘‘CFTC’’) for that same
3 15 U.S.C. 78u–6(a)(6).
4 15 U.S.C. 78u–6(h)(2).
5 S. Rep. No. 111–176 at 110 (2010). 6 15 U.S.C. 78u–6(b)(1).
action pursuant to its whistleblower D. Proposed Rule 21F–4—Other or informal request, inquiry, or demand
award program under section 23 of the Definitions from the Commission staff or from any
Commodity Exchange Act.7 Rule 21F– Although the statute defines several other authority described in the
3(d) also provides that, if the CFTC has relevant terms, Proposed Rule 21F–4 proposed rule about a matter to which
previously denied an award in a related would define some additional terms that the whistleblower’s information is
action, the whistleblower will be are important to understanding the relevant.11
collaterally estopped from relitigating scope of the whistleblower award A request, inquiry, or demand that is
any issues before the Commission that program, in order to provide greater directed to an employer is also
were necessary to the CFTC’s denial. clarity and certainty about the operation considered to be directed to employees
This provision serves two purposes. and scope of the program. who possess the documents or other
First, it would ensure that a Proposed Rule 21F–4(a)—Voluntary information that is within the scope of
whistleblower will not obtain a double submission of information. the request to the employer.
recovery on the same related action. For Under Section 21F(b)(1) of the Accordingly, a subsequent
example, if the CFTC makes an award Exchange Act,9 whistleblowers are whistleblower submission from any
of 10 percent to 30 percent on a criminal eligible for awards only when they such employee will not be considered
action brought by the U.S. Department provide original information to the ‘‘voluntary’’ for purposes of the rule, and
of Justice, the whistleblower would be Commission ‘‘voluntarily.’’ Proposed the employee will not be eligible for
precluded from obtaining a second Rule 21F–4(a)(1) would define a award consideration, unless the
recovery of 10 percent to 30 percent submission as voluntary if a employer fails to provide the
from the SEC on the same action. Any whistleblower provides the Commission employee’s documents or information to
other reading of the interplay of the SEC with information before receiving any the requesting authority in a timely
and CFTC whistleblower award formal or informal request, inquiry, or manner.12
provisions—which were both demand from the Commission, This approach is consistent with the
established by Dodd-Frank and which Congress, any other Federal, State or statutory purpose of creating a strong
are substantially identical in their local authority, any self-regulatory incentive for whistleblowers to come
substantive terms—would produce the organization, or the Public Company forward early with information about
highly anomalous result of allowing the Accounting Oversight Board about a possible violations of the securities laws
whistleblower to effectively receive a 20 matter to which the information in the rather than wait until Government or
percent minimum to 60 percent whistleblower’s submission is relevant. other official investigators ‘‘come
maximum recovery on the same related The first step in most Commission knocking on the door.’’ 13 This approach
action. The SEC and CFTC enforcement investigations is the is also consistent with the approach
whistleblower provisions, however, opening of an informal inquiry. At this 11 The list of authorities set forth in the proposed
embody a clear Congressional stage, because the staff has not yet been rule does not include an employer’s personnel
determination that a whistleblower granted the authority to issue (such as legal counsel, compliance, or audit staff)
award on a successful action should lie subpoenas, information is frequently conducting an internal investigation, compliance
requested from companies and members review, audit, or similar function. Thus, Proposed
within the 10 percent to 30 percent Rule 21F–4(a)(1) would credit a whistleblower with
range. of the public on a ‘‘voluntary’’ basis in ‘‘voluntarily’’ providing information if the
Second, this provision would ensure the sense that there is generally no legal individual were to approach the Commission staff
that once the CFTC decides an issue of requirement that the recipient of the after being questioned about possible violations by
such persons, unless, as noted, the individual’s
fact or law necessary to its request provide the information or even information is within the scope of a request,
determination to deny a whistleblower respond to the request. After a formal inquiry, or demand directed to the employer by one
an award on a related action, the investigation is opened and the staff of the designated authorities . The objective of this
whistleblower will be precluded from obtains subpoena authority, the staff approach is to implement Section 21F in a way that
encourages and permits persons with knowledge of
relitigating the same issue before the retains discretion to seek documents or securities violations to come forward to the
Commission. For example, if the CFTC other information without legal Commission, other responsible Government
determines that the whistleblower’s compulsion, and often does so. authorities, and other bodies of an official nature.
information did not lead to the Proposed Rule 21F–4(a)(1) would We have included other provisions in these
proposed rules that are intended to facilitate the
successful enforcement of a related make clear that, in order to have acted operation of company compliance processes, audits,
action, the whistleblower may not ‘‘voluntarily’’ under the statute, a and internal investigations. See Proposed Rules
attempt to circumvent this adverse whistleblower must do more than 21F–4(b)(4) and (b)(7). Further, because there is no
merely provide the Commission with assurance that an employer will ultimately disclose
determination by relitigating the same to the Commission potential violations uncovered
issue before the Commission. The information that is not compelled by in the course of an internal investigation or similar
application of collateral estoppel subpoena (or by a court order following process, a rule that precluded employees with
principles in these circumstances would a Commission action to enforce a knowledge of unlawful conduct from coming
subpoena) or by other applicable law.10 forward as whistleblowers merely because they
promote the orderly and consistent were questioned about the conduct by company
resolution of a whistleblower’s claims, Rather, the whistleblower or his personnel could undermine the purposes of Section
and would ensure that the subset of representative (such as an attorney) 21F.
whistleblowers who can pursue both must come forward with the 12 Production of documents or information in a
information before receiving any formal timely manner turns on the production schedule
SEC and CFTC award claims on a required, or otherwise agreed to, by the requesting
related action are not unfairly afforded authority. Further, employees will not be permitted
‘‘two bites at the apple’’ relative to the is no good reason for refusing to treat the issue as to thwart the aim of Section 21F by causing an
settled so far as he is concerned’’ in subsequent employer to fail to respond to a request in a timely
majority of whistleblowers who would actions). manner, and then claiming that their whistleblower
not have this dual opportunity.8 9 15 U.S.C. 78u–6(b)(1).
submission was therefore made ‘‘voluntarily’’ within
10 Various books and records provisions of the the meaning of the proposed rule.
77 U.S.C. 26. Federal securities laws and rules generally require 13 See S. Rep. No. 111–176 at 110 (2010) (‘‘The
8 See Restatement Second of Judgments, Sec. 29 regulated entities to furnish records to the Whistleblower Program aims to motivate those with
cmt. b (explaining that ‘‘[a] party who has had a full Commission upon request. See, e.g., Section 17(a) inside knowledge to come forward and assist the
and fair opportunity to litigate an issue has been and Rule 17a–4(j) under the Exchange Act (15 Government to identify and prosecute persons who
accorded the elements of due process’’ and ‘‘there U.S.C. 78q(a) and 17 CFR 240.17a–4(j)). have violated securities laws * * *.’’).
Federal courts have taken in Rule 21F–4(a)(2) provides that disclose the information the employee
determining whether a private plaintiff, submissions from such individuals will provided in a timely manner promote
suing on behalf of the Government not be considered voluntary for compliance with the law and the
under the qui tam provisions of the purposes of Section 21F. For example, effective operation of Section 21F?
False Claims Act, ‘‘voluntarily’’ provided a Government contracting officer would 5. The standard described in Proposed
information about the false or not be considered for a whistleblower Rule 21F–4(a)(1) would credit an
fraudulent claims to the Government award if the officer discovered and individual with acting ‘‘voluntarily’’ in
before filing suit.14 reported fraud on a Government certain circumstances where the
Disclosure to the Government should contract that was material to the individual was aware of fraudulent
also not be considered voluntary if the contractor’s earnings.17 Depending on conduct for an extended period of time,
individual has a clear duty to report the particular regulations or other but chose not to come forward as a
violations of the type at issue.15 Thus, authorities that governed, a city officer whistleblower until after he became
for example, Section 21F(c)(2) of the or employee with responsibility for the aware of a governmental investigation or
statute 16 prohibits awards to members, city’s pension fund might have a pre- examination (such as by observing
officers, or employees of an appropriate existing legal duty to report fraud in document requests being served on his
regulatory agency, the Department of connection with the fund’s management employer or colleagues, but before he
Justice, a self-regulatory organization, or financial reporting to appropriate city received an inquiry, request, or demand
the Public Company Accounting authorities. Proposed Rule 21F–4(a)(2) himself, assuming that he was not
Oversight Board, a law enforcement also includes a similar exclusion for within the scope of an inquiry directed
organization, or to persons who obtain information that the whistleblower is to his employer). Is this an appropriate
their information as a result of an audit contractually obligated to report to the result, and, if not, how should the
of financial statements and who would Commission or to other authorities. This proposed rule be modified to account
be subject to the requirements of Section exclusion is intended to preclude for it?
10A of the Exchange Act. The awards to persons who provide 6. Is the exclusion set forth in
Commission anticipates that there may information pursuant to preexisting Proposed Rule 21F–4(a)(2) for
be other similarly-situated persons who agreements that obligate them to assist information provided pursuant to a pre-
are under a pre-existing legal duty to Commission staff or other investigative existing legal or contractual duty to
report information about violations to authorities. report violations appropriate? Should
the Commission or to any of the other Request for Comment: specific circumstances where there are
authorities described in subsection 2. Does Proposed Rule 21F–4(a)(1) pre-existing duties to report violations
(a)(1) of the proposed rule. Proposed appropriately define the circumstances to investigating authorities be set forth
when a whistleblower should be in the rule, and if so, what are they? For
14 See United States ex rel. Barth v. Ridgedale considered to have acted ‘‘voluntarily’’ example, should the rule preclude
Electric, Inc., 44 F.3d 699 (8th Cir. 1994); United in providing information about
States ex rel. Paranich v. Sorgnard, 396 F.3d 326 submissions from all Government
(3d Cir. 2005); United States ex rel. Fine v. Chevron, securities law violations to the employees?
USA, Inc., 72 F.3d 740 (9th Cir. 1995), cert. denied, Commission? Are there other Proposed Rule 21F–4(b)—Original
517 U.S.1233 (1996) (rejecting argument that circumstances not clearly included that Information.
provision of information to the Government is
always voluntary unless compelled by subpoena) .
should be in the rule? Paragraph (1) of Proposed Rule 21F–
The qui tam provisions of the False Claims Act 3. Should the Commission exclude 4(b) begins with the definition of
include a ‘‘public disclosure bar,’’ which, as recently from the definition of ‘‘voluntarily’’ ‘‘original information’’ set forth in
amended, requires a court to dismiss a private situations where the information was
action or claim if substantially the same allegations
Section 21F(a)(3) of the Exchange Act.18
or transactions as alleged in the action or claim
received from a whistleblower after he ‘‘Original information’’ means
were publicly disclosed in certain fora, unless the received a request, inquiry, or demand information that is derived from the
Government opposes dismissal or the plaintiff is an from a foreign regulatory authority, law whistleblower’s independent knowledge
‘‘original source’’ of the information. 31 U.S.C. enforcement organization or self-
3730(e)(4). An ‘‘original source’’ is further defined, or analysis; is not already known to the
in part, with reference to whether the plaintiff regulatory organization? Similarly, Commission from any other source,
‘‘voluntarily’’ disclosed the information to the should the Commission exclude from unless the whistleblower is the original
Government before filing suit. Id. Because the qui the definition of ‘‘voluntarily’’ situations source of the information; and is not
tam provisions of the False Claims Act have played where the information was received
a significant role in the development of exclusively derived from an allegation
whistleblower law generally, and because some of from a whistleblower where the made in a judicial or administrative
the terminology used by Congress in Section 21F individual was under a pre-existing hearing,19 in a governmental report,
has antecedents in the False Claims Act, precedent legal duty to report the information to hearing, audit, or investigation, or from
under the False Claims Act can provide helpful a foreign regulatory authority, law
guidance in the interpretation of Section 21F of the the news media, unless the
Exchange Act. At the same time, because the False enforcement organization or self- whistleblower is a source of the
Claims Act and Section 21F serve different regulatory organization? information. Paragraph (1) also requires
purposes are structured differently, and the two 4. Is it appropriate for the proposed that ‘‘original information’’ be provided
statutes may use the same words in different rule to consider a request or inquiry
contexts, we do not view False Claims Act to the Commission for the first time after
precedent as necessarily controlling or authoritative directed to an employer to be directed July 21, 2010 (the date of enactment of
in all circumstances for purposes of Section 21F. at individual employees who possess Dodd-Frank). Although Dodd-Frank
15 See United States ex rel. Biddle v. Board of the documents or other information that authorizes the Commission to pay
Trustees of The Leland Stanford, Jr. University, 161 is within the scope of the request? whistleblower awards on the basis of
F.3d 533 (9th Cir. 1998), cert. denied, 526 U.S. 1066
(1999) (government employee whose duties Should the class of persons who are original information that is submitted in
required that he report knowledge of contract fraud covered by this rule be narrowed or writing prior to the effective date of
to superiors could not ‘‘voluntarily’’ supply expanded? Will the carve-out that final rules implementing Section 21F
information to government for purposes of False permits such an employee to become a
Claims Act because employee was obligated to alert
superiors to contractor wrongdoing); United States whistleblower if the employer fails to 18 15 U.S.C. 78u–6(a)(3).
ex rel. Schwedt v. Planning Research Corp., 39 F. 19 We would interpret the term ‘‘judicial or
Supp. 2d 28 (D.D.C. 1999) (same). 17 See Biddle, 161 F.3d 533; Schwedt, 39 F. Supp. administrative hearing’’ as used in Section 21F(a)(3)
16 15 U.S.C. 78u–6(c)(2). 2d 28. to include hearings in arbitration proceedings.
(assuming that all of the other The Commission preliminarily proposed exclusion is for information
requirements for an award are met), believes that defining ‘‘independent that was obtained through a
Dodd-Frank does not authorize the knowledge’’ in this manner best communication that is subject to the
Commission to apply Section 21F effectuates the purposes of Section 21F. attorney-client privilege.23 Compliance
retroactively to pay awards based upon An individual may learn about potential with the Federal securities laws is
information submitted before the violations of the securities laws without promoted when individuals, corporate
effective date of the statute.20 being personally involved in the officers, and others consult with counsel
Paragraphs (2) through (7) of Proposed conduct. If an individual voluntarily about potential violations, and the
Rule 21F–4(b) define some of the comes forward with such information, attorney-client privilege furthers such
constituent terms in the definition of and the information leads the consultation. This important benefit
‘‘original information,’’ so as to further Commission to a successful enforcement could be undermined if the
describe when a whistleblower provides action (as defined in Proposed Rule whistleblower award program created
‘‘original information.’’ 21F–4(c)), that individual should be monetary incentives for counsel to
Paragraph (2) of Proposed Rule 21F– eligible to receive a whistleblower disclose information about potential
4(b) defines ‘‘independent knowledge’’ award. securities violations that they learned of
as factual information in the Under Section 21F(a)(3)(A) of the through privileged communications.
whistleblower’s possession that is not Exchange Act,22 the original The exception for information
obtained from publicly available information provided by a obtained through privileged attorney-
sources. Publicly available sources may whistleblower can include information client communications would not apply
include both sources that are widely that is derived from independent in circumstances where the attorney is
disseminated (such as corporate press knowledge and also from independent permitted to disclose the substance of a
releases and filings, media reports, and ‘‘analysis.’’ Proposed Rule 21F–4(b)(3) communication that would otherwise be
information on the Internet), and would define ‘‘independent analysis’’ to privileged. This would include, for
sources that, though not widely mean the whistleblower’s own analysis, example, circumstances where the
disseminated, are generally available to whether done alone or in combination privilege has been waived, or where
the public (such as court filings and with others. The proposed rule thus disclosure of confidential information to
documents obtained through Freedom recognizes that analysis—which may the Commission without the client’s
of Information Act requests). include academic or professional consent is permitted pursuant to either
Importantly, the proposed definition of studies—can be the product of 17 CFR 205.3(d)(2) or the applicable
‘‘independent knowledge’’ does not collaboration among two or more state bar ethical rules.24
require that a whistleblower have direct, individuals. ‘‘Analysis’’ would mean the This exclusion is not intended to
first-hand knowledge of potential whistleblower’s examination and preclude an individual who has
violations. Instead, knowledge may be evaluation of information that may be independent knowledge of facts
obtained from any of the generally available, but which reveals indicating potential securities violations
whistleblower’s experiences, information that is not generally known from becoming a whistleblower if that
observations, or communications or available to the public. This individual chooses to consult with an
(subject to the exclusion for knowledge definition recognizes that there are attorney. Facts in the possession of such
obtained from public sources). Thus, for circumstances where individuals can an individual do not become privileged
example, under Proposed Rule 21F– review publicly available information, simply because he or she consulted with
4(b)(2), a whistleblower would have and, through their additional evaluation an attorney. Rather, this exclusion from
‘‘independent knowledge’’ of and analysis, provide vital assistance to independent knowledge or analysis only
information even if that knowledge the Commission staff in understanding means that an attorney cannot make a
derives from facts or other information complex schemes and identifying whistleblower submission on his or her
that has been conveyed to the securities violations. own behalf that is based upon
whistleblower by third parties.21 Proposed Rule 21F–4(b)(4) provides information the attorney obtained
that information will not be considered through a privileged communication
20 Section 924(b) of Dodd-Frank directs that
to derive from an individual’s with a client.
‘‘Information provided to the Commission in writing ‘‘independent knowledge’’ or The second exclusion applies when a
by a whistleblower shall not lose the status of
original information * * * solely because the ‘‘independent analysis’’ in seven would-be whistleblower obtains
whistleblower provided the information prior to the circumstances. The first two exclusions information as a result of the legal
effective date of the regulations, if the information apply to attorneys and to persons such representation of a client on whose
is provided by the whistleblower after the effective as accountants and experts when they behalf the whistleblower’s services, or
date of this subtitle.’’
21 Until this year, the ‘‘public disclosure bar’’
assist attorneys on client matters, the services of the whistleblower’s
provisions of the False Claims Act defined an because of the prominent role that employer or firm, have been retained,
‘‘original source’’ of information, in part, as ‘‘an attorneys play in all aspects of practice and the person seeks to make a
individual who [had] direct and independent before the Commission and the special whistleblower submission for his or her
knowledge of the allegations of the information on
which the allegations [were] based * * *. ’’
duties they owe to clients. The first own benefit. The second exclusion
31 U.S.C. 3130(e)(4) (prior to 2010 amendments). would, for example, preclude an
Courts interpreting these terms generally defined with one that instead requires only ‘‘knowledge that attorney from using information
‘‘direct knowledge’’ to mean first-hand knowledge is independent and materially adds to the publicly- obtained in connection with the
from the relator’s own work and experience, with disclosed allegations or transactions * * *’’ 31
attorney’s representation of a client to
no intervening agency. E.g., United States ex rel. U.S.C. 3130(e)(4), Pub. L. 111–148 § 10104(h)(2),
Fried v. West Independent School District, 527 F.3d 124 Stat. 901 (Mar. 23, 2010). Many practitioners make a whistleblower submission for
439 (5th Cir. 2008); United States ex rel. Paranich have observed that, with this amendment, the False the attorney’s own benefit. This
v. Sorgnard, 396 F.3d 326 (3d Cir. 2005). See Claims Act now permits qui tam actions based upon exclusion would not be limited to
generally John T. Boese, Civil False Claims and Qui ‘‘second-hand knowledge.’’ E.g., Robert T. Rhoad
Tam Actions sec. 4.02[D][2] (citing cases). Earlier and Matthew T. Fornataro, Whistling While They information obtained through privileged
this year, Congress amended the ‘‘public disclosure Work: Limiting Exposure in the Face of PPACA’s
Invitation to Employee Whistleblower Lawsuits, 22 23 See Proposed Rule 21F–4(b)(4)(i).
bar’’ to, among other things, remove the requirement
that a relator have ‘‘direct and independent Health Lawyer 19 (Aug. 2010). 24 See Model Rules of Professional Conduct
knowledge’’ of information, replacing that standard 22 15 U.S.C. 78u–6(a)(3)(A). 1.6(b), 1.13(c).
communications, but would instead becomes aware of information the entity to respond to the violation.33
extend to any information obtained by indicating an illegal act, which in The fifth proposed exclusion is closely
the attorney in the course and as a result certain circumstances can include related, and applies any other time that
of representation of the client. For reporting directly to the Commission. In information is obtained from or through
example, under the proposed rule, an addition to these requirements, there are an entity’s legal, compliance, audit, or
attorney who obtained evidence of other Commission-required similar functions or processes for
securities violations through document engagements by an independent public identifying, reporting, and addressing
discovery from an opposing party in accountant, such as audits of broker- potential non-compliance with
litigation could not use that information dealers 29 and custody exams of applicable law.34 However, each of
to make a whistleblower submission on investment advisers,30 that require the these two exclusions ceases to be
his or her own behalf. However, the external accountant to report instances applicable, with the result that an
attorney could use the information to of noncompliance. Professional individual may be deemed to have
make a submission on behalf of the standards for independent public ‘‘independent knowledge,’’ and therefore
client in whose litigation the discovery accountants also prescribe may become a whistleblower, if the
was obtained. The Commission believes responsibilities when a possible illegal entity does not disclose the information
that this limitation is generally act is detected.31 to the Commission within a reasonable
consistent with attorneys’ ethical time or if the entity proceeds in bad
In light of these pre-existing
obligations,25 and is a reasonable faith.
requirements, and consistent with the
measure to prevent creating financial Compliance with the Federal
role of an independent public
incentives for attorneys to take undue securities laws is promoted when
accountant, we are proposing to exclude
advantage of clients. The language of the companies implement effective legal,
from the definitions of ‘‘independent
exclusion is also intended to apply to audit, compliance, and similar
knowledge and ‘‘independent analysis’’
other members or employees of a firm functions. The rationale for these
any would-be whistleblowers whose
in which the attorney works, as well as proposed exclusions is the concern that
information was gained through the
to other persons who are retained, or Section 21F not be implemented in a
performance of an engagement required
whose company or firm is retained, to way that would create incentives for
under the securities laws by an
perform services in relation to, or to persons who obtain information through
independent public accountant.32 This
assist, an attorney’s representation of a such functions, as well as other
proposed exclusion applies to the
client (e.g., accountants and experts). As responsible persons who are informed
employees of the independent public
with the previous exclusion, this of wrongdoing, to circumvent or
accountant and would not apply to the
exclusion would not apply where the undermine the proper operation of the
client’s employees who perform an
attorney is permitted to make a entity’s internal processes for
accounting function, even if they were
disclosure pursuant to 17 CFR responding to violations of law.
interacting with the company’s outside
205.3(d)(2), the applicable state bar Accordingly, the proposed rule would
auditor. This proposed exclusion only
ethical rules, or otherwise. limit the circumstances in which such
would apply if the information relates to
The third proposed exclusion applies persons may use that knowledge to
a violation by the engagement client or
to persons who obtain information become whistleblowers. This would
the client’s directors, officers or other
through the performance of an include officers, directors, employees,
employees. It would not exclude
engagement required under the and consultants who learn of potential
information with respect to the
securities laws by an independent violations as part of their corporate
independent public accountant’s
public accountant, if that information responsibilities in the expectation that
performance of the engagement itself,
relates to a violation by the engagement they will take steps to address the
such as a violation of the accountant’s
client or the client’s directors, officers or violations, as well as persons who gain
requirements with respect to the
other employees.26 Section 21F(c)(2)(C) knowledge about misconduct otherwise
engagement.
of the Exchange Act excludes from from or through the various processes
award eligibility ‘‘any person who The fourth proposed exclusion that companies employ to identify
obtained the information provided to applies when a person with legal, problems and advance compliance with
the Commission through an audit of a compliance, audit, supervisory, or legal standards. The latter group would
company’s financial statements, and governance responsibilities for an entity include not only persons directly
making a whistleblower submission receives information about potential responsible for compliance-related
would be contrary to the requirements violations, and the information was processes, but other persons as well. For
of Section 10A of the Exchange Act.’’ 27 communicated to the person with the
Section 10A requires registered public reasonable expectation that the person 33 Proposed Rule 21F–4(b)(4)(iv). Under the
accounting firms with respect to an would take appropriate steps to cause Federal Whistleblower Protection Act, 5 U.S.C.
2302(b)(8), a disclosure to a supervisor who is in
audit of the issuer to include audit a position to remedy the wrongdoing, is treated as
procedures to detect illegal acts.28 It also 29 See 17 CFR 240.17a–5(h)(2). a protected disclosure for purposes of the Federal
30 See 17 CFR 275.206(4)–2(a)(3)(ii)(C).
prescribes requirements for the auditor Whistleblower Protection Act, 5 U.S.C. 2302(b)(8).
31 See AU Section 317, Illegal Acts by Clients. E.g., Reid v. Merit Systems Protection Board, 508
if the auditor detects or otherwise 32 This would include reviews performed by an F.3d 674 (Fed. Cir. 2007); Hooven-Lewis v. Caldera,
independent public accountant of interim financial 249 F.3d 259 (4th Cir. 2001). Borrowing and
25 See Model Rule of Professional Conduct 1.6,
statements included in quarterly reports on Form building upon this concept, the proposed rule
comment 3 (‘‘The confidentiality rule * * * applies
10–Q (17 CFR 249.308(a)) pursuant to Rule 10– would preclude such supervisors and similarly-
not only to matters communicated in confidence by 01(d) of Regulation S–X (17 CFR 210.10–01(d)). The situated others from seeking whistleblower awards
the client but also to all information relating to the Commission anticipates this exclusion would also based upon information they obtain when persons
representation, whatever its source. A lawyer may apply to information gained through another with knowledge of potential wrongdoing come to
not disclose such information except as authorized engagement by the independent public accountant them in an effort to redress the violations.
or required by the Rules of Professional Conduct or for the same client, given that the independent 34 Persons excluded under this provision would
other law.). public accountant would generally already have an include those retained to assist in such processes;
26 Proposed Rule 21F–4(b)(4)(iii).
obligation to consider the information gained in the e.g., forensic accountants retained by outside
27 15 U.S.C. 78u–6(c)(2)(C).
separate engagement in connection with the counsel responsible for conducting an internal
28 See 15 U.S.C. 78j–1. Commission-required engagement. investigation.
example, an employee who learns about are important components of effective some cases—for example, an ongoing
potential violations only because a company compliance programs. On the fraud that poses substantial risk of harm
compliance officer questions him about other hand, it would permit such to investors—a ‘‘reasonable time’’ for
the conduct, and not from any other persons to act as whistleblowers in disclosing violations to the Commission
source, would not be considered to have circumstances where the company may be almost immediate. Nonetheless,
‘‘independent knowledge’’ for purposes knows about material misconduct but given the competing concerns just
of the proposed rule, and therefore has not taken appropriate steps to described, the Commission
could not become a whistleblower respond. Accordingly, in determining preliminarily believes that the proposed
(unless, as is explained below, the whether these persons would be rule should not define one fixed period
company does not disclose the conduct considered to have provided that would represent a ‘‘reasonable time’’
to the Commission within a reasonable ‘‘independent knowledge’’ and would be in all cases. We anticipate that in
time or proceeds in bad faith).35 eligible for whistleblower awards, the evaluating any whistleblower
Internal compliance and similar proposed rule focuses on whether the
functions, when effective, can constrain submissions by personnel covered by
entity proceeded in bad faith or did not
the opportunities for unlawful activity. these exclusions, we will review all of
disclose the information to the
In some cases, an entity’s compliance Commission within a reasonable time.36 the circumstances of the case after the
program will fail to lead the entity to In determining whether an entity fact in order to determine whether the
respond appropriately to violations. acted in bad faith, the Commission will, company disclosed the misconduct to
Under the proposed rule, if the entity among other things, consider whether the Commission within a reasonable
did not disclose the information to the the entity or any personnel who were time or proceeded in bad faith.
Commission within a reasonable time or responsible for responding to allegations Further, if we determine that the
proceeded in bad faith, these exclusions of misconduct took affirmative steps to whistleblower played a role in causing
would no longer apply, thereby making hinder the preservation of evidence or a the company not to disclose the
an individual who knows this timely and appropriate investigation. violations, or to delay in disclosing
undisclosed information eligible to For example, an effort by company them, we will take this fact into
become a whistleblower by providing officials to destroy documents or to consideration in our determination of
‘‘independent knowledge’’ of the interfere with witnesses would whether to consider the whistleblower
violations. constitute bad faith conduct. Similarly, eligible for an award. A whistleblower
This approach is intended to strike a if a company engaged in a sham will not be permitted to claim that the
balance between two competing goals. investigation of allegations, then the
On the one hand, it is designed to company did not disclose information
company’s response would constitute
facilitate the operation of effective to the Commission in a reasonable time
bad faith.
internal compliance programs by not The determination of what is a if the whistleblower bears some
creating incentives for company ‘‘reasonable time’’ in this context will responsibility for that failure.
personnel to seek a personal financial necessarily be a flexible concept that The following chart illustrates the
benefit by ‘‘front running’’ internal will depend on all of the facts and fourth and fifth exclusions from
investigations and similar processes that circumstances of the particular case. In ‘‘independent knowledge:’’
Source of employee’s knowledge Does it qualify as ‘‘independent knowledge’’?
Employee receives information because he/she is reasonably expected Employee will not be deemed to have independent knowledge of the
to take appropriate steps to respond to the violation because of his/ information unless (1) the entity did not disclose the violation to the
her legal, compliance, audit or supervisory responsibilities. Commission within a reasonable period of time, or (2) acts in bad
faith.
Employee learns of information through company’s legal, compliance, Same as above.
audit or similar functions or processes for identifying or addressing
potential non-compliance with laws.
Employee otherwise lawfully learns of information through his/her work- Employee will generally be deemed to have independent knowledge of
related functions. the information [NOTE: if employee elects to report internally first, he/
she will receive the benefit of a ‘‘90-day look-back’’ for subsequent
submission of information to SEC (See Proposed Rule 21F–4(b)(7))].
The sixth exclusion from whistleblowers to come forward with obtained their information from persons
‘‘independent knowledge’’ is for information about wrongdoing, we think subject to the first six exclusions.
information that was obtained by a it is questionable that Congress intended Request for Comment:
means or in a manner that violates to encourage whistleblower assistance
7. Is it appropriate to include
applicable Federal or state criminal law. to a law enforcement authority where
knowledge that is not direct, first-hand
The policy rationale for this proposed the assistance itself is undertaken in
knowledge, but is instead learned from
exclusion is that a whistleblower should violation of Federal or State criminal
others, as ‘‘independent knowledge,’’
not be rewarded for violating a Federal law.
subject only to an exclusion for
or State criminal law. While Congress
Finally. in order to prevent evasion of knowledge learned from publicly-

clearly intended through Section 21F to the rules, the seventh proposed available sources?
provide greater incentives for exclusion would apply to anyone who
35 This proposed exclusion would not, however, would be given a 90-day grace period after reporting 36 This provision does not impose new reporting
apply to individuals with knowledge of potential their information internally to make a requirements in addition to those already existing
violations who report their knowledge to whistleblower submission to the Commission and under the Federal securities laws.
supervisors, compliance or legal personnel. In fact, have their submission deemed effective as of the
as is further explained below, such individuals date of their internal report.
8. Is there a different or more specific respond to the violation, and for another organization that is identified in
definition of ‘‘analysis’’ that would information otherwise obtained from or the proposed rule. In these
better effectuate the purposes of Section through an entity’s legal, compliance, circumstances, the proposed rule would
21F? audit, or similar functions strike the credit the whistleblower with being the
9. Is it appropriate to exclude from the proper balance? Will the carve-out for ‘‘original source’’ of information on
definition of ‘‘independent knowledge’’ situations where the entity does not which the referral was based as long as
or ‘‘independent analysis’’ information disclose the information within a the whistleblower ‘‘voluntarily’’
that is obtained through a reasonable time promote effective self- provided the information to the other
communication that is protected by the policing functions and compliance with authority within the meaning of these
attorney-client privilege? Are there the law without undermining the rules; i.e., the whistleblower or his
other ways these rules should address operation of Section 21F? Should a representative must have come forward
privileged communications? For ‘‘reasonable time’’ be defined in the rule and given the other authority the
example, should other specific and, if so, what period should be information before receiving any
privileges be identified (spousal specified (e.g., three months, six request, inquiry, or demand to which
privilege, physician-patient privilege, months, one year)? Does this provide the information was relevant. If a
clergy-congregant privilege, or others)? sufficient incentives for people to whistleblower claims to be the original
Should the exclusion apply broadly to continue to utilize internal compliance source of information provided to the
information that is obtained through processes? Are there alternative or Commission by one of these authorities
communications that are subject to any additional provisions the Commission or another entity such as the
common law evidentiary privileges should consider that would promote whistleblower’s employer, the
recognized under the laws of any state? effective self-policing and self-reporting Commission may seek assistance and
10. Is it appropriate to exclude from while still being consistent with the confirmation from the other authority or
the definition of independent goals and text of Section 21F? entity in determining whether the
knowledge’’ or ‘‘independent analysis’’ 14. Is the proposed exclusion for whistleblower is the original source of
information that is obtained through the information obtained by a violation of the information.
performance of an engagement required Federal or State criminal law Paragraph (6) of Proposed Rule 21F–
under the securities laws by an appropriate? Should the exclusion 4(b) addresses circumstances where the
independent public accountant, if that extend to violations of the criminal laws Commission already possesses some
information relates to a violation by the of foreign countries? What would be the information about a matter at the time
engagement client or the client’s policy reasons for either extending the that a whistleblower provides additional
directors, officers or other employees? exclusion to violations of foreign information about the same matter. The
Are there other ways that our rules criminal law or not? Are there any other whistleblower will be considered the
should address the roles of accountants types of criminal violations that should ‘‘original source’’ of any information that
and auditors? be included? If so, on what basis? is derived from his independent
11. Should the exclusion for 15. How should our rules treat knowledge or independent analysis and
‘‘independent knowledge’’ or information that may be provided to us that materially adds to the information
‘‘independent analysis’’ go beyond in violation of judicial or administrative that the Commission already possesses.
attorneys and auditors, and include orders such as protective orders in The standard is modeled after the
other professionals who may obtain private litigation? Should we exclude definition of ‘‘original source’’ that
information about potential securities from whistleblower awards persons who Congress included in the False Claims
violations in the course of their work for provide information in violation of such Act through amendments earlier this
clients? If so, are there appropriate ways orders? What would be the policy year.37
to limit the nature or extent of the reason for this proposed exclusion? As is described elsewhere in these
exclusion so that any recognition of Under the statutory definition of proposed rules, a whistleblower will
relationships of professional trust does ‘‘original information,’’ a whistleblower need to submit his information as well
not undermine the purposes of Section who provides information that the as a Form WB–DEC in order to start the
21F? Commission already knows from process and establish the
12. Apart from persons who obtain another source has not provided original whistleblower’s eligibility for award
information through privileged information, unless the whistleblower is consideration.38 A whistleblower who
communications, and professionals who the ‘‘original source’’ of that information. provides information to another
have access to client information, are Paragraphs (5) and (6) of Proposed Rule authority first will need to follow these
there still other categories of persons 21F–4(b) describe how the Commission same procedures and submit the
who should not be considered for proposes to interpret and apply the term necessary forms to the Commission in
whistleblower awards based upon their ‘‘original source’’ as used in the order to perfect his status as a
professional duties or the manner in definition of ‘‘original information.’’ whistleblower under the Commission’s
which they may acquire information Under the proposed rule, a whistleblower program. However, under
about potential securities violations? If whistleblower is an ‘‘original source’’ of paragraph (7) of Proposed Rule 21F–
such exclusions are appropriate, what the same information that the 4(b), as long as the whistleblower
limits, if any, should be placed on them Commission obtains from another submits the necessary forms to the
in order not to undermine the purposes source if the other source obtained the Commission within 90 days after he
of Section 21F? Is the exclusion for information from the whistleblower or provided the same information to the
knowledge obtained through violations his representative. The whistleblower other authority, the Commission will
of criminal law appropriate? bears the burden of establishing that he consider the whistleblower’s
13. Do the proposed exclusions for is the original source of information. submission to be effective as of that
information obtained by a person with In Commission investigations, one earlier date. As noted above, the
legal, compliance, audit, supervisory, or way that this situation may arise is if the
governance responsibilities for an entity staff receives a referral from another 37 31 U.S.C. 3730(e)(4)(B), Pub. L. 111–148 sec.
under an expectation that the person authority such as the Department of 10104(h)(2), 124 Stat. 901 (Mar. 23. 2010).
would cause the entity to take steps to Justice, a self-regulatory organization, or 38 See Proposed Rule 21F–9.
whistleblower must establish that he is submission to the Commission. Among Commission’s need for a strong and
the original source of the information our concerns was the fact that, while effective whistleblower awards program,
provided to the other authority as well many employers have compliance and the importance of preserving robust
as the date of his submission, but the processes that are well-documented, corporate structures for self-policing
Commission may seek confirmation thorough, and robust, and offer and self-reporting.
from the other authority in making this whistleblowers appropriate assurances Request for Comment. The
determination. The objective of this of confidentiality, others lack such Commission requests comment on all
procedure is to provide further established procedures and protections. aspects of the definition of ‘‘original
incentive for persons with knowledge of We emphasize, however, that our source’’ set forth in Proposed Rule
securities violations to come forward proposal not to require a whistleblower 21F–4(b)(4) and (5).
(consistent with the purposes of Section to utilize internal compliance processes 16. Is the provision that would credit
21F) by assuring potential does not mean that our receipt of a individuals with providing original
whistleblowers that they can provide whistleblower complaint will lead to information to the Commission as of the
information to appropriate Government internal processes being bypassed. We date of their submission to another
or regulatory authorities, and their expect that in appropriate cases, Governmental or regulatory authority, or
‘‘place in line’’ will be protected in the consistent with the public interest and to company legal, compliance, or audit
event that other whistleblowers later our obligation to preserve the personnel, appropriate? In particular,
provide the same information directly to confidentiality of a whistleblower, our does the provision regarding the
the Commission. staff will, upon receiving a providing of information to a company’s
For similar reasons, proposed rule whistleblower complaint, contact a legal, compliance, or audit personnel
21F–4(b)(7) extends the same protection company, describe the nature of the appropriately accommodate the internal
to whistleblowers who provide allegations, and give the company an compliance process?
information about potential violations to opportunity to investigate the matter 17. Is the 90-day deadline for
the persons specified in Rules 21F– and report back. The company’s actions submitting Forms TCR and WB–DEC to
4(b)(4)(iv) and (v) (i.e., personnel in these circumstances will be the Commission (after initially
involved in compliance or similar considered in accordance with the providing information about violations
functions, or who are informed about Commission’s Report of Investigation or potential violations to another
potential violations with the expectation Pursuant to Section 21(a) of the authority or the employer’s legal,
that they will take steps to address Securities Exchange Act of 1934 and compliance, or audit personnel) the
them), and who, within 90 days, submit Commission Statement on the appropriate timeframe? Should a longer
the necessary whistleblower forms to Relationship of Cooperation to Agency time period apply in instances where a
the Commission. Compliance with the Enforcement Decisions.39 This has been whistleblower believes that the
Federal securities laws is promoted the approach of the Enforcement staff in company has or will proceed in bad
when companies have effective the past, and the Commission expects faith? Would a 90-day deadline for
programs for identifying, correcting, and that it will continue in the future. Thus, submitting the TCR and WB–DEC also
self-reporting unlawful conduct by in this respect, we do not expect our be appropriate in circumstances where
company officers or employees. The receipt of whistleblower complaints to an individual provides information to
objective of this provision is to support, minimize the importance of effective an SEC staff member? Would a shorter
not undermine, the effective functioning company processes for addressing time frame be appropriate? Should there
of company compliance and related allegations of wrongful conduct.40 be different time frames for disclosures
systems by allowing employees to take The Commission’s primary goal, to other authorities and disclosures to
their concerns about potential violations consistent with the congressional intent an employer’s legal, compliance or audit
to appropriate company officials first behind Section 21F, is to encourage the personnel?
while still preserving their rights under 18. Should the Commission consider
submission of high-quality information
the Commission’s whistleblower other ways to promote continued robust
to facilitate the effectiveness and
program. This objective is also corporate compliance processes
efficiency of the Commission’s
important because internal compliance consistent with the requirements of
enforcement program. At the same time,
and reporting systems are essential Section 21F? If so, what alternative
we also want to implement Section 21F
sources of information for companies requirements should be adopted?
in a way that encourages strong
about misconduct that may not be Should the Commission consider a rule
company compliance programs.
securities-related (e.g., employment that, in some fashion, would require
Therefore, we request comment on all
discrimination or harassment whistleblowers to utilize employer-
aspects of the intersection between
complaints), as well as for securities- sponsored complaint and reporting
Section 21F and established internal
related complaints. The Commission procedures? What would be the
systems for the receipt, handling, and
does not intend for its rules to appropriate contours of such a rule, and
response to complaints about potential
undermine effective company processes how could it be implemented without
violations of law. We particularly seek
for receiving reports on potential undermining the purposes of Section
recommendations on structures,
violations that may be outside of the 21F? Are there other incentives or
processes, and incentives that we
Commission’s enforcement interest, but processes the Commission could adopt
should consider implementing in order
are nonetheless important for that would promote the purposes of
to strike the right balance between the
companies to address. Section 21F while still preserving a
Given the policy interest in fostering 39 Exchange Act Release No. 44969 (October 23,
critical role for corporate self-policing
robust corporate compliance programs, 2001). and self-reporting?
we considered the possible approach of 40 See Rule 21F–6. In addition, as discussed 19. Would the proposed rules
requiring potential whistleblowers to below, in order to encourage whistleblowers to frustrate internal compliance structures
utilize in-house complaint and reporting utilize internal reporting processes, we expect to and systems that many companies have
give credit in the calculation of award amounts to
procedures, thereby giving employers an whistleblowers who utilize established internal
established in response to Section
opportunity to address misconduct, procedures for the receipt and consideration of 10A(m) of the Exchange Act, as added
before they make a whistleblower complaints about misconduct. by Section 301 of the Sarbanes-Oxley
Act of 2002, and related exchange does not necessarily contemplate that Commission’s claims could also receive
listing standards? If so, consistent with the whistleblower’s information will be an award, in particular if the evidence
Section 21F, how can the potential the only information that the staff the whistleblower pointed to might have
negative impact on compliance obtains before deciding to proceed. otherwise been difficult to obtain. A
programs be minimized? However, the proposed rule would whistleblower who only provided vague
Proposed Rule 21F–4(c)—Information apply when the whistleblower gave the information, or an unsupported tip, or
that Leads to Successful Enforcement. staff information about conduct that the evidence that was tangential and did not
Under Section 21F, a whistleblower’s staff is not already investigating or significantly help the Commission
eligibility for an award depends in part examining, and that information was a successfully establish its claims, would
on whether the whistleblower’s original principal motivating factor behind the not meet the standard of this proposed
information ‘‘led to the successful staff’s decision to begin looking into the rule.
enforcement’’ of the Commission’s whistleblower’s allegations. If information that a whistleblower
action or a related action. Proposed Rule Second, if the whistleblower’s provides to the Commission consists of
21F–4(c) defines when original information caused the Commission ‘‘independent analysis’’ rather than
information ‘‘led to successful staff to start looking at the conduct for ‘‘independent knowledge,’’ the
enforcement.’’ the first time, the proposed rule would evaluation of whether this analysis ‘‘led
The Commission’s enforcement require that the information to successful enforcement’’ similarly
practice generally proceeds in several ‘‘significantly contributed’’ to the would turn on whether it significantly
stages. First, the staff opens an success of an enforcement action filed contributed to the success of the action.
investigation based upon some by the Commission. The proposed rule This would involve, for example,
indication of potential violations of the includes this requirement because the considering the degree to which the
Federal securities laws. Second, the staff Commission believes that it is not the analysis, by itself and without further
conducts its investigation to gather intent of Section 21F to authorize investigation, indicated a high
additional facts in order to determine whistleblower awards for any and all likelihood of unlawful conduct that was
whether there is sufficient basis to tips about conduct that led to the the basis, or was substantially the basis,
recommend enforcement action. If so, opening of an investigation if the for one or more claims in the
the staff may recommend, and the resulting investigation concludes in a Commission’s enforcement action. The
Commission may authorize, the filing of successful enforcement action. Rather, purpose of this provision is to ensure
an action. The definition in Proposed implicit in the requirement that a that the analysis provided to the
Rule 21F–4(c) would consider the whistleblower’s information ‘‘led to Commission results in the efficiency
significance of the whistleblower’s * * * successful enforcement’’ is the and effectiveness benefits to the
information to both the decision to open further expectation that the information, enforcement program that were
an investigation and the success of any because of its high quality, reliability, intended by Congress.
resulting enforcement action. The and specificity, had a meaningful
Paragraph (2) of Proposed Rule 21F–
proposed rule would distinguish connection to the Commission’s ability
4(c) sets forth a separate, higher
between situations where the to successfully complete its
standard for cases in which a
whistleblower’s information causes the investigation and to either obtain a
whistleblower provides original
staff to begin an investigation, and settlement or prevail in a litigated
information to the Commission about
situations where the whistleblower proceeding.
conduct that is already under
provides information about conduct that Ultimately, successful enforcement of
examination or investigation by the
is already under investigation. In the a judicial or administrative action
Commission, Congress, any other
latter case, awards would be limited to depends on the staff’s ability to
Federal, state, or local authority, any
the rare circumstances where the establish unlawful conduct by a
self-regulatory organization, or the
whistleblower provided essential preponderance of evidence. Thus, in
Public Company Accounting Oversight
information that the staff would not order to ‘‘lead to successful
Board. In this situation, the information
have otherwise obtained in the normal enforcement,’’ the ‘‘original information’’
will be considered to have led to the
course of the investigation. Paragraphs provided by a whistleblower should be
successful enforcement of a judicial or
(1) and (2) of Proposed Rule 21F–4(c) connected to evidence that plays a
administrative action if the information
reflect these considerations. significant role in successfully
would not have otherwise been obtained
Paragraph (1) of Proposed Rule establishing the Commission’s claim.
and was essential to the success of the
21F–4(c) applies to situations where the For example, the ‘‘led to’’ standard of
action.42 Although the Commission
staff is not already reviewing the Proposed Rule 21F–4(c)(1) would be
met if a whistleblower were to provide believes that awards under Section 21F
conduct in question, and establishes a
the Commission staff with strong, direct generally should be limited to cases
two-part test for determining whether
evidence of violations that supported where whistleblowers provide original
original information voluntarily
one or more claims in a successful information about violations that are not
provided by a whistleblower led to
enforcement action. To give another already under investigation,43 there may
successful enforcement of a Commission
action. First, the information must have example, a whistleblower whose
42 The proposed rule also makes clear that
caused the staff to commence an information did not provide this degree paragraph (2) of Proposed Rule 21F–4(c) does not
examination, open an investigation, of evidence in itself, but who played a apply when a whistleblower provides information
reopen an investigation that had been critical role in advancing the
to the Commission about a matter that is already

closed, or to inquire concerning new investigation by leading the staff under investigation by another authority if the
whistleblower is the ‘‘original source’’ for that
and different conduct as part of an open directly to evidence that provided investigation under Proposed Rule 21F–4(b)(4). In
examination or investigation.41 This important support for one or more of the those circumstances, paragraph (1) of Proposed
Rule 21F–4(c) would govern the Commission’s
41 The proposed rule includes examinations first instance to staff of the Commission’s Office of analysis.
within its scope in recognition of the fact that, in Compliance Inspections and Examinations, and 43 See Lacy v. United States, 221 Ct. Cl. 526
some cases involving regulated entities, tips about after some additional consideration by examination (1979); cf. United States ex rel. Merena v. Smith-
potentially unlawful conduct are directed in the staff may then lead to an investigation. Kline Beecham Corp., 205 F.3d 97 (3d Cir 2000).
be rare circumstances where looking at conduct for the first time, and all claims, that are brought within
information received from a should the standard also require that the that proceeding without regard to which
whistleblower in relation to an ongoing whistleblower’s information specific defendants or respondents, or
investigation is so significant to the ‘‘significantly contributed’’ to a which specific claims, were included in
success of a Commission action that a successful enforcement action? the action as a result of the information
whistleblower award should be a. If not, what standards should be that the whistleblower provided. For
considered. For example, a used in the evaluation? example, if a whistleblower provided
whistleblower who has not been b. If yes, should the proposed rule information concerning insider trading
questioned by the staff in an define with greater specificity when by a single individual, and, after an
investigation, but who nonetheless has information ‘‘significantly contributed’’ investigation, the Commission brought
access to, and comes forward with a to enforcement action? In what way an action against that individual and
document that had been concealed from should the phrase be defined? others in a single captioned proceeding
the staff, and that establishes proof of 22. Is the proposal in Paragraph (c)(2), in Federal court, then the sanctions
wrongdoing that is critical to the which would consider that a collected from all the defendants in the
Commission’s ability to sustain its whistleblower’s information ‘‘led to’’ action would be added up to determine
burden of proof, provides the type of successful enforcement even in cases whether the $1,000,000 threshold has
assistance that should be considered for where the whistleblower gave the been met. Similarly, if a corporate
an award without regard to whether the Commission original information about accounting employee provided the
staff was already investigating the conduct that was already under Commission with information about a
conduct at the time the document was investigation, appropriate? Should the fraudulent accounting practice, and,
provided. We anticipate applying Commission’s evaluation turn on after investigation, the Commission
Proposed Rule 21F–4(c)(2) in a strict whether the whistleblower’s brought an action that also included
fashion, however, such that awards information would not otherwise have unrelated claims discovered during the
under this standard would be rare. been obtained and was essential to the investigation, the $1,000,000 threshold
In considering the relationship success of the action? If not, what other amount for an award would be
between information obtained from a standard(s) should apply? determined based upon the total
whistleblower and the success of an Proposed Rule 21F–4(d)—Action monetary sanctions obtained in the
enforcement action, the Commission Proposed Rule 21F–4(d) defines the action. This approach would effectuate
will apply the same standards in both term ‘‘action.’’ For purposes of the purposes of Section 21F by
settled and litigated actions. calculating whether monetary sanctions enhancing the incentives for individuals
Specifically, in a litigated action the in a Commission action exceed the to come forward and report potential
whistleblower’s information must $1,000,000 threshold required for an securities law violations to the
significantly contribute, or, in the case award payment pursuant to Section 21F Commission,49 and would avoid the
of conduct that is already under of the Exchange Act, as well as challenges associated with attempting to
investigation, be essential, to the determining the monetary sanctions on allocate monetary sanctions involving
success of a claim on which the which awards are based,45 the multiple individuals and claims based
Commission prevails in litigation. For Commission proposes to interpret the upon the select individuals and claims
example, if a court finds in favor of the term ‘‘action’’ to mean a single captioned reported by whistleblowers.
Commission on a number of claims in civil or administrative proceeding. This Second, this proposed approach to
an enforcement action, but rejects the approach to determining the scope of an interpreting the term ‘‘action’’ also
claims that are based upon the ‘‘action’’ is consistent with the most would mean that the Commission
information the whistleblower common meaning of the term,46 and is would not aggregate sanctions that are
provided, the whistleblower would not driven by the plain text of Section 21F. imposed in separate judicial or
be considered eligible to receive an Section 21F(a)(1) defines a ‘‘covered administrative actions for purposes of
award.44 Similarly, in a settled action judicial or administrative action’’ as determining whether the $1,000,000
the Commission would consider ‘‘any judicial or administrative action threshold is satisfied, even if the actions
whether the whistleblower’s brought by the Commission under the arise out of a single investigation. For
information significantly contributed, or securities laws that results in monetary example, if a whistleblower’s
was essential, to allegations included in sanctions exceeding $1,000,000.’’ 47 submission leads to two separate
the Commission’s Federal court When the conditions for an award are enforcement actions, each with total
complaint, or to factual findings in the satisfied in connection with a ‘‘covered sanctions of $600,000, then no
Commission’s administrative order. judicial or administrative action,’’ the whistleblower award would be
Request for Comment: Commission must pay an award or authorized because no single action will
20. Is the proposed standard for when awards in an aggregate amount equal to have obtained sanctions exceeding
original information voluntarily not less than 10 percent and not more $1,000,000.
provided by a whistleblower ‘‘led to’’ than 30 percent ‘‘in total, of what has Request for Comment:
successful enforcement action been collected of the monetary
appropriate? sanctions imposed in the action 49 This approach offers enhanced potential
21. In cases where the original * * *.’’ 48 incentives for whistleblowers when compared to
information provided by the other similar programs because those programs
Two implications follow from this have typically limited awards to successful claims
whistleblower caused the staff to begin
interpretation. First, the ‘‘action’’ would that the whistleblower actually identified. See
include all defendants or respondents, Rockwell International Corp. v. United States, 549
44 As discussed below, however, if the U.S. 457 (2007) (False Claims Act); John Doe v.
Commission prevails on a claim that is based upon 45 See
United States, 65 Fed. Cl. 184 (2005) (Customs
the information the whistleblower provided, and if Proposed Rule 21F–5. moiety statute, 19 U.S.C. 1619); Internal Revenue
46 E.g.,SEC v. McCarthy, 322 F.3d 650, 656 (9th
all the conditions for an award are otherwise Manual 25.2.2.2.8.A (under IRS whistleblower
satisfied, the award to the whistleblower would be Cir. 2003) (‘‘An ‘action’ is defined as ‘a civil or program, collected proceeds only include proceeds
based upon all of the monetary sanctions obtained criminal judicial proceeding.’ ’’). from the single issue identified by the
47 15 U.S.C. 78u–6(a)(1).
as a result of the action. See Proposed Rule 21F– whistleblower, or substantially similar improper
4(d). 48 15 U.S.C. 78u–6(b). activity).
23. The Commission requests particular, that the Commission would entitled to an award, paragraph (b)
comment on the proposed definition of consider a member, officer, or employee states that the Commission will
the word ‘‘action.’’ Are there other ways of one of the designated agencies to be independently determine the
to define an ‘‘action’’ that are consistent ineligible to receive a whistleblower appropriate award percentage for each
with the text of Section 21F and that award under any circumstances, even if whistleblower, but total award
will better effectuate the purposes of the the information that the person payments, in the aggregate, will equal
statute? possesses is unrelated to the agency’s between 10 and 30 percent of the
Proposed Rules 21F–4(e)—Monetary regulatory function. This interpretation monetary sanctions collected in the
Sanctions. Proposed Rule 21F–4(e) would place members, officers, and Commission’s action and the related
defines ‘‘monetary sanctions’’ to mean employees of appropriate regulatory action. Thus, for example, one
any money, including penalties, agencies on equal footing with those of whistleblower could receive an award of
disgorgement, and interest, ordered to other organizations, such as the Public 25 percent of the collected sanctions,
be paid and any money deposited into Company Accounting Oversight Board and another could receive an award of
a disgorgement fund or other fund and law enforcement organizations, who 5 percent, but they could not each
pursuant to Section 308(b) of the are also statutorily ineligible to receive receive an award of 30 percent. Since
Sarbanes-Oxley Act of 2002 as a result whistleblower awards.54 the Commission anticipates that the
of a Commission action or a related Request for Comment: timing of award determinations and the
action. This definition tracks the 24. Is the proposed definition of value of a whistleblower’s contribution
definition of the same term found in ‘‘appropriate regulatory agency’’ could be different for the Commission’s
Section 21F of the Exchange Act.50 The appropriate? Are there other definitions action and for related actions, the
Commission interprets the reference in that that should be adopted instead? proposed rule would provide that the
the statute to ‘‘penalties, disgorgement, Proposed Rule 21F–4(g)—Self- percentage awarded in connection with
and interest’’ to be examples of Regulatory Organization. Section a Commission action may differ from
monetary sanctions, and not exclusive. 3(a)(26) of the Exchange Act 55 the percentage awarded in related
Thus, regardless of how designated, the designates national securities actions.
Commission will consider all amounts exchanges, registered securities
Request for Comment:
that are ‘‘ordered to be paid’’ in an action associations, and registered clearing
agencies as self-regulatory 24. Is the provision stating that the
as ‘‘monetary sanctions’’ for purposes of
organizations, and the Municipal percentage amount of an award in a
Section 21F.
Proposed Rule 21F–4(f)—Appropriate Securities Rulemaking Board as a self- Commission action may differ from the
Regulatory Agency. regulatory organization solely for percentage awarded in a related action
Section 3(a)(34) of the Exchange purposes of Sections 19(b) and (c) of the appropriate?
Act 51 designates the Commission, the Exchange Act (relating to rulemaking).56 F. Proposed Rule 21F–6—Criteria for
Comptroller of the Currency, the Board Consistent with the approach taken with Determining Amount of Award
of Governors of the Federal Reserve regard to the definition of ‘‘appropriate
System, the Federal Deposit Insurance regulatory agency’’ (see discussion Assuming that all of the conditions
Corporation, and the Office of Thrift above), Proposed Rule 21F–4(g) would for making an award to a whistleblower
Supervision as ‘‘appropriate regulatory make clear that the Municipal Securities have been satisfied, Proposed Rule 21F–
agencies’’ for specified entities and Rulemaking Board is considered to be a 6 sets forth the criteria that the
functions.52 For example, when a ‘‘self-regulatory organization’’ for all Commission would take into
national bank is a municipal securities purposes under Section 21F. consideration in determining the
dealer, the Comptroller of the Currency Request for Comment: amount of the award. Paragraphs (a)
is designated as the appropriate 25. Is the proposed definition of ‘‘self- through (c) of the proposed rule recite
regulatory agency; when a state member regulatory organization’’ appropriate? three criteria that Section 21F of the
bank of the Federal Reserve System is a Are there other definitions that that Exchange Act requires the Commission
municipal securities dealer, the Federal should be adopted instead? to consider, and paragraph (d) adds a
Reserve Board is designated as the fourth criterion.
E. Proposed Rule 21F–5—Amount of Paragraph (a) requires the
appropriate regulatory agency. Award
Proposed Rule 21F–4(f) would make Commission to consider the significance
clear that the Commission, the Proposed Rule 21F–5 states that, if all of the information provided by a
Comptroller of the Currency, the Board conditions are met, the Commission will whistleblower to the success of the
of Governors of the Federal Reserve pay an award of at least 10 percent and Commission action or related action.
System, the Federal Deposit Insurance no more than 30 percent of the total Paragraph (b) requires the Commission
Corporation, and the Office of Thrift monetary sanctions collected in to consider the degree of assistance
Supervision (as well as any other successful Commission and related provided by the whistleblower and any
agencies that may be added to Section actions. This range is specified in legal representative of the whistleblower
3(a)(34) of the Exchange Act by future Section 21F(b)(1) of the Exchange Act. in the Commission action or related
amendment) are deemed to be Where multiple whistleblowers are action. Paragraph (c) requires the
‘‘appropriate regulatory agencies’’ for all Commission to consider its
purposes under Section 21F of the regulatory authority.’’ Compare Section programmatic interest in deterring
21F(c)(2)(A)(i) (15 U.S.C. 78u–6(c)(2)(A)(i)) with violations of the securities laws by
Exchange Act.53 This means, in Section 21F(h)(2)(D)(i)((II) (15 U.S.C. 78u–
6(h)(2)(D)(i)((II)). Because we do not believe that making awards to whistleblowers that

50 15 U.S.C. 78u–6(a)(4). Congress intended this differing terminology to provide information that leads to
51 15 U.S.C. 78c(a)(34). reflect substantive distinctions, the proposed rules successful enforcement actions.
52 Title III of Dodd-Frank abolishes the Office of use the term ‘‘appropriate regulatory agency’’ in all Paragraph (d) would permit the
Thrift Supervision and transfers its functions to instances.
54 See Section 21F(c)(2)(A), 15 U.S.C. 78u– Commission to consider whether an
other agencies one year after the date of enactment,
unless the transfer date is extended. 6(c)(2)(A). award otherwise enhances its ability to
53 Section 21F alternately uses the terms 55 15 U.S.C. 78c(a)(26). enforce the Federal securities laws,
‘‘appropriate regulatory agency’’ and ‘‘appropriate 56 15 U.S.C. 78s(b) and (c). protect investors, and encourage the
submission of high quality information portion of the successful claims brought unlawful conduct as an express
from whistleblowers. in the Commission or related action; 57 criterion that would result in reducing
The Commission anticipates that the • The culpability of the the amount of an award within the
determination of awards amounts whistleblower including whether the statutorily-required range? Should
pursuant to paragraphs (a)–(d) will whistleblower acted with scienter, both culpable whistleblowers be excluded
involve highly individualized review of generally and in relation to others who from eligibility for awards? Would such
the circumstances surrounding each participated in the misconduct; and an exclusion be consistent with the
award. To allow for this, the • Whether, and the extent to which, purposes of Section 21F?
Commission preliminarily believes that a whistleblower reported the potential
violation through effective internal G. Proposed Rule 21F–7—
the four criteria afford the Commission
whistleblower, legal or compliance Confidentiality of Submissions
broad discretion to weigh a multitude of
considerations in determining the procedures before reporting the Proposed Rule 21F–7 reflects the
amount of any particular award. violation to the Commission. confidentiality requirements set forth in
Depending upon the facts and This last consideration is not a Section 21F(h)(2) of the Exchange Act 58
circumstances of each case, some of the requirement for an award above the 10 with respect to information that could
considerations may not be applicable or percent statutory minimum and reasonably be expected to reveal the
may deserve greater weight than others. whistleblowers will not be penalized if identity of a whistleblower. As a general
The permissible considerations they do not avail themselves of this matter, it is the Commission’s policy
include, but are not limited to, those set opportunity for fear of retaliation or and practice to treat all information
forth below. These considerations are other legitimate reasons. The obtained during its investigations as
not listed in order of importance nor are Commission will consider higher confidential and nonpublic. Disclosures
they intended to be all-inclusive or to percentage awards for whistleblowers of enforcement-related information to
require a specific determination in any who first report violations through their any person outside the Commission may
particular case: compliance programs. Corporate only be made as authorized by the
• The character of the enforcement compliance programs play a role in Commission and in accordance with
action, including whether its subject preventing and detecting securities applicable laws and regulations.
matter is a Commission priority, violations that could harm investors. If Consistent with Section 21F(h)(2), the
whether the reported misconduct these programs are not utilized or proposed rule explains that the
involves regulated entities or working, our system of securities Commission will not reveal the identity
fiduciaries, the type and severity of the regulation will be less effective. of a whistleblower or disclose other
securities violations, the age and Accordingly, the Commission believes information that could reasonably be
duration of misconduct, the number of that encouraging whistleblowers to expected to reveal the identity of a
violations, and the isolated, repetitive, report securities violations to their whistleblower, except under
or ongoing nature of the violations; corporate compliance programs is circumstances described in the statute
• The dangers to investors or others consistent with the Commission’s and the rule.59 As is further explained
presented by the underlying violations investor protection mission. below, there may be circumstances in
involved in the enforcement action, Request for Comment: which disclosure of information that
including the amount of harm or 27. Should the Commission identify, identifies a whistleblower will be
potential harm caused by the underlying by rule, additional criteria that it will legally required or will be necessary for
violations, the type of harm resulting consider in determining the amount of the protection of investors.
from or threatened by the underlying an award? If so, what criteria should be Paragraph (a)(1) of the proposed rule
violations, and the number of included? Should we include as a would authorize disclosure of
criterion the consideration of whether, information that could reasonably be
individuals or entities harmed;
• The timeliness, degree, reliability, and the extent to which, a expected to reveal the identity of a
and effectiveness of the whistleblower’s whistleblower reported the potential whistleblower when disclosure is
assistance; violation through effective internal required to a defendant or respondent in
• The time and resources conserved whistleblower, legal or compliance a Federal court or administrative action
as a result of the whistleblower’s procedures before reporting the that the Commission files or in another
assistance; violation to the Commission? Should we public action or proceeding filed by an
• Whether the whistleblower include any of the other considerations authority to which the Commission may
encouraged or authorized others to described above? provide the information. For example,
assist the staff who might otherwise not 28. Should we include the role and in a related action brought as a criminal
have participated in the investigation or culpability of the whistleblower in the prosecution by the Department of
related action; Justice, disclosure of a whistleblower’s
57 As described elsewhere in these rules, if the
• Any unique hardships experienced information provided by a whistleblower relates to
identity may be required, in light of the
by the whistleblower as a result of his only a portion of a successful enforcement action, requirement of the Sixth Amendment of
or her reporting and assisting in the the Commission proposes to look to the entirety of the Constitution that a criminal
enforcement action; the action (including all defendants or respondents, defendant have the right to be
all claims, and all monetary sanctions obtained) in
• The degree to which the determining whether the action is eligible for an
confronted with witnesses against
whistleblower took steps to prevent the award (because it meets the $1,000,000 threshold) him.60 Paragraph (a)(2) would authorize
violations from occurring or continuing; and the total dollar amount of sanctions on which disclosure to the Department of Justice,
• The efforts undertaken by the the whistleblower’s award will be based. However, an appropriate regulatory agency, a self
under paragraph (a) of Proposed Rule 21F–6, the regulatory organization, a state attorney
whistleblower to remediate the harm fact that the whistleblower’s information related to
caused by the violations, including only a portion of the overall action would be a
58 15 U.S.C. 78u–6(h)(2).
assisting the authorities in the recovery factor in determining the amount of the
59 Under Section 21F(h)(2), whistleblower-
of the fruits and instrumentalities of the whistleblower’s award. Thus, if the whistleblower’s
information supported only a small part of a larger identifying information is also expressly exempted
violations; case, that would be a reason for making an award from the provisions of the Freedom of Information
• Whether the information provided based upon a smaller percentage amount than Act, 5 U.S.C. 552.
by the whistleblower related to only a otherwise would have been awarded. 60 See U.S. Const. Amend. VI.
general in connection with a criminal opportunity for hearing, is found not to award are described in Proposed Rules
investigation, any appropriate state possess the requisite qualifications to 21F–9 through 21F–11. Proposed Rule
regulatory authority, the Public represent others, to be lacking in 21F–8(b) contains several additional
Company Accounting Oversight Board, character or integrity, to have engaged procedural requirements, which are
or foreign securities and law in unethical or improper professional designed to assist the Commission in
enforcement authorities when it is conduct, or to have willfully violated or evaluating and using the information
necessary to achieve the purposes of the willfully aided and abetted the violation provided. These include that the
Exchange Act and to protect investors. of any provision of the Federal whistleblower, upon request, agree to
With the exception of foreign securities securities laws or rules. Practice before provide explanations and other
and law enforcement authorities, each the Commission is defined to include assistance including, but not limited to,
of these entities is subject to the transacting any business with the providing all additional information in
confidentiality requirements set forth in Commission.63 The Commission the whistleblower’s possession that is
Section 21F(h) of the Exchange Act. cautions attorneys that representation of related to the subject matter of his
Since foreign securities and law whistleblowers will constitute practice submission. In order to accommodate
enforcement authorities are not bound before the Commission. Accordingly, whistleblowers who elect to submit
by these confidentiality requirements, misconduct by an attorney representing information anonymously, the staff will
the proposed rule states that the a whistleblower can result in the have discretion to make special
Commission may determine what attorney being subject to disciplinary arrangements to meet these procedural
assurances of confidentiality are sanctions under any of the conditions requirements.
appropriate prior to disclosing such set forth in Rule 102(e). Paragraph (b) of the proposed rule
information. Paragraph (a)(3) would Request for Comment: also would require whistleblowers, if
authorize disclosure in accordance with 29. Because representation of requested by the staff, to provide
the Privacy Act of 1974. whistleblowers constitutes practice testimony or other acceptable evidence
Because many whistleblowers may before the Commission by an attorney, relating to whether they are eligible for
wish to provide information should the Commission consider or otherwise satisfy any of the
anonymously, paragraph (b) of the adopting rules governing conduct by conditions for an award. Because
proposed rule states that anonymous attorneys engaged in this type of Section 21F(c)(2) of the Exchange Act
submissions are permitted with certain practice? In some contexts, courts have statutorily excludes certain persons
specified conditions. Paragraph (b)(1) disallowed excessive fee requests to from receiving whistleblower awards,66
would require that anonymous attorneys for whistleblowers.64 Should and Section 21F further conditions the
whistleblowers be represented by an we adopt a rule regarding fees in the grant of an award on factors that are
attorney and that the attorney’s contact representation of whistleblower clients? unique to each individual
information be provided to the Would such a rule encourage or whistleblower (e.g., that the individual
Commission at the time of the discourage whistleblower submissions? act ‘‘voluntarily’’ and provide
whistleblower’s initial submission. The H. Proposed Rule 21F–8—Eligibility information that meets all the criteria of
purpose of this requirement is to ‘‘original information’’), this provision is
prevent fraudulent submissions and to Paragraph (a) of Proposed Rule 21F–
designed to ensure that the staff has
facilitate communication and assistance 8 makes clear that providing
authority to confirm that whistleblowers
between the whistleblower and the information in the form and manner
meet all of the necessary eligibility
Commission’s staff. Any whistleblower required by these rules is a fundamental
criteria and conditions. It is anticipated
may be represented by counsel— criterion of eligibility for a
that the staff may seek such confirming
whether submitting information whistleblower award.65 However, in
evidence at any point after a
anonymously or not.61 Paragraph (b)(2) order to prevent undue hardship, the
whistleblower files Form WB–DEC (as
would require that anonymous Commission, in its sole discretion, may
set forth in Proposed Rule 21F–9),
whistleblowers and their counsel follow waive any of these procedural
including, without limitation, in
the required procedures outlined in requirements based upon a showing of
connection with the claims review
Proposed Rule 21F–9. Paragraph (b)(3) extraordinary circumstances.
The specific procedures required for process described in Proposed Rules
would require that anonymous 21F–10 and 21F–11.
whistleblowers disclose their identity, submitting original information and
Finally, paragraph (b) of proposed
pursuant to the procedures outlined in making a claim for a whistleblower
rule 21F–8 would authorize the staff to
Proposed Rule 21F–10, before the require that a whistleblower enter into
63 17 CFR 102(f).
Commission will pay any award. We a confidentiality agreement in a form
64 United States v. Overseas Shipholding Group,
emphasize that anonymous acceptable to the Whistleblower Office,
Inc., 2010 WL 4104663 at *7 (1st Cir. 2010)
whistleblowers have the same rights and (limitations on fees ‘‘are particularly appropriate in including a provision that a violation
responsibilities as other whistleblowers situations such as this where awarding an excessive may result in the whistleblower being
under Section 21F of the Exchange Act fee to the attorney would itself undermine the
ineligible for an award.67 In some cases,
and these proposed rules, unless objectives of the Federal statutory scheme. The
whole purpose of the discretionary award to a confidentiality agreement may be
expressly exempted. whistleblowers under this statute is to create required if it becomes necessary or
Pursuant to Rule 102(e) of the incentives for the whistleblower to take risks that advisable for the staff to share non-
Commission’s Rules of Practice,62 the may disadvantage the whistleblower in his
relationship to his employer. The amount of the fee public information with a whistleblower
Commission may deny the privilege of
either during the course of the
that will be siphoned off by the lawyer significantly

practicing before the Commission to any affects the size of that award and the power of the investigation (for example, to obtain the
person who, after notice and incentive. The court in administering this statute is whistleblower’s assistance in
obligated to ensure his excessive legal fees will not
61 See Section 21F(d)(1), 15 U.S.C. 78u–6(d)(1). diminish the statutory incentive.’’). interpreting documents), or as part of
Under the statute, however, an anonymous 65 See Section 21F(c)(2)(D), which prohibits the
66 15 U.S.C. 78u–6(c)(2).
whistleblower seeking an award is required to be Commission from paying an award to any
represented by counsel. Section 21F(d)(2), 15 U.S.C. whistleblower ‘‘who fails to submit information to 67 Section 21F(e) of the Exchange Act authorizes
78u–6(d)(2). the Commission in such form as the Commission the Commission to require that a whistleblower
62 17 CFR 201.102(e). may, by rule, require. 15 U.S.C. 78u–6(c)(2)(D). enter into a contract. 15 U.S.C. 78u–6(e).
the claims process set forth in Proposed raising concerns about protection of the Commission to connect tips to each
Rules 21F–10 and 21F–11. foreign officials who become other so as to make better use of the
Paragraph (c) of Proposed Rule 21F– whistleblowers. In order to prevent information provided, and to connect
8 recites the categories of individuals evasion of these exclusions, paragraph tips to requests for payment under the
who are ineligible for an award, many (c)(5) of the proposed rule also provides whistleblower provisions. The purpose
of which are set forth in Section that persons who acquire information of requiring a sworn declaration is to
21F(c)(2). These include persons who from ineligible individuals are ineligible help deter the submission of false and
are, or were at the time they acquired for an award. In addition, paragraph misleading tips and the resulting
the original information, a member, (c)(6) would make any person ineligible inefficient use of the Commission’s
officer, or employee of the Department who is the spouse, parent, child, or resources. The requirement should also
of Justice, an appropriate regulatory sibling of a member or employee of the mitigate the potential harm to
agency, a self-regulatory organization, Commission, or who resides in the same companies and individuals that may be
the Public Company Accounting household as a member or employee of caused by false or spurious allegations
Oversight Board, or any law the Commission, in order to prevent the of wrongdoing.
enforcement organization; anyone who appearance of improper conduct by
is convicted of a criminal violation that 1. Form TCR and Instructions
Commission employees.
is related to the Commission action or Paragraph (d) of Proposed Rule 21F– Paragraph (a) of Proposed Rule 21F–
to a related action for which the person 8 reiterates that a determination that a 9 requires the submission of information
otherwise could receive an award; any whistleblower is ineligible to receive an in one of two ways. A whistleblower
person who obtained the information award for any reason does not deprive may submit the information
provided to the Commission through an the individual of the anti-retaliation electronically through the Commission’s
audit of a company’s financial protections set forth in Section 21F(h)(1) Electronic Data Collection System
statements, and making a whistleblower of the Exchange Act.70 available on the Commission’s Web site
submission would be contrary to the Request for Comment. or by completing and submitting
requirements of Section 10A of the 30. We request comment on the proposed Form TCR—Tip, Complaint or
Exchange Act, 15 U.S.C. 78j–1); 68 and manner of submission requirements set Referral.71 Form TCR, and the
any person who in his whistleblower forth in Proposed Rule 21F–8(b). Are instructions thereto, are designed to
submission, his other dealings with the these requirements appropriate? Should capture basic identifying information
Commission, or his dealings with there be different or additional about a complainant and to elicit
another authority in connection with a requirements to supplement the sufficient information to determine
related action, knowingly and willfully submission of information as set forth in whether the conduct alleged suggests a
makes any false, fictitious, or fraudulent Proposed Rule 21F–9? violation of the Federal securities laws.
statement or representation, or uses any 31. We also request comment on the Proposed items A1 through A3 of Form
false writing or document, knowing that ineligibility criteria set forth in TCR would request the whistleblower’s
it contains any false, fictitious, or Proposed Rule 21F–8(c). Are there other name and contact information,
fraudulent statement or entry. Paragraph statuses or activities that should render including a physical address, email
(c)(2) of Proposed Rule 21F–8 also an individual ineligible for a address and telephone number.
would make foreign officials ineligible whistleblower award? Proposed item A4 would ask the
to receive a whistleblower award. The I. Proposed Rule 21F–9—Procedures for whistleblower to indicate his
payment of awards to foreign officials Submitting Original Information occupation. In instances where a
could have negative repercussions for whistleblower submits information
United States foreign relations, The Commission proposes a two-step
anonymously, the identifying
including creating a perception that the process for the submission of original
information for the whistleblower
United States is interfering with foreign information under the whistleblower
would not be required, but proposed
sovereignty, potentially undermining award program. In general, the first step
Items B1 through B4 of the form would
foreign government cooperation under would require the submission of
require the name and contact
existing treaties (including multilateral information either on a standard form or
information of the whistleblower’s
and bilateral mutual legal assistance through the Commission’s online
attorney. This information may also be
treaties),69 encouraging corruption, and database for receiving tips, complaints
included in the case of whistleblowers
and referrals. The second step would
whose identities are known and who are
68 As noted above, Section 10A of the Exchange require the whistleblower to complete a
represented by counsel in the matter.
Act requires that a registered public accounting firm Whistleblower Office form, signed
Proposed Items C1 through C4 would
engaged in an audit of financial statements of an under penalties of perjury, in which the
issuer required under the Exchange Act take certain request basic identifying information for
whistleblower would be required to
steps if the auditor detects or otherwise becomes
aware of information indicating an illegal act, make certain representations concerning 71 The Commission anticipates that, by the time
which in certain circumstances can include the veracity of the information provided final rules are adopted to implement Section 21F,
reporting directly to the Commission. The and the whistleblower’s eligibility for a potential whistleblowers will be able to submit
Commission interprets the exclusion in Section potential award. The use of information to the Commission online through the
21F(c)(2)(C) to apply to persons who obtain Electronic Data Collection System, an interactive,
information through the performance of an audit standardized forms and the electronic web-based database for submission of tips,
that is subject to the requirements of Section 10A, database will greatly assist the complaints and referrals. Whistleblowers who wish
whether or not the audit results in the accounting Commission in managing and tracking to submit their information in paper format would
firm making a report to the Commission. In addition the thousands of tips that it receives be required to use proposed Form TCR. Both
to this statutory exclusion, the Commission is methods of submission are designed to elicit
proposing, through the definition of ‘‘original annually. This will also better enable substantially similar information concerning the
information,’’ a broader exclusion for persons who individual submitting the information and the
obtain information through the performance of an states consider establishing measures and systems violation alleged. For purposes of these rules, the
engagement required under the securities laws by to facilitate the reporting by public officials of acts Commission is only discussing proposed Form
an independent public accountant. See Proposed of corruption to appropriate authorities, when such TCR. The Commission will be separately submitting
Rule 21F–4(b)(4)(iii). acts come to their notice in the performance of their a request to the Office of Management and Budget
69 For example, Article 8(4) of the United Nations functions. for Paperwork Reduction Act approval of the
Convention Against Corruption requires that party 70 See Proposed Rule 21F–2. Electronic Data Collection System.
the individual(s) or entity(ies) to which acknowledging that the information (‘‘TCR’’) number assigned to the
the complaint relates. Proposed Items contained in the Form WB–DEC, as well whistleblower’s submission. The
D1 through D9 are designed to elicit as all information contained in the Commission expects that the TCR
details concerning the alleged securities whistleblower’s submission, is true, number would be generated
violation. Proposed Items D1 and D2 correct and complete to the best of the automatically in cases where the
would ask the whistleblower to provide whistleblower’s knowledge, information whistleblower submits his information
the date of the occurrence and describe and belief. Moreover, the statement online through the Commission’s
the nature of the complaint. Proposed would acknowledge the whistleblower’s Electronic Data Collection System or, in
Items D3 and D4 would ask whether the understanding that the whistleblower the case of hard copy submissions,
complaint relates to an entity of which may be subject to prosecution and would be provided to the whistleblower
the whistleblower is or was an officer, ineligible for an award if, in the in a written confirmation sent by the
director, employee, consultant or whistleblower’s submission of Commission staff. In instances where a
contractor and, if so, whether the information, other dealings with the whistleblower submits both forms in
whistleblower has taken any prior Commission, or dealings with another hard copy and thus does not have access
action regarding the complaint, what authority in connection with a related to the TCR number at the time of
actions were taken and the date on action, the whistleblower knowingly submission, the forms would be linked
which the action(s) were taken. and willfully makes any false, fictitious, together by virtue of having been
Proposed Item D5 would ask about the or fraudulent statements or included in the same mailing. Proposed
type of security or investment involved, representations, or uses any false Items C3 would ask a whistleblower to
the name of the issuer and the ticker writing or document knowing that the identify any communications the
symbol or CUSIP number, if applicable. writing or document contains any false, whistleblower or his counsel may have
Proposed Item D6 would ask the fictitious, or fraudulent statement or had with the Commission concerning
whistleblower to state in detail all facts entry. the matter since submitting the
pertinent to the alleged violation. In instances where information is information. Proposed Item C4 asks
Proposed Item D7 would ask for a provided by an anonymous whether the whistleblower has provided
description of all supporting materials whistleblower, proposed paragraph (c) the same information being provided to
in the whistleblower’s possession and of Proposed Rule 21F–9 would require the Commission to any other agency or
the availability and location of any the attorney representing the organization and, if so, requests details
additional supporting materials not in whistleblower to provide the concerning the submission, including
the whistleblower’s possession. Item D8 Commission with a separate Form WB– the name and contact information for
would ask for an explanation of how the DEC certifying that the attorney has the point of contact at the agency or
whistleblower obtained the information verified the identity of the organization, if known. Proposed Items
that supports the claim. Proposed Item whistleblower, and will retain the D1 through D9 would require the
D9 would provide the whistleblower whistleblower’s original, signed Form whistleblower to make certain
with an opportunity to provide any WB–DEC in the attorney’s files. The representations concerning the
additional information the proposed certification from counsel is whistleblower’s eligibility for an award.
whistleblower thinks may be relevant to an important element of the Finally, the form would require the
his submission. The questions posed on whistleblower program to help ensure sworn declarations from the
proposed Form TCR are designed to that the Commission is working with whistleblower and the whistleblower’s
elicit the minimum information whistleblowers whose identities have
counsel discussed above. In proposed
required for the Commission to make a been verified by their counsel. The
Item E, the whistleblower would be
preliminary assessment concerning the proposed certification process also
required to declare under penalty of
likelihood that the alleged conduct would provide a mechanism for
perjury that the information contained
suggests a violation of the securities anonymous whistleblowers to be
on Form WB–DEC, and all information
laws. Moreover, the proposed advised by their counsel regarding their
submitted to the SEC is true, correct and
instructions to Form TCR are designed preliminary eligibility for an award.
Proposed Items A1 through A3 of complete to the best of the
to assist the whistleblower and facilitate
Form WB–DEC would request the whistleblower’s knowledge, information
the completion of the form.
whistleblower’s name and contact and belief. In addition, the
2. Form WB–DEC and Instructions information. In the case of submissions whistleblower would acknowledge his
In addition to submitting information by an anonymous whistleblower, the understanding that he may be subject to
in the form and manner required by form would require the name and prosecution and ineligible for a
paragraph (a), the Commission proposes contact information of the whistleblower award if, in the
in paragraph (b) of Proposed Rule 21F– whistleblower’s attorney instead of the whistleblower’s submission of
9 to require that whistleblowers who whistleblower’s identifying information information, other dealings with the
wish to be considered for an award in in proposed Items B1 though B4. This SEC, or dealings with another authority
connection with the information they section could also be completed in cases in connection with a related action, the
provide to the Commission also where a whistleblower’s identity is whistleblower knowingly and willfully
complete and provide the Commission known but the whistleblower is makes any false, fictitious, or fraudulent
with proposed Form WB–DEC, represented by an attorney in the matter. statements or representations, or uses
Declaration Concerning Original Proposed Items C1 through C3 would any false writing or document knowing
Information Provided Pursuant to § 21F request information concerning the that the writing or document contains
of the Securities Exchange Act of 1934. information submitted by the any false, fictitious, or fraudulent
Proposed Form WB–DEC would require whistleblower to the SEC. Item C1 statement or entry.
a whistleblower to answer certain would require the whistleblower to The counsel certification in proposed
threshold questions concerning the indicate the manner in which the Item F would require an attorney for an
whistleblower’s eligibility to receive an information was submitted to the anonymous whistleblower to certify that
award. The form also would contain a Commission. Proposed Item C2 would the attorney has verified the identity of
statement from the whistleblower ask for the Tip, Complaint or Referral the whistleblower who completed Form
WB–DEC in connection with the their status as whistleblowers under the and WB–DEC? Are there categories of
information submitted to the SEC by Commission’s award program once final information included on these forms
viewing the whistleblower’s valid, rules are adopted. Paragraph (d)(1) that are unnecessary, or should be
unexpired government issued requires a whistleblower who provided modified?
identification, that the attorney has original information to the Commission 34. Is the requirement that an attorney
reviewed the whistleblower’s Form in a format or manner other than that for an anonymous whistleblower certify
WB–DEC for completeness and required by paragraph (a) of Rule 21F– that the attorney has verified the
accuracy, and that the attorney will 9 to either submit the information whistleblower’s identity and eligibility
retain an original, signed copy of the electronically through the Commission’s for an award appropriate? Is there an
Form WB–DEC completed by the Electronic Data Collection System or to alternative process the Commission
whistleblower in his or her records. submit a completed Form TCR within should consider that would accomplish
As explained above, the Commission one hundred twenty (120) days of the its goal of ensuring that it is
proposes to allow two alternative effective date of the proposed rules and communicating with a legitimate
methods of submission of a to otherwise follow the procedures set whistleblower?
whistleblower’s information. A forth in paragraph (b) of Proposed Rule 35. Is the Commission’s proposed
whistleblower would have the option of 21F–9. If the whistleblower provided process for allowing whistleblowers 120
submitting the information the original information to the days to perfect their status in cases
electronically through the Commission’s Commission in the format or manner where the whistleblower provided
Electronic Data Collection System or by required by paragraph (a) of Rule 21F– original information to the Commission
sending or faxing Form TCR to the 9, paragraph (d)(2) would require the in writing after the date of enactment of
Whistleblower Office. whistleblower to submit Form WB–DEC Dodd-Frank but before adoption of the
Form WB–DEC could be submitted within one hundred twenty (120) days proposed rules reasonable? Should the
electronically, in accordance with of the effective date of the proposed period be made shorter (e.g., 30 or 60
instructions set forth on the rules in the manner set forth in days) or longer (e.g., 180 days)?
Commission’s Web site or, alternatively, paragraph (b) of Proposed Rule 21F–9.
by mailing or faxing the form to the 36. Are there any ways we can
Request for Comment: streamline and make the required
Whistleblower Office.
32. Although the Commission is procedures more user-friendly?
3. Perfecting Whistleblower Status for proposing alternative methods of
Submissions Made Before Effectiveness J. Proposed Rule 21F–10—Procedures
submission, we expect that electronic
of the Rules for Making a Claim for a Whistleblower
submissions would dramatically reduce
Award in SEC Actions That Result in
As previously discussed, Section our administrative costs, enhance our
Monetary Sanctions in Excess of
924(b) of Dodd-Frank states that ability to evaluate tips (generally and
$1,000,000
information provided to the using automated tools), and improve our
Commission in writing by a efficiency in processing whistleblower Proposed Rule 21F–10 describes the
whistleblower after the date of submissions. Accordingly, we solicit steps a whistleblower would be required
enactment but before the effective date comment on whether it would be to follow in order to make a claim for
of these proposed rules retains the appropriate to eliminate the fax and an award in relation to a Commission
status of original information. The mail option and require that all action. In addition, the rule describes
Commission has already received submissions be made electronically. the Commission’s proposed claims
numerous tips from potential Would the elimination of submissions review process, which includes the
whistleblowers after the date of by fax and mail create an undue burden proposed administrative appeals
enactment of Dodd-Frank. Proposed for some potential whistleblowers? process.
Rule 21F–9(d) would provide a 33. Is there other information that the The following flow chart represents a
mechanism by which whistleblowers Commission should elicit from general overview of the proposed
who fall into this category could perfect whistleblowers on Proposed Forms TCR process:
The proposed process would begin monetary sanctions are obtained claimant’s failure to timely file a request
with the publication of a ‘‘Notice of a without a judgment or order—as in the for a whistleblower award would bar
Covered Action’’ (‘‘Notice’’) on the case of a contribution made pursuant to that individual later seeking a
Commission’s Web site. Whenever a Section 308(b) of the Sarbanes-Oxley recovery.73 The Commission anticipates
judicial or administrative action brought Act of 2002—the Notice would be that, at the time a Notice of Covered
by the Commission results in the published within thirty (30) days of the Action is posted, the staff will also
imposition of monetary sanctions deposit of monetary sanctions into a attempt to contact persons who have
exceeding $1,000,000, the disgorgement or other fund pursuant to filed a Form WB DEC in relation to the
case, in order to give them additional
Whistleblower Office will cause this Section 308(b) that causes total
Notice to be published on the monetary sanctions in the action to notice of the opportunity to submit a
Commission’s Web site subsequent to exceed $1,000,000. The Commission’s claim for award.
the entry of a final judgment or order in Paragraph (b) of Proposed Rule 21F–
proposed rule requires claimants to file
10 describes the procedure for making a
the action that by itself, or collectively their claim for an award within sixty
with other judgments or orders (60) days of the date of the Notice.72 A 73 See, e.g., Yuen v. U.S., 825 F.2d 244 (9th Cir.
previously entered in the action, 1987) (taxpayer barred from recovery due to failure
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exceeds the $1,000,000 threshold. If the 72 All references to ‘‘days’’ refer to calendar days. to timely file a written request for refund).
claim for an award. Specifically, a subject to prosecution and ineligible for claimant could take any of the following
claimant would be required to submit a a whistleblower award for knowingly steps:
claim for an award on proposed Form and willfully making any false, • Within thirty (30) days of the date
WB–APP, Application for Award for fictitious, or fraudulent statements or of the Preliminary Determination, the
Original Information Provided Pursuant representations in his or her submission claimant may request that the
to § 21F of the Securities Exchange Act or dealings with the SEC or other Whistleblower Office make available for
of 1934. Proposed Form WB–APP, and authority. the claimant’s review the materials that
the instructions thereto, will elicit Paragraph (b) of Proposed Rule 21F– formed the basis of the Claims Review
information concerning a 10 provides that a claim on Form WB– Staff’s Preliminary Determination. The
whistleblower’s eligibility to receive an APP, including any attachments, must Whistleblower Office would make these
award at the time the whistleblower be received by the Whistleblower Office materials available to the claimant
files his claim. The purpose of the form within sixty (60) days of the date of the subject to any redactions necessary to
is, among other things, to provide an Notice of Covered Action in order to be comply with any statutory restrictions
opportunity for the whistleblower to considered for an award. or protect the Commission’s law
‘‘make his case’’ for why he is entitled Paragraph (c) requires a whistleblower enforcement and regulatory functions.
to an award by describing the who submitted information to the The Whistleblower Office also could
information and assistance he has Commission anonymously to disclose require the claimant to sign a
provided and its significance to the his identity to the Commission on confidentiality agreement (as described
Commission’s successful action. proposed Form WB–APP and to verify in Rule 21F–8) prior to providing these
Proposed Items A1 through A3 require his identity in a form and manner that materials.
the claimant to provide basic identifying is acceptable to the Whistleblower • Within thirty (30) days of the date
information, including first and last Office prior to the payment of an award. of the Preliminary Determination, or if
name and contact information. Proposed This requirement is derived from a request to review materials is made
Items B1 through B4 would request the Subsection 21F(d)(2)(B) of the Exchange pursuant to paragraph (1) above, then
name and contact information for the Act.74 within thirty (30) days of the
whistleblower’s attorney, if applicable. Whistleblower Office making those
Paragraph (d) of Proposed Rule 21F–
Proposed Items C1 and C2 would materials available for the claimant’s
10 describes the Commission’s claims
request information concerning the review, a claimant may submit a written
review process. The claims review
original tip or complaint underlying the response to the Whistleblower Office
process would begin once the time for
claim, including the TCR number, the setting forth the grounds for the
filing any appeals of the Commission’s
date the information was submitted and claimant’s objection to either the denial
judicial or administrative action has
the subject of the tip, complaint or of an award or the proposed amount of
expired, or where an appeal has been
referral. Proposed Items D1 through D3 an award. The claimant may also
filed, after all appeals in the action have
would request information concerning include documentation or other
been concluded.
the Notice of Covered Action to which evidentiary support for the grounds
Under the proposed process, the advanced in his response.
the claim relates, including the date of Whistleblower Office and designated
the notice, notice number, and the name • Within thirty (30) days of the date
Commission staff (defined in Proposed of the Preliminary Determination, the
and case number of the matter to which Rule 21F–10 as the ‘‘Claims Review
the notice relates. Proposed Items E1 claimant may request a meeting with the
Staff’’) 75 would evaluate all timely Whistleblower Office. However, such
through E3 would request information whistleblower award claims submitted
concerning related actions. A meetings are not required and the
on Form WB–APP. In connection with Whistleblower Office may in its sole
whistleblower would be required to this process, the Whistleblower Office
complete Section D in cases where the discretion decline the request.
could require that claimants provide Paragraph (f) of Proposed Rule 21F–10
whistleblower’s claim was submitted in additional information relating to their makes clear that if a claimant fails to
connection with information submitted eligibility for an award or satisfaction of submit a timely response pursuant to
to another agency or organization in a any of the conditions for an award, as paragraph (e), then the Preliminary
related action (the questions pertaining set forth in Proposed Rule 21F–8(b).76 Determination of the Claims Review
to related actions are explained in the Following that evaluation, the Staff would be deemed the Final Order
discussion of proposed Rule 21F–11, Whistleblower Office would send any of the Commission (except where the
below). Proposed Items F1 through F9 claimant a Preliminary Determination Preliminary Determination
would require the claimant to make setting forth a preliminary assessment as recommended an award, in which case
certain representations concerning the to whether the claim should be allowed the Preliminary Determination will be
claimant’s eligibility to receive an award or denied and, if allowed, setting forth deemed a Proposed Final
at the time the claim is made. In Item the proposed award percentage amount. Determination, which would make it
G, a claimant may set forth the grounds The proposed rule would allow a subject to review by the Commission
for the claimant’s belief that he is claimant the opportunity to contest the under paragraph (h). In addition, a
entitled to an award in connection with Preliminary Determination made by the claimant’s failure to submit a timely
the information submitted to the Claims Review Staff. Under paragraph response to a Preliminary Determination
Commission, or to another agency or (e) of Proposed Rule 21F–10, the where the determination was to deny an
organization in a related action. Finally,
award would constitute a failure to
item H would contain a declaration, to 74 15 U.S.C. 78u–6(d)(2)(B). exhaust the claimant’s administrative
be signed by the claimant, certifying 75 Designated staff would likely include, but need remedies, and the claimant would be
that the information contained on the not be limited to, Commission staff members who
prohibited from pursuing a judicial
form is true, correct and complete to the were responsible for investigating and prosecuting
the covered action. appeal.77
best of the claimant’s knowledge, 76 This is not intended to limit the authority of
information and belief. The declaration the staff to require confirmation of eligibility or the 77 See, e.g., Benoit v. U.S. Dept. of Agriculture,
would further acknowledge the satisfaction of other conditions at any earlier time. 608 F.3d 17, 21–24 (DC Cir. 2010) (dismissing
claimant’s understanding that he may be See discussion of Proposed Rule 21F–8(d). appeal because petitioners failed to exhaust
Paragraph (g) of Proposed Rule 21F– process would in no way limit the Paragraph (b) of Proposed Rule 21F–
10 describes the procedure in cases Commission’s discretion to make a 11 sets forth the deadline by which a
where a claimant submits a timely determination with respect to the claimant must file his or her Form WB–
response pursuant to Paragraph (f). In amount of an award. Under Section APP in a related action. Specifically,
such cases, the Claims Review Staff 21F(f) of the Exchange Act, under proposed paragraph (b)(1), if a
would consider the issues and grounds determinations of the amount of an final order imposing monetary sanctions
advanced in the claimant’s response, award are not appealable to the courts has been entered in a related action at
along with any supporting when the Commission has followed the the time the claimant submits the claim
documentation provided by the statutory requirement to award between for an award in connection with a
claimant, and would prepare a Proposed 10 and 30 percent of the monetary Commission action, the claimant would
Final Determination. Paragraph (h) sanctions collected. be required to submit the claim for an
provides that the Whistleblower Office award in that related action on the same
K. Proposed Rule 21F–11—Procedures
would notify the Commission of the Form WB–APP used for the Commission
for Determining Awards Based Upon a
Proposed Final Determination, but action. Under proposed paragraph
Related Action
would not make the Proposed Final (b)(2), if a final order imposing
Determination public. Within thirty (30) Proposed Rule 21F–3(b) discussed monetary sanctions in a related action
days thereafter, any Commissioner above explains that the Commission is has not been entered at the time the
would be able to request that the required to pay an award on amounts claimant submits a claim for an award
Proposed Final Determination be collected in certain related actions. in connection with a Commission
reviewed by the Commission. If no Proposed Rule 21F–11 sets forth the action, then the claimant would be
Commissioner requests such a review procedures for determining awards required to submit the claim on Form
within the 30-day period, then the based upon related actions. Paragraph WB–APP within sixty (60) days of the
Proposed Final Determination would (a) informs a whistleblower who is issuance of a final order imposing
become the Final Order of the eligible to receive an award following a sanctions in the related action.
Commission. In the event a Commission action that results in The Whistleblower Office may request
Commissioner requests a review, the monetary sanctions totaling more than additional information from the
Commission would review the record $1,000,000 that the whistleblower may claimant in connection with the claim
that the staff relied upon in making its also be eligible to receive an award for an award in a related action to
determination, including the claimant’s based on the monetary sanctions that demonstrate that the claimant directly
previous submissions to the are collected from a related action. (or through the Commission) voluntarily
Whistleblower Office. On the basis of its Paragraph (b) of Proposed Rule 21F– provided the governmental agency,
review of the record, the Commission 11 describes the procedures for making regulatory authority or self-regulatory
would issue its Final Order, which the a claim for an award in a related action. organization the same original
Commission’s Secretary will provide to The process essentially mirrors the information that led to the
the claimant. procedure for making a claim in Commission’s successful covered
The objective of this administrative connection with a Commission action action, and that this information led to
appeals process is to provide a and requires the claimant to submit the the successful enforcement of the
transparent award determination claim on Form WB–APP. In addition to related action. In addition, the
process and provide whistleblowers full the questions previously described in Whistleblower Office may, in its
opportunity to make a written statement our discussion of proposed Rule 21F– discretion, seek assistance and
to the Commission for its consideration 10, the claimant in a related action confirmation from the other agency in
when it makes eligibility and award would be required to complete Section making this determination.
determinations. The proposed D of proposed form WB–APP. Proposed Paragraphs (d) through (i) of Proposed
administrative process would enable a Items D1 through D4 request the name Rule 21F–11 describe the Commission’s
whistleblower to appeal to the of the agency or organization to which claims review process in related actions.
Commission a preliminary the whistleblower provided the The Commission proposes to utilize the
determination by the Whistleblower information and the date the same claims review process in related
Office concerning the percentage information was provided, the name actions that it will utilize in connection
amount of an award; however, this and telephone number for a contact at with claims submitted in connection
the agency or organization, if available, with a covered Commission action.
administrative remedies with respect to their and the case name, action number and The following represents an overview
monetary claims against the government). date the related action was filed. of the proposed process:
L. Proposed Rule 21F–12—Appeals resides or has his principal place of Commission Investor Protection Fund
business. (the ‘‘Fund’’) established by Section
Section 21F of the Exchange Act Paragraph (b) of Proposed Rule 21F– 21F(g) of the Exchange Act.80 Paragraph
provides for certain rights of appeal of 12 designates the materials that shall be (b) provides that a recipient of a
orders of the Commission with respect included in the record on any appeal. whistleblower award would be entitled
to whistleblower awards.78 Paragraph They include the Whistleblower Office’s to payment on the award only to the
(a) of Proposed Rule 21F–12 tracks this Preliminary Determination, any extent that a monetary sanction is
provision and describes claimants’ materials submitted by the claimant or collected in the Commission action or in
appeal rights. A decision of the claimants (including the claimant’s a related action upon which the award
Commission regarding the amount of an Forms TCR, WB–DEC, WB–APP, and is based. This requirement is derived
award is not appealable when the materials filed in response to the from Section 21F(b)(1) of the Exchange
Commission has followed the statutory Preliminary Determination), and any Act,81 which provides that an award is
mandate to award between 10 and 30 other materials that supported the Final based upon the monetary sanctions
percent of the monetary sanctions Order of the Commission, with the collected in the Commission action or
collected. A decision regarding whether exception of any internal deliberative related action.
or to whom to make an award may be process materials that are prepared Paragraph (c) states that any payment
appealed to an appropriate court of exclusively to assist the Commission in of an award for a monetary sanction
appeals within 30 days after the deciding the claim, such as the staff’s collected in a Commission action would
Commission issues its final decision. Proposed Final Determination in the be made following the later of either the
Under Section 25(a)(1) of the Exchange event it does not become the Final completion of the appeals process for all
Act,79 appeals of final orders of the Order. whistleblower award claims arising
Commission entered pursuant to the from the Notice of Covered Action for
M. Proposed Rule 21F–13—Procedures
Exchange Act may be made to the that action, or the date on which the
Applicable to Payment of Awards
United States Court of Appeals for the monetary sanction is collected.
District of Columbia Circuit, or to the Proposed Rule 21F–13 (a) addresses Likewise, the payment of an award for
circuit where the aggrieved person the timing for payment of an award to a monetary sanction collected in a
a whistleblower. Any award made
78 15 U.S.C. 78u–6(f).
pursuant to the rules would be paid 80 15 U.S.C. 78u–6(g).
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79 15 U.S.C. 78y(a)(1).
from the Securities and Exchange 81 15 U.S.C. 78u–6(b)(1).
related action would be made following violation of the securities laws O. Proposed Rule 21F–15—Awards to
the later of either the completion of the underlying such actions. However, if the Whistleblowers Who Engage in Culpable
appeals process for all whistleblower balance of the Fund is not sufficient to Conduct
award claims arising from the related satisfy a whistleblower award, the law Proposed Rule 21F–15 states that in
action, or the date on which the requires that there be deposited into or determining whether the required
monetary sanction is collected. This credited to the Fund an amount equal to $1,000,000 threshold has been satisfied
provision is intended to cover situations the unsatisfied portion of the award for purposes of making an award to a
where a single action results in multiple from any monetary sanction collected whistleblower, the Commission will not
whistleblowers claims. Under this by the Commission in the Commission count any monetary sanctions that the
scenario, if one whistleblower appeals a action on which the award is based. whistleblower is ordered to pay, or that
Final Determination of the Commission Therefore, it is possible for there to be are ordered against any entity whose
denying the whistleblower’s claim for circumstances in which monies that liability is based substantially on
an award, the Commission would not otherwise might have been distributed conduct that the whistleblower directed,
pay any awards in the action until that to victims pursuant to a Commission planned, or initiated. The Commission
whistleblower’s appeal has been action could be required to be deposited also will not add those amounts to the
concluded, because the disposition of into or credited to the Fund to pay a total monetary sanctions collected in the
that appeal could require the whistleblower award. In this situation, action for purposes of calculating any
Commission to reconsider its there would be a tension between the payment to the culpable individual. The
determination and thereby could affect competing interests of paying an award rationale for this limitation is to prevent
all payments for that action. to a whistleblower (as provided for in
Paragraph (d) of Proposed Rule 21F– wrongdoers from financially benefiting
Section 21F) and compensating victims by, in essence, blowing the whistle on
13 describes how the Commission
with monies collected from wrongdoers their own misconduct. Because the
would address situations where there
(as recognized in Section 308 of the common understanding of a
are insufficient amounts available in the
Sarbanes-Oxley Act). whistleblower is one who reports
Fund to pay an award to a
whistleblower or whistleblowers within Request for Comment: misconduct by another person, we are
a reasonable period of time of when preliminarily of the view that it would
37. We request comment on the
payment should otherwise be made. In not be consistent with the purposes of
significance of the tension between the
this situation, the whistleblower or the statute to pay awards to persons
interests of whistleblowers and victims
whistleblowers would be paid when based on monetary sanctions arising
in this circumstance, the likelihood that from their own misconduct. A logical
amounts become available in the Fund, this situation would arise, and whether
subject to the terms set forth in corollary to this principle is that a
there is anything that the Commission whistleblower also should not be paid
proposed paragraphs (d)(1) and (d)(2). can or should do to mitigate this
Under proposed paragraph (d)(1), where an award based on monetary sanctions
tension. paid by an entity whose liability
multiple whistleblowers are owed
payments from the Fund based on N. Proposed Rule 21F–14—No Amnesty resulted from the whistleblower’s
awards that do not arise from the same conduct.
Notice of Covered Action or related Proposed Rule 21F–14 provides Request for Comment: We request
action, priority in making payment on notice that the provisions of Section 21F comment on whether the limitations
these awards would be determined of the Exchange Act do not provide provided in Proposed Rule 21F–15 are
based upon the date that the collections amnesty to individuals who provide appropriate.
for which the whistleblowers are owed information to the Commission relating 38. For example, in determining
payments occurred. If two or more of to a violation of the securities laws. whether the $1,000,000 threshold for a
these collections occur on the same Whistleblowers who have not covered action has been met, should we
date, those whistleblowers owed participated in misconduct will of exclude monetary sanctions ordered
payments based on these collections course not need amnesty. However, against an entity whose liability is based
would be paid on a pro rata basis until some whistleblowers who provide substantially on conduct that the
sufficient amounts become available in original information that significantly whistleblower directed, planned, or
the Fund to pay their entire payments. aids in detecting and prosecuting initiated? Should we exclude those
Under proposed paragraph (d)(2), where sophisticated securities fraud schemes amounts from monetary sanctions
multiple whistleblowers are owed may themselves be participants in the collected for purposes of making
payments from the Fund based on scheme who could be subject to payments to whistleblowers?
awards that arise from the same Notice Commission enforcement actions. These 39. Is the proposed exclusion of
of Covered Action or related action, they individuals will not be immune from monetary sanctions ordered against an
would share the same payment priority prosecution. Rather, the Commission entity whose liability is based
and would be paid on a pro rata basis will analyze the unique facts and substantially on conduct that the
until sufficient amounts become circumstances of each case in whistleblower directed, planned, or
available in the Fund to pay their entire accordance with its Policy Statement initiated appropriate? Is the proposed
payments. Concerning Cooperation by Individuals exclusion sufficient to permit the
As noted above, whistleblower in its Investigations and Related Commission to deny awards in cases
awards will be paid solely from the Enforcement Actions, 17 CFR 202.12, to where the payment of an award would
Fund. Section 21F(g)(3) of the Exchange determine whether, how much, and in be against public policy? Should we
Act establishes the mechanism for what manner to credit cooperation by instead exclude any wrongdoer from
funding the Fund. In most whistleblowers who have participated being eligible to receive an award
circumstances, the Fund will be funded in misconduct. This Policy Statement categorically, or in particular
with monetary sanctions that are provides an incentive to report circumstances? Should an individual’s
collected by the Commission in its information to the Commission level of culpability be considered as a
judicial and administrative actions and notwithstanding that the whistleblower factor in determining whether the
that are not distributed to victims of a program does not provide amnesty. person is eligible for an award? Are
there other ways in which we should psychiatrist-patient, priest-penitent) by definitions of which organizational
limit the payment of awards to culpable one of its members. constituents are covered by Rule 4.2.86
individuals? Proposed Rule 21F–16(b) would As explained above, however, Section
clarify the staff’s authority to 21F of the Exchange Act evinces a
P. Proposed Rule 21F–16—Staff communicate directly with Congressional purpose to facilitate the
Communications With Whistleblowers whistleblowers who are directors, disclosure of information to the
Proposed Rule 21F–16(a) provides officers, members, agents, or employees Commission relating to potential
that no person may take any action to of an entity that has counsel, and who securities law violations and to preserve
impede a whistleblower from have initiated communication with the the confidentiality of those who do so.87
communicating directly with the Commission related to a potential This Congressional policy would be
Commission staff about a potential securities law violation. The proposed significantly impaired were the
securities law violation, including rule would make clear that the staff is Commission required to seek the
enforcing, or threatening to enforce, a authorized to communicate directly consent of an entity’s counsel before
confidentiality agreement (other than with these individuals without first speaking with a whistleblower who
agreements dealing with information seeking the consent of the entity’s contacts us and who is a director,
covered by § 240.21F–4(b)(4)(i) & (ii) of counsel. The objective of proposed Rule officer, member, agent, or employee of
this chapter related to the legal 21F–16 is to implement several the entity. Similarly, whistleblowers
representation of a client) with respect important policies inherent in Section falling within these categories could be
to such communications. As noted, the 21F in a manner consistent with the less inclined to report possible
Congressional purpose underlying state bar ethics rules governing the securities law violations if they believed
Section 21F of the Exchange Act is to professional responsibilities of lawyers. there was a risk that the Commission
encourage whistleblowers to report Every jurisdiction that regulates the staff might be required to request
potential violations of the securities professional responsibility of lawyers consent of the entity’s counsel—thus
laws by providing financial incentives, has adopted some variation of ABA disclosing the whistleblower’s
prohibiting employment-related Model Rule 4.2, which provides: ‘‘In identity—before speaking to him or her.
retaliation, and providing various representing a client, a lawyer shall not For this reason, Section 21F
confidentiality guarantees. Efforts to communicate about the subject of the necessarily authorizes the Commission
impede a whistleblower’s direct representation with a person the lawyer to communicate directly with these
communications with Commission staff knows to be represented by another individuals without first obtaining the
about a potential securities law lawyer in the matter, unless the lawyer consent of the entity’s counsel.
violation, however, would appear to has the consent of the other lawyer or Proposed Rule 21F–16(b) would clarify
conflict with this purpose. For example, is authorized to do so by law or a court this authority by providing that, in the
an attempt to enforce a confidentiality order.’’ 83 context of whistleblower-initiated
agreement against a whistleblower to In the context of organizational contacts with the Commission, all
prevent his or her communications with entities represented by lawyers,84 a discussions with a director, officer,
Commission staff about a potential difficulty in applying the various state member, agent, or employee of an entity
securities law violation could inhibit versions of ABA Model Rule 4.2 is that has counsel are ‘‘authorized by
those communications even when such identifying those actors within the law’’ 88 and, will therefore not require
an agreement would be legally entity—such as directors or officers—
consent of the entity’s counsel as might
unenforceable,82 and would undermine that are the embodiment of the
otherwise be required by rules of
the effectiveness of the countervailing represented entity such that the
professional conduct.89
incentives that Congress established to proscription against contact applies.85
Request for Comment: We request
encourage whistleblowers to disclose This is so in part because the various comment on whether the provisions
potential violations to the Commission. state bar ethics rules have differing dealing with whistleblowers’
Proposed Rule 21F–16(a) is designed to 83 Model Rules of Prof’l Conduct R. 4.2. The
communications with the Commission
prevent this result. The proposed rule primary purpose of ABA Model Rule 4.2 is to
would not, however, address the protect the attorney-client relationship and to 86 Comment 5 to the ABA Model Rule 4.2
effectiveness or enforceability of protect represented persons, in the absence of their specifically carves out a potential exception for
confidentiality agreements in situations lawyers, from being taken advantage of by lawyers ‘‘investigative activities of lawyers representing
who are not representing their interests. governmental entities, directly or through
other than communications with the 84 See generally Upjohn Co. v. United States, 449 investigative agents, prior to the commencement of
Commission about potential securities U.S. 383 (1981). criminal or civil enforcement proceedings.’’ The
law violations. Proposed Rule 21F–16(a) 85 Comment 7 to ABA Model Rule 4.2 addresses commentary, and most state professional
is not intended to prevent a professional this issue: responsibility rules, do not specify which
governmental investigative activities are exempt.
or religious organization from In the case of a represented organization, this
87 See, e.g., Exchange Act Section 21F (b)–(d) and
responding to a breach of a recognized Rule prohibits communications with a constituent
of the organization who supervises, directs or (h), 15 U.S.C. 78u–6 (b)–(d) and (h).
common-law or statutory privilege (e.g., regularly consults with the organization’s lawyer 88 As noted, ABA Model Rule 4.2 allows for
concerning the matter or has authority to obligate contacts with represented persons without the
82 See, e.g., In re JDS Uniphase Corp. Sec. Litig., the organization with respect to the matter or whose consent of the person’s lawyer if such contacts are
238 F.Supp.2d 1127, 1137 (N.D.Cal.2002) (‘‘To the act or omission in connection with the matter may ‘‘authorized by law.’’ Every state bar ethics rules, in
extent that [the confidentiality] agreements be imputed to the organization for purposes of civil accordance with ABA Model Rule 4.2, has some
preclude former employees from assisting in or criminal liability. Consent of the organization’s variation of an authorized by law exception. Thus,
investigations of wrongdoing that have nothing to lawyer is not required for communication with a in the context of communications initiated by a
do with trade secrets or other confidential business former constituent. If a constituent of the whistleblower who is also the director, officer,
information, they conflict with public policy in organization is represented in the matter by his or member, agent, or employee of an entity that has
favor of allowing even current employees to assist her own counsel, the consent by that counsel to a counsel, the proposed rule would make clear that
in securities fraud investigations.’’); Chambers v. communication will be sufficient for purposes of contacts and communications between these
Capital Cities/ABC, 159 F.R.D. 441, 444 this Rule. Compare Rule 3.4(f). In communicating individuals and the staff are ‘‘authorized by law.’’
(S.D.N.Y.1995) (holding that ‘‘it is against public with a current or former constituent of an 89 The proposed rule is not intended, and will not
policy for parties to agree not to reveal * * * facts organization, a lawyer must not use methods of be used, to obtain otherwise privileged information
relating to alleged or potential violations of obtaining evidence that violate the legal rights of about the entity. See SEC Division of Enforcement
[Federal] law’’). the organization. Manual sec. 3.3.1.
staff provided in Proposed Rule 21F–16 should be adopted to address these complaint or referral, including contact
are appropriate. problems? information;
40. Should these provisions be 43. Are there rule proposals that the (4) Information regarding the tip,
narrowed and, if so, why and in what Commission should consider complaint or referral, including the date
manner? Would these provisions promulgating to ensure that the anti- of occurrence of the event being
encourage whistleblowers to provide retaliation provisions are not used to described, whether the person is
information to the Commission protect employees from otherwise complaining about an entity with which
regarding potential securities law appropriate employment actions (i.e., he is or was associated as an officer,
violations? Are there additional employment actions that are not based director, employee, consultant or
measures that the Commission could on reporting potential securities law contractor, whether the person has
consider to encourage and facilitate violations)? taken any prior actions regarding his
whistleblowers’ communications with complaint, facts in support of the
IV. Paperwork Reduction Act allegations, any additional relevant
Commission staff?
41. Should the Commission consider Certain provisions of the proposed information, a description of all
rules to address other potential issues rule contain ‘‘collection of information’’ supporting materials, an explanation of
that may arise from state bar requirements within the meaning of the why the allegations described constitute
professional responsibility rules when Paperwork Reduction Act (‘‘PRA’’) of a violation of the Federal securities
the Commission staff receives 1995.90 An agency may not sponsor, laws, and, if relevant, the name of the
information about potential securities conduct, or require a response to an issuer, and the name and type of
law violations from whistleblowers? For information collection unless a security or investment involved;
currently valid Office of Management (5) A description of how the person
example, are there circumstances where
and Budget (‘‘OMB’’) control number is submitting the original information
the staff’s receipt of information from
displayed. The Commission is learned about and/or obtained the
whistleblowers potentially conflicts
submitting the proposed collections of information submitted and, if any
with the state bar professional
information to OMB for review in information was obtained from a public
responsibility rules that are modeled on
accordance with the PRA.91 The titles source, a description of such source.
ABA Model Rules of Professional Proposed Form WB–DEC, submitted
Responsibility 4.4(a) and 8.4(a)? If so, for the collections of information are: (1)
pursuant to Proposed Rule 21F–9,
should the Commission consider Form TCR (Tip, Complaint or Referral),
would require the following
promulgating rules to address these (2) Form WB–DEC (Declaration
information:
potential conflicts? Concerning Original Information (1) Background information regarding
Provided Pursuant to § 21F of the the person submitting the TCR,
III. General Request for Comment Securities Exchange Act of 1934), and including the person’s name and contact
We request and encourage any (3) Form WB–APP (Application for information;
interested person to submit comments Award for Original Information (2) If the person is represented by an
on any aspect of our Proposed Rules. Provided Pursuant to § 21F of the attorney, the name and contact
With respect to any comments, we note Securities Exchange Act of 1934). Under information for the attorney (in cases of
that they are of greatest assistance to our Proposed Rules 21F–9, 10, and 11, all anonymous submissions the person
rulemaking initiative if accompanied by three proposed forms would be must be represented by an attorney);
supporting data and analysis of the necessary to implement Section 21F of (3) Details concerning the tip or
issues addressed in those comments and the Exchange Act; the forms allow a complaint, including (A) the manner in
by alternatives to our proposals where whistleblower to provide information to which the information was submitted to
appropriate. the Commission and its staff regarding the SEC, (B) the TCR number (required
In addition, the Commission is (i) potential violations of the securities if the person submitted his information
seeking comment on whether it should laws and (ii) the whistleblower’s through the SEC Web site) and date
promulgate rules regarding the eligibility for and entitlement to an submitted to the SEC, (C) the individual
interpretation or implementation of the award. or entity to which the tip, complaint or
anti-retaliation provisions of Section A. Summary of Collection of referral relates, (D) whether the person
21(h) of the Exchange Act. If so, what Information or his counsel has had communications
specific rules should the Commission with the SEC concerning his matter, (E)
consider promulgating? Proposed Form TCR, submitted the relevant SEC staff member with
42. Should the anti-retaliation pursuant to Proposed Rule 21F–9, whom they communicated, and (F) if
protections set forth in Section 21F(h)(1) would request the following the person or his counsel provided the
of the Exchange Act be applied broadly information: information to another agency or
to any person who provides information (1) Background information regarding organization, the details of that
to the Commission concerning a the person submitting the TCR, communication, and the name and
potential violation of the securities including the person’s name contact contact information for the point of
laws, or should they be limited by the information, and occupation; contact at the agency or organization, if
various procedural or substantive (2) If the person is represented by an known;
prerequisites to consideration for a attorney, the name and contact (4) A certification that the person
whistleblower award? Should the information for the person’s attorney (in submitting the original information: (A)
application of the anti-retaliation cases of anonymous submissions the Is not, or was not at the time the person
provisions be limited or broadened in person must be represented by an acquired the original information
any other ways? For example, should attorney); submitted to the Commission, a
the Commission consider promulgating (3) Information regarding the person member, officer or employee of (i) the
a rule to exclude frivolous or bad faith or entity that is the subject of the tip, Securities and Exchange Commission,
whistleblower claims from the the Comptroller of the Currency, the
protections afforded by the anti- 90 44 U.S.C. 3501 et seq.
Board of Governors of the Federal
retaliation provisions? If so, what rules 91 44 U.S.C. 3507(d) and 5 CFR 1320.11.
Reserve System, the Federal Deposit
Insurance Corporation, the Office of (1) The applicant’s name, address and those individuals who alone, or jointly
Thrift Supervision; (ii) the Department contact information; with others, have provided the
of Justice; (iii) the Public Company (2) The applicant’s social security Commission staff with information
Accounting Oversight Board; (iv) any number, if any; relating to a potential violation of the
law enforcement organization; (v) any (3) If the person is represented by an securities laws, and those who wish to
national securities exchange, registered attorney, the name and contact be eligible for whistleblower awards
securities association, registered information for the attorney (in cases of under this Subpart, respectively.
clearing agency, the Municipal anonymous submissions the person The likely respondents to proposed
Securities Rulemaking Board; or (vi) a must be represented by an attorney); Form WB–APP would be those
member, officer, or employee of a (4) Details concerning the tip or individuals who have provided the
foreign government, any political complaint, including (A) the manner in Commission staff with information
subdivision, department, agency, or which the information was submitted to relating to a potential violation of the
instrumentality of a foreign government, the SEC, (B) the subject of the tip, securities laws by filing Forms TCR and
or any other foreign financial regulatory complaint or referral, (C) the TCR WB–DEC signed under penalty of
authority as that term is defined in number, and (D) the date the TCR was perjury, and who believe they are
Section 3(a)(52) of the Exchange Act of submitted to the SEC; entitled to an award under this Subpart.
1934, 15 U.S.C. 78c(a)(52); (B) did not (5) Information concerning the Notice
of Covered Action to which the claim D. Total Annual Reporting and
gain the information through the Recordkeeping Burden
performance of an engagement required relates, including (A) the date of the
under the securities by an independent Notice, (B) the Notice number, and i. Proposed Form TCR
public accountant; (C) did not provided (C) the Case name and number; The Commission estimates that it
the information pursuant to a (6) For related actions, (A) the name would receive approximately 30,000
cooperation agreement with the SEC or and contact information for the agency completed Forms TCR and electronic
another agency or organization; (D) is or organization to which the person submissions through the Electronic Data
not a spouse, parent, child, or sibling of provided the original information; Collection System each year.92 Of those
a member or employee of the (B) the date the person provided his
30,000 submissions, the Commission
Commission, and does not reside in the information, (C) the date the agency or
estimates that it would receive
same household as a member or organization filed the related action,
approximately 3,000 Forms TCR each
employee of the Commission; (E) did (D) the case name and number of the
year.93 Each respondent would submit
not acquire the information from any related action, and (E) the name and
only one Form TCR and would not have
person described in Subsection (4)(A) contact information for the point of
a recurring obligation. The Commission
through (D) above; (F) is not currently contact at the agency or organization, if
also estimates that it will take a
a subject or target of a criminal known;
whistleblower, on average, one hour to
investigation, or has not been convicted (7) A certification of the person’s
complete Form TCR. The completion
of a criminal violation in connection eligibility to receive an award as
time will depend largely on the
with the information upon which the described in Subsection (4) concerning
complexity of the alleged violation and
application for the award is based; and Form WB–DEC above;
(8) An explanation of the reasons that the amount of information the
(G) provided the information before he whistleblower possesses in support of
(or anyone representing him) received the person believes he is entitled to an
award in connection with his the allegations. As a result, the
any request, inquiry or demand from the Commission estimates that the
SEC, Congress, or any other Federal, submission of information to the
Commission, or to another agency in a estimated annual PRA burden of Form
State or local authority, or any self TCR is 3,000 hours.
regulatory organization, or the Public related action including any additional
Company Accounting Oversight Board; information and supporting documents ii. Proposed Form WB–DEC
that may be relevant in light of the Each whistleblower who has
(5) A declaration, signed under
criteria for determining the amount of completed a Form TCR or made an
penalty of perjury under the laws of the
an award set forth in Proposed Rule electronic submission of information
United States, that the information
21F–6 of this subpart, and any
provided to the Commission pursuant to
supporting documents; and 92 This number is a staff estimate based upon the
Proposed Rule 21F–9 of this Subpart is (9) A declaration under penalty of volume of tips, complaints or referrals received by
true, correct and complete to the best of perjury under the laws of the United the Commission on a monthly basis during the past
the person’s knowledge, information States that the information provided in year. The staff believes that the volume of tips,
and belief; and Form WB–APP is true, correct and complaints and referrals the Commission has
(6) A counsel certification, certifying received more recently, and particularly in the
complete to the best of the person’s months since the passage of Dodd-Frank, provides
that the attorney has verified the knowledge, information and belief. a more accurate basis for estimating future volumes.
identity of the whistleblower who 93 This number is a staff estimate based upon the
completed Form WB–DEC by viewing B. Proposed Use of Information expectation that roughly 10 percent of all tips
the whistleblower’s valid, unexpired The collection of information on received by the Commission would be submitted in
government issued identification, hard copy on proposed Form TCR. The staff
proposed Forms TCR, WB–DEC and anticipates that most whistleblowers would elect to
reviewed the whistleblower’s Form WB–APP would be used to permit the submit their information electronically. The
WB–DEC for completeness and Commission and its staff to collect electronic submission of information would provide
accuracy, and will retain for his records information from whistleblowers whistleblowers with increased ease of use and will
an original, signed copy of the Form allow whistleblowers to submit more detailed
regarding alleged violations of the information in roughly the same amount of time it
WB–DEC completed by the Federal securities laws and to determine would take them to complete a hard copy Form
whistleblower. claims for whistleblower awards. TCR. Moreover, the Commission should be able to
Proposed Form WB–APP, submitted use the information submitted electronically more
pursuant to Proposed Rule 21F–10, C. Respondents effectively and efficiently. For example, the
Commission will be able to conduct electronic
would require the following The likely respondents to proposed searches of information without first having to
information: Forms TCR and WB–DEC would be convert the data into an electronic format.
through the Electronic Data Collection WB–APP. The completion time would (iii) Counsel retained by
System and wishes to be eligible for an depend largely on the complexity of the whistleblowers pursuant to an hourly
award under the Program would be alleged violation and the amount of fee arrangement will charge on average
required to provide a Form WB–DEC to information the whistleblower possesses $400 per hour; 100 and
the Commission. The Commission in support of his application for an (iv) Counsel will bill on average:
estimates that it would receive a Form award. As a result, the Commission (i) 2 hours to complete a Form TCR,
WB–DEC in roughly 50 percent of the estimates that the annual PRA burden of (ii) .5 hours to complete a Form WB–
cases in which the Commission receives Form WB–APP is 234 hours. DEC, and (iii) 10 hours to complete a
a Form TCR or an electronic submission Form WB–APP.101
iv. Involvement and Cost of Attorneys Based on those assumptions, the
of information.94 As noted above, the
Commission estimates that it would Under the Proposed Rules, a Commission estimates that each year
receive approximately 30,000 combined whistleblower who discloses his whistleblowers will incur the following
electronic submissions and submission identity may elect, and an anonymous total amounts of attorneys’ fees for
on Form TCR each year. Thus, the whistleblower is required, to retain completion of the Whistleblower
Commission estimates that it would counsel to represent the whistleblower Program forms: (i) $120,000 for the
receive approximately 15,000 Forms in the Whistleblower Program. The completion of Form TCR; (ii) $150,000
WB–DEC each year. Each respondent Commission expects that in most of for the completion of Form WB–DEC;
would submit only one Form WB–DEC those instances the whistleblower’s and (iii) $24,000 for the completion of
and would not have a recurring counsel will complete, or assist in the Form WB–APP.
obligation. The Commission also completion, of some or all of the
E. Mandatory Collection of Information
estimates that it would take a required forms on behalf of the
whistleblower, on average, 0.5 hours to whistleblower. The Commission also A whistleblower would be required to
complete Form WB–DEC. As a result, expects that in the vast majority of cases complete either a Form TCR or submit
the Commission estimates that the in which a whistleblower is represented his information electronically and to
annual PRA burden of Form WB–DEC is by counsel, the whistleblower will enter complete both Forms WB–DEC and
7,500 hours. into a contingency fee arrangement with WB–APP to qualify for a whistleblower
counsel, providing that counsel will be award.
iii. Proposed Form WB–APP paid for the representation through a F. Confidentiality
Each whistleblower who believes that fixed percentage of any recovery by the
he is entitled to an award because he whistleblower under the Program. Thus, As explained above, the statute
provided original information to the most whistleblowers will not incur any provides that the Commission must
Commission that led to successful direct, quantifiable expenses for maintain the confidentiality of the
enforcement of a covered judicial or attorneys’ fees for the completion of the identity of each whistleblower, subject
administrative action, or a related required forms. to certain exceptions. Section 21F(h)(2)
action, would be required to submit a The Commission anticipates that a states that, except as expressly
Form WB–APP to be considered for an small number of whistleblowers (no provided:
award. A whistleblower could only more than five percent of all • [T]he Commission and any officer or
submit a Form WB–APP after there has whistleblowers) will enter into hourly employee of the Commission shall not
been a ‘‘Notice of Covered Action’’ fee arrangements with counsel.97 In disclose any information, including
published on the Commission’s Web those cases, a whistleblower will incur information provided by a whistleblower to
the Commission, which could reasonably be
site pursuant to Proposed Rule 21F–10. direct expenses for attorneys’ fees for expected to reveal the identity of a
The Commission estimates that it would the completion of the required forms. To whistleblower, except in accordance with the
post approximately 130 such Notices estimate those expenses, the provisions of section 552a of title 5, United
each year.95 The Commission then Commission makes the following States Code, unless and until required to be
estimates that it would receive assumptions: disclosed to a defendant or respondent in
approximately 117 Forms WB–APP each (i) The Commission will receive connection with a public proceeding
year.96 The Commission also estimates approximately 3,000 Forms TCR, 15,000 instituted by the Commission [or certain
Forms WB–DEC, and 117 Forms WB– specific entities listed in paragraph (C) of
that it would take a whistleblower, on Section 21F(h)(2)].
average, two hours to complete Form APP annually; 98
(ii) Whistleblowers will pay hourly
assumes that attorneys will submit hard-copy
94 This number is a staff estimate. Because this is fees to counsel for the submission of Forms TCR in the same percentages as all
a new program, the staff does not have prior approximately 150 Forms TCR, 750 whistleblowers.
relevant data on which it can base its estimate. Forms WB–DEC, and 6 Forms WB–APP 100 The Commission uses this hourly rate for
95 This number is a staff estimate based upon the
annually; 99 estimating the billing rates of securities lawyers for
average number of actions during the past five years purposes of other rules. Absent historical data for
in which the Commission recovered monetary the Commission to rely upon in connection with
97 This estimate is based, in part, on the
amounts, including penalties, disgorgement or the whistleblower program, the Commission
prejudgment interest, in excess of $1,000,000 and Commission’s belief that most whistleblowers likely believes that this billing rate estimate is
the assumption that there should be an increase will not retain counsel to assist them in preparing appropriate, recognizing that some attorneys
(roughly 30 percent) in the number of such actions the forms. representing whistleblowers may not be securities
as a result of the whistleblower program. 98 The bases for these assumed amounts are
lawyers and may charge different average hourly
96 This number is a staff estimate based upon explained in Sections V.D.i., V.D.ii. and V.D.iii. rates.
several expectations: first, that the Commission above. 101 The Commission expects that counsel will
would receive Forms WB–APP in approximately 30 99 These amounts are based on the assumption, as
likely charge a whistleblower for additional time
percent of cases in which it posts a Notice of noted above, that no more than 5 percent of all required to gather from the whistleblower or other
Covered Action because we expect that we will whistleblowers will be represented by counsel sources relevant information needed to complete
continue to bring a substantial number of pursuant to an hourly fee arrangement. The Forms TCR and WB–APP. Accordingly, the
enforcement cases that are not based on estimate of the number of Forms TCR submitted by Commission estimates that on average counsel will
whistleblower information; and second, that we attorneys on behalf of whistleblowers may turn out bill a whistleblower two hours for the completion
will receive approximately 3 Forms WB–APP in to be high because it is likely that most attorneys of Form TCR and ten hours for completion of Form
each of those cases. Because this is a new program, will submit tips electronically, rather than use the WB–APP (even though the Commission estimates
the staff does not have prior relevant data on which hard-copy Form TCR. However, in the absence of that a whistleblower will be able to complete Form
it can base these estimates. any historical data to rely upon, the Commission TCR in one hour and Form WB–APP it two hours).
Section 21F(h)(2) also allows the Street, NE., Washington, DC 20549– companies possibly engaged in
Commission to share information 0213. OMB is required to make a misconduct.104 Overall, enhanced
received from whistleblowers with decision concerning the collections of whistleblower incentives should likely
certain domestic and foreign regulatory information between 30 and 60 days result in more frequent reporting of
and law enforcement agencies. after publication of this release. misconduct, which will result in greater
However, the statute requires the Consequently, a comment to OMB is deterrence of securities law violations
domestic entities to maintain such best assured of having its full effect if and more effective and efficient
information as confidential, and OMB receives it within 30 days after enforcement on the part of the
requires foreign entities to maintain publication. Commission.105
such information in accordance with The incentives created by the statute
V. Cost-Benefit Analysis
such assurances of confidentiality as the also present some significant challenges.
Commission deems appropriate. A. Introduction First, the statute could provide financial
In addition, Section 21F(d)(2) The Commission is proposing incentives for attorneys and others to
provides that a whistleblower may rulemaking to implement the provisions breach the attorney-client privilege in
submit information to the Commission of new Section 21F of the Exchange Act, order to seek an award. This would
anonymously, so long as the added by Section 922 of Dodd-Frank to interfere with the ability of companies
whistleblower is represented by and individuals to share information
provide additional incentives and
counsel. However, the statute also with an attorney while seeking legal
protections to whistleblowers who
provides that a whistleblower must advice. Second, the statute could
provide information relating to
disclose his or her identity prior to provide financial incentives for
violations of the securities laws. Before
receiving payment of an award. employees to report violations to the
Dodd-Frank, the Commission regularly
Request for Comment: Pursuant to 44 Commission rather than follow their
received tips, complaints and referrals
U.S.C. 3506(c)(2)(B), we request employers’ internal compliance
concerning securities law violations.
comments to: procedures. This could undermine the
• Evaluate whether the proposed Tips have provided, and continue to
provide, the Commission with valuable effectiveness of internal compliance
collection of information is necessary programs. Third, the statute could result
for the proper performance of the information regarding potential
violations of the Federal securities laws, in an increase in spurious allegations,
functions of the agency, including forcing innocent companies and
whether the information will have as well as information about new market
trends, products or practices that may individuals to incur substantial cost to
practical utility; investigate into and defend against the
• Evaluate the accuracy of the help the agency in support of its
mission. false allegations. Finally, the statute
Commission’s estimate of burden of the
In establishing the new whistleblower could result in award payments to
proposed collections of information;
• Determine whether there are ways program in Section 21F, Congress individuals who have violated the
to enhance the quality, utility, and sought to create and enhance incentives Federal securities laws. This could
clarity of the information to be and protections for whistleblowers result in perverse incentives by
collected; and providing information leading to potentially encouraging violations of the
• Evaluate whether there are ways to successful Commission enforcement law.
minimize the burden of the collection of actions.102 Although whistleblowers can Although many of the requirements of
information on those who are to be motivated by other factors,103 the the whistleblower award program are
respond, including through the use of statute creates new and substantial established by the statute, Congress
automated collection techniques or financial incentives for individuals to required the Commission to issue rules
other forms of information technology. provide the Commission with and regulations necessary or appropriate
The Commission requests comment information regarding potential to implement the Program. In that
and supporting empirical data on the violations of the Federal securities laws. regard, the Commission has exercised
burden and cost estimates for the The statutory requirements for an its discretion in this rulemaking to
proposed rule, including the costs that award—that whistleblowers are entitled propose rules that contain several key
potential whistleblowers may incur. to an award only if they voluntarily definitional or interpretive provisions
Persons wishing to submit comments provide original information, and then that help define the scope of the
on the collection of information only if that information leads to a program, and procedures that
requirements of the proposed rule successful enforcement action—are whistleblowers will be required to
should direct them to the Office of designed to encourage whistleblowers to follow to submit information to the
Management and Budget, Attention provide high-quality tips and
104 Specifically, Dodd-Frank makes it unlawful
Desk Officer for the Securities and continuing cooperation. Moreover, the
for any employer to ‘‘discharge, demote, suspend,
Exchange Commission, Office of statutory provisions permitting threaten, harass, directly or indirectly, or in any
Information and Regulatory Affairs, anonymous submissions and other manner discriminate against, a whistleblower
Washington, DC 20503 and should send prohibiting retaliation against in the terms and conditions of employment.’’ The
a copy to Elizabeth M. Murphy, whistleblowers should encourage statute also provides that any individual who
alleges retaliation under the Act may bring an
Secretary, Securities and Exchange submissions from employees of action in the appropriate Federal district court.
Commission, 100 F Street, NE., Moreover, the statute allows any individual to
Washington, DC 20549–1090, with 102 See S. Rep. No. 111–176 at 110 (2010) (‘‘The submit information anonymously through a lawyer.
reference to File No. S7–33–10. Whistleblower Program aims to motivate those with As a result, in many cases, employers will be
inside knowledge to come forward and assist the unaware when their employees submit tips to the
Requests for materials submitted to Government to identify and prosecute persons who Commission.
OMB by the Commission with regard to have violated the securities laws * * *’’). 105 See Alexander Dyck et al., ‘‘Who Blows the
these collections of information should 103 The incentives to whistleblowers include not Whistle on Corporate Fraud?’’ working paper (2009)
be in writing, refer to File No. S7–33– only the monetary award, but also a desire to (reporting that ‘‘having access to * * * monetary
cleanse the conscience or prevent harm to others. rewards has a significant impact on the probability
10, and be submitted to the Securities See Anthony Heyes and Sandeep Kapur, An a stakeholder becomes a whistleblower.’’), available
and Exchange Commission, Office of Economic Model of Whistleblower Policy, 25 J.L. at http://faculty.chicagobooth.edu/luigi.zingales/
Investor Education and Advocacy, 100 F ECON. & ORG. 157 at 159, 164, 171. research/papers/whistle.pdf.
Commission and to apply for awards governance responsibilities for an original information and making a claim
under the Program, as described below. entity, and the information was for an award. First, pursuant to
Proposed Rule 21F–4 defines three communicated to [the whistleblower] Proposed Rule 21F–9(a), a
terms—(i) ‘‘Voluntary Submission of with the reasonable expectation that whistleblower must complete either
Information,’’ (ii) ‘‘Independent [he] would take steps to cause the entity Form TCR or submit information
Knowledge,’’ and (iii) ‘‘Information that to respond appropriately to the electronically through the Electronic
Leads to Successful Enforcement’’—that violation, unless the entity did not Data Collection System. Second,
together play a significant role in disclose the information to the pursuant to Proposed Rule 21F–9(b), a
determining whether a whistleblower is Commission within a reasonable time or whistleblower must complete and
eligible for an award. Proposed Rule proceeded in bad faith; or (v) otherwise submit Form WB–DEC, sworn under
21F–4(a) defines ‘‘Voluntary Submission from or through an entity’s legal, penalty of perjury. A whistleblower
of Information’’ to state that a compliance, audit or other similar wishing to submit a hard-copy Form
whistleblower must provide information functions or processes for identifying, TCR would be required to submit Form
to the Commission prior to receiving a reporting and addressing potential non- WB–DEC at the same time as he or she
request from the Commission or other compliance with law, unless the entity submits a Form TCR. A whistleblower
relevant authority. The proposed did not disclose the information to the wishing to submit information
definition also provides that a Commission within a reasonable time or electronically could submit Form WB–
whistleblower ‘‘will be considered to proceeded in bad faith; (vi) [b]y a means DEC electronically or in hard copy
have received a request, inquiry or or in a manner that violates applicable within 30 days of the Commission’s
demand if documents or information Federal or State criminal law.’’ receipt of the whistleblower’s electronic
from [the whistleblower] are within the Proposed Rule 21F–4(c) defines submission of information.
scope of a request, inquiry, or demand ‘‘Information that Leads to Successful The proposed rules also require
that [the whistleblower’s] employer Enforcement’’ such that a whistleblower potential whistleblowers to complete a
receives unless, after receiving the is only entitled to an award if (i) the third form in the claims phase to
documents or information from [the whistleblower provides information that establish potential eligibility for an
whistleblower, the] employer fails to causes the staff ‘‘to commence an award under the Program. Pursuant to
provide [the whistleblower’s] examination, open an investigation, Proposed Rules 21F–10 and 21F–11, a
documents or information to the reopen an investigation that the whistleblower must complete Form
requesting authority in a timely Commission had closed, or to inquire WB–APP to apply for an award for a
manner.’’ This proposed definition concerning new or different conduct as covered judicial or administrative action
requires that, to be eligible for an award, part of a current examination or by the Commission or a related action.
a whistleblower or his representative investigation’’ and the information Proposed Rule 21F–15 would provide,
provide his information regarding a ‘‘significantly contributed to the success that ‘‘[i]n determining whether the
potential violation before he or his of the action’’ or (ii) the whistleblower required $1,000,000 threshold has been
company receives a request, inquiry or provides information regarding satisfied * * * for purposes of making
demand from the Commission or other ‘‘conduct that was already under any award [to a whistleblower], the
investigatory authority. examination or investigation’’ and the Commission will not take into account
Proposed Rule 21F–4(b)(4) states that information ‘‘would not otherwise have any monetary sanctions that the
a whistleblower will not be considered been obtained and was essential to the whistleblower is ordered to pay.’’
to have provided ‘‘independent success of the action.’’ Likewise, Proposed Rule 21F–15 would
knowledge’’ if ‘‘[the whistleblower] Proposed Rule 21F–6 sets forth the provide that the Commission will not
obtained the knowledge or the criteria for determining the amount of take into account any monetary
information upon which [his] analysis is the award to be made to a sanctions ‘‘that are ordered against any
based: (i) Through a communication whistleblower. Three of the stated entity whose liability is based
that was subject to the attorney-client criteria are derived from the statute, but substantially on conduct that the
privilege, unless the disclosure of that the proposed rule also includes a fourth whistleblower directed, planned, or
information is otherwise permitted by factor: whether the award otherwise initiated.’’ Proposed Rule 21F–15 further
§ 205.3(d)(2) of this chapter, the enhances the Commission’s ability to would provide that ‘‘if the Commission
applicable state attorney conduct rules, enforce the Federal securities laws, determines that a whistleblower is
or otherwise; (ii) as a result of the legal protect investors, and encourage the eligible for an award, any amounts that
representation of a client on whose submission of high quality information the whistleblower or such an entity pay
behalf [the whistleblower’s] services, or from whistleblowers. in sanctions as a result of the action or
the services of [the whistleblower’s] Proposed Rule 21F–8 states additional related actions will not be included
employer or firm, have been retained, criteria for eligibility for an award. A within the calculation of the amounts
and [the whistleblower] seek[s] to use number of these are derived from the collected for purposes of making
the information to make a whistleblower statute, but the proposed rule also payments [to the whistleblower].’’
submission for [his] own benefit unless provides that a whistleblower may be Proposed Rule 21F–16(b) states that if
disclosure is authorized by § 205.3(d)(2) required to provide various types of a whistleblower who is a director,
of this chapter, the applicable state cooperation to the staff or enter a officer, member, agent, or employee of
attorney conduct rules, or otherwise; confidentiality agreement. In addition to an entity that has counsel has initiated
(iii) through the performance of an certain statutory exclusions from communications with the Commission
engagement required under the eligibility, the proposed rule also relating to a potential securities law
securities laws by an independent excludes any person who is, or was at violation, the staff is authorized to
public accountant, if that information the time of acquiring information, a communicate directly with the
relates to a violation by the engagement member, officer, or employee of a whistleblower regarding the subject of
client or the client’s directors, officers or foreign government or certain other the communication without seeking the
other employees; (iv) because [the foreign entities. consent of the entity’s counsel.
whistleblower was] a person with legal, Proposed rules 21F–9, 10, and 11 set We are sensitive to the costs and
compliance, audit, supervisory, or forth the procedures for submitting benefits of our rules. As discussed
above, many of the key elements of the valuable information regarding potential potentially useful informants, the
whistleblower program have been violations of the Federal securities laws definition could have the benefit of
established by the statute, and our if he has received a subpoena or other limiting potential interference with the
proposed rules implementing the statute request relating to the alleged violations integrity of corporate compliance
in some respects largely track statutory in question—even if the subpoena or programs of companies, which could
provisions. The cost-benefit analysis request does not call for the production reduce the overall efficiency of day-to-
that follows focuses on the benefits and of the valuable information. day compliance operations.
costs related to those rules on which we The definition of ‘‘information that As with the proposed definition of
exercised discretion, and not on the leads to successful enforcement’’ in ‘‘Independent Knowledge’’ addressed
overall benefits and costs of the Proposed Rule 21F–4(c) may also have above, the Commission believes that the
statutory regime for whistleblower the benefit of encouraging submission of procedures relating to the timing of the
incentives and protections. high-quality information that is submission of ‘‘original information’’
particularly useful to successful could mitigate costs that the
B. Benefits enforcement actions. By requiring that Whistleblower Program might impose
We have sought to structure the the whistleblower provide information on companies and their compliance
definitions in Proposed Rule 21F–4 so that either ‘‘significantly contributed’’ to programs and procedures. Importantly,
as to encourage whistleblowers to the success of an action (if the the proposed procedures will allow a
provide the Commission with high- whistleblower has provided information potential whistleblower to provide
quality information—tips indicating a that has led the Commission to begin information to legal or compliance
high likelihood of a substantial investigating that matter), or that ‘‘would personnel within his or her company,
securities violation—that we might not not otherwise have been obtained and and wait for up to 90 days, without
otherwise have received in a timely was essential to the success of the compromising his or her eligibility for
manner. action’’ (if the information related to a an award under the Program. This
We have also sought to strike the right matter already under examination or would also allow a company a
balance in defining terms so as not to be investigation), this proposed definition reasonable period of time to investigate
overly restrictive or overly broad. should help to screen out less and respond to potential securities laws
Overly restrictive definitions could significant tips from eligibility for violations (or at least begin an
render the program ineffective as only a awards, and as a result, lead to a more investigation) prior to reporting them to
small fraction of potential tippers and efficient use of Commission resources the Commission or an appropriate
complainants would qualify for and the Investor Protection Fund. regulator. Therefore, this approach is
monetary rewards. By contrast, overly Further, by requiring this level of consistent with the Commission’s efforts
broad definitions could result in connection to the success of an action, to encourage companies to create and
inefficient use of the Investor Protection the proposed rule may have the benefit implement strong corporate compliance
Fund—especially in cases in which the of encouraging whistleblowers to programs.
Commission already possesses provide more and better information. One economic benefit of providing
information sufficient to bring a Similarly, the criterion contained in this grace period is that the individual
successful enforcement action. From an Proposed Rule 21F–6(d), which allows could be mistaken about securities laws,
economic perspective of enforcement, the Commission to consider its ability to and the compliance personnel would
the primary value of the Whistleblower enforce the securities laws, protect likely be better informed about whether
Program is reduced economic cost of investors and encourage high quality certain conduct constitutes a violation
collecting necessary information early information as a criterion in of securities laws. Without this grace
on and before the Commission can determining the amount of an award to period, individuals, regardless of
obtain the information on its own. The be paid, may have the benefit of whether their judgments regarding
primary economic cost of the Program encouraging better quality information, certain violations were correct, could be
includes the out-of-pocket costs as well thus furthering effective enforcement motivated to report a suspicious finding
as opportunity costs, which include and investor protection. as soon as possible. The overall effect
losses due to fraud and costs of As noted, the Commission recognizes could be an overflow of noisy signals—
enforcement. Consequently, the that whistleblower awards, as provided that is, a large number of tips of varying
proposed definitions together should for by the statute, could potentially quality—causing the Commission to
provide benefits in that they create create incentives for employees of incur costs to process and validate the
strong incentives, in the form of companies to submit information information. Allowing for this proposed
eligibility for a monetary award, for regarding potential violations to the grace period, we believe, provides a
whistleblowers to provide information Commission rather than to compliance mechanism by which some of those
to the Commission or other authorities personnel or through compliance erroneous cases may be eliminated
and to provide the information early, procedures.107 This in turn could before reaching the Commission,
rather than waiting to receive a request undermine the effectiveness of internal without otherwise adversely affecting
or inquiry from a relevant authority.106 company compliance processes. We the incentives on the part of potential
This may be a particular result of the have sought to address and mitigate that whistleblowers.
definition of ‘‘voluntary submission of concern, in part, through the proposed The Commission also recognizes that
information’’ in Proposed Rule 21F–4; definition of ‘‘Independent Knowledge’’ whistleblower awards could create
that rule would deny eligibility for an in Proposed Rule 21F–4(b)(2). While the incentives for attorneys or others to
award to a whistleblower who has restrictions in this definition would breach the attorney-client privilege by
limit the pool of eligible whistleblowers submitting tips disclosing privileged
106 As also noted above, the proposed definitions and thereby reduce the number of communications. The Commission has
are consistent with the legislative intent behind the attempted to address this concern
Act. See S. Rep. No. 111–176 at 110 (2010) (‘‘The 107 See Rewarding Whistleblowers: The Costs and
through the proposed definition of
Whistleblower Program aims to motivate those with Benefits of an Incentive-Based Compliance Strategy,
inside knowledge to come forward and assist the Robert Howse and Ronald J. Daniels, University of
‘‘Independent Knowledge,’’ which
Government to identify and prosecute persons who Pennsylvania Departmental Papers (School of Law), excludes information obtained through
have violated the securities laws * * *’’). 1995, page 527. communications protected by the
attorney-client privilege. Thus, a to determine eligibility for awards under While a monetary reward is typically
whistleblower who submits such the program. not the sole motivation for potential
information would not have provided In addition, the proposed requirement whistleblowers, having a robust clearly
the Commission with ‘‘Original that whistleblowers must complete described process for determining grants
Information’’ and thus would not be Form WB–DEC, under penalty of of monetary rewards should help
eligible for an award. The benefit of this perjury, will encourage whistleblowers incentivize those individuals who seek
proposed definition is that it helps who wish to participate in the to benefit economically from providing
preserve and protect the integrity of the Whistleblower Program to submit information to the Commission.
attorney-client privilege and removes truthful information and discourage
C. Costs
financial incentive encouraging them from submitting false information.
individuals to breach the privilege. As such, this procedure will allow the The Proposed Rules may impose
Proposed Rule 21F–8 may have the Commission to place greater reliance on certain costs on prospective
benefit of encouraging cooperation by the accuracy of information it receives whistleblowers. As an initial matter, the
whistleblowers, which should help the from whistleblowers, which should procedures would require potential
effectiveness and efficiency of allow the Commission to prioritize the whistleblowers to complete certain
Commission enforcement. Similarly, we review and investigation of that forms to establish eligibility for an
believe that Proposed Rule 21F–15, on information more effectively and award under the Program. As noted
balance, will have the same result. We efficiently. The requirement should also above, the Commission recognizes that
recognize that there is a cost associated mitigate the potential harm to it will take time and effort on the part
with providing monetary awards to companies and individuals that may be of whistleblowers to complete and
individuals who have engaged in caused by false or spurious allegations submit the proposed forms. In addition,
securities violations. Yet, these of wrongdoing. In addition, the any whistleblower wishing to submit
individuals frequently have the most requirement that Form WB–DEC be one of the required forms in hard copy
significant and relevant information that submitted within 30 days of submission would need to arrange for delivery and
will aid in detecting and prosecuting of the Form TCR is designed to provide pay the postage or other delivery costs.
sophisticated securities fraud schemes. staff with the opportunity to better It is also possible that the proposed
By excluding from the award evaluate the TCR in light of the fact that procedures could discourage some
calculation any monetary sanctions that whistleblowers with valuable
it is joined by a sworn statement
the whistleblower is ordered to pay or information from submitting their
regarding its accuracy. Accordingly, the
that are ordered against the entity whose information to the Commission. Some
Proposed Rules should result in a
liability is substantially derived from prospective whistleblowers could find
decrease in the amount of Commission
the whistleblower’s conduct, the the procedures burdensome or
resources devoted to false or
proposed rules limit the awards to confusing, and as a result, they might
unsubstantiated leads.108
highly culpable whistleblowers more elect not to provide information to the
Moreover, proposed Form WB–APP
than the awards to less culpable Commission. In these Proposed Rules,
requires the submission of information
whistleblowers. the Commission has attempted to
that is necessary for the Commission to
Likewise, Proposed Rule 21F–16(b), mitigate the potential for burden or
determine award eligibility. While
by authorizing communications confusion in the procedures, but such
requiring an additional form imposes a
between the Commission staff and a costs cannot be eliminated.
cost on potential whistleblowers, The 30-day time limit proposed for
whistleblower without seeking consent determining the appropriate level of
of the counsel of an entity with whom submitting a Form WB–DEC also
award for each instance of qualified imposes costs on whistleblowers in that
the whistleblower is employed, is whistleblower is critical to successful
intended to have the benefit of it would require them to act within a
implementation of the whistleblower certain period of time if they wish to be
encouraging whistleblowers to
rule. The Commission needs to collect eligible for an award under the Program.
communicate with the Commission
pertinent information from the The Commission has proposed the 30-
without the fear that their
whistleblower to determine the strength day time limit based on a balance of
communications will lead to disclosure
of his case. This information will need those costs against the need to have the
of their identity to their employer.
The procedures contained in the to be evaluated in conjunction with the WB–DEC submitted close enough in
Proposed Rules should result in certain Commission’s enforcement action to time with the submission through the
benefits. The Commission’s objective in determine the significance of the Electronic Data Collection System so
proposing these rules is to devise an whistleblower’s contribution. that: (i) The Commission can track and
efficient mechanism to implement the In addition, the Commission has tie together each submission through the
statutory whistleblower program that included procedural elements in the electronic system with the related Form
will allow the Commission to receive proposed rules to provide a fair process WB–DEC and (ii) the Commission will
high-quality information regarding for consideration of whistleblower receive notice that a submission through
securities law violation in a timely, award claims, and, given the possibility the electronic system is a submission
organized, useful manner. As an initial of judicial review, to provide a clearly under the whistleblower program.
matter, the proposed procedures defined record on appeal. These The proposed 90-day limit on
regarding the submission of information procedures should also encourage submission of Form WB–DEC also
and the required Forms are designed to greater participation in the program. would impose costs on whistleblowers
elicit from whistleblowers critical 108 Dyck et al. (2009). The staff reviews and
in that it requires them to act within a
information regarding the potential evaluates all TCRs, regardless of whether they are
certain period of time if they wish
violations at issue. The proposed Forms accompanied by a whistleblower declaration. certain benefits under the Program. The
that would be required to provide clear However, because the declaration would aid in Commission has proposed the 90-day
and uniform guidance to whistleblowers assessing reliability, the staff may consider whether time limit based on a balance of those
a whistleblower has submitted a declaration in
regarding the information that the prioritizing the investigation of TCRs and the
costs against the concern that
Commission deems necessary to allocation of the Division of Enforcement’s limited companies investigating allegations of
investigate the potential violations and resources. potential securities law violations will
view the time limit as the time they may VI. Consideration of Burden on would result in an efficient and effective
wait before reporting violations to the Competition and Promotion of implementation of the statutory
Commission. To be clear, the Competition and Capital Formation whistleblower program. As such, we
Commission does not intend any time believe the Proposed Rules would serve
Section 23(a)(2) 109 of the Securities
period in these Proposed Rules to Exchange Act of 1934 requires the to reduce potential securities law
inform companies on time limits for violations. As a result, investor reliance
Commission, in promulgating rules
reporting violations to the Commission. on the veracity of issuer filings with the
under the Exchange Act, to consider the
Commission may increase
In addition, the definitional and scope impact that any rule may have on
incrementally, which would contribute
provisions described above may also competition and prohibits the
to lowering the cost of raising capital
result in costs if they discourage Commission from adopting any rule that
generally. Those provisions in the
potential whistleblowers from coming would impose a burden on competition
Proposed Rules that are designed to
forward. As discussed above, the not necessary or appropriate in
promote and protect the use of corporate
proposed definitions of ‘‘voluntary furtherance of the purposes of the
compliance programs would further the
submission of information,’’ Exchange Act. Further, Section 3(f) of
requirements of the Sarbanes-Oxley Act
‘‘independent knowledge,’’ and the Exchange Act 110 requires the
of 2002 and other statutory provisions
Commission, when engaging in that encourage or mandate such
‘‘information that leads to successful
rulemaking where it is required to programs. Thus, we believe that we
enforcement’’ together would result in
consider or determine whether an action have structured the Proposed Rules so
heightening the standards for eligibility is necessary or appropriate in the public
for an award. It is possible that as to improve investor confidence in the
interest, to consider, in addition to the market and therefore expect that the
restrictions from eligibility could in protection of investors, whether the
some cases discourage some impact of the Proposed Rules on the
action will promote efficiency, efficiency of capital formation will be
whistleblowers from submitting competition, and capital formation.
potentially useful information. positive.
As with the cost-benefit analysis, we The Commission does not believe the
In particular, the proposed definition focus our consideration of burden on elements of the proposed rules over
of ‘‘voluntary submission of competition and promotion of which the Commission exercised
information’’ excludes from eligibility competition and capital formation to the discretion would impose any undue
any whistleblower who has a legal areas of these Proposed Rules over burdens on competition. The relevant
obligation to provide the information which the Commission has exercised market for competition analysis here is
regarding potential violations to the discretion and do not consider the the market for securities issuers
Commission. This element of the elements of the Whistleblower Program competing to raise capital from
definition could result in instances in established by Congress. investors. Because the proposed rules
which the Commission does not receive In considering the impact on capital are expected to further deterrence of
formation of our proposed rules, we financial fraud, there may be a general
important information regarding
consider the extent to which they affect improvement in the fairness of
potential violations from a potential
allocation of capital and secondarily competition for capital from investors—
whistleblower—that is, situations where
how they affect investors’ choices of and consequently improvement in the
a potential whistleblower has a legal investments and portfolio allocations. ability of companies that abide by the
obligation to provide the information For issuers, this includes considering law to compete with companies that do
and does not, but he would have if the extent to which the rules foster an not. To the extent that the Proposed
eligible for an award. information environment and market Rules impose costs on companies, many
Similarly, other types of ineligibility structures that lead to securities prices of these follow from the statutory
created by our proposed rules—for based upon efficient allocation of mandate to implement the
example, the provisions in Proposed capital. From this perspective, one of Whistleblower Program generally and
Rule 21F–8 that exclude from eligibility the issues that may affect capital are imposed on all companies. The
certain foreign officials or individuals formation in the economy is investor Commission believes any costs
who obtain information from other confidence in the sense of investors associated with compliance with the
categories of ineligible persons—may trusting in the fairness of financial proposed rules, as structured, would be
also cause those persons not to come markets, of which their perception of limited and, therefore, would not
forward with information in their the effectiveness and impose undue burden on competition.
possession about securities law comprehensiveness of the regulatory Furthermore, the Proposed Rules are
regime is an important part. If investors structured to encourage the submission
violations. Although we have attempted
fear theft, fraud, manipulation, insider of high quality information regarding
to craft these rules to strike a balance
trading, or conflicted investment advice, securities law violations in a manner
that is consistent with the purposes of that is effective and efficient. As a result
their trust in the markets will be low,
the statute, these provisions may result of expected improvement in
both in the primary market for issuance
in some foregone opportunities for or in the secondary market for trading. competition and expected increase in
effective enforcement action. This would increase the cost of raising capital formation, we believe the
Request for Comments: We request capital, which would impair capital Proposed Rules should generally
comments and empirical data on all formation—in the sense that it will be increase the efficiency of the economy.
aspects of this cost-benefit analysis, less than it would or should be if rules In addition, the proposed rules should
including identification and against such abuses were in effect and increase the efficiency by which the
quantification of any additional costs or properly enforced and obeyed. Commission’s Enforcement program
benefits of, or suggested alternatives to, For reasons stated in the cost-benefit obtains information about potential
the proposed rule. analysis, we believe the Proposed Rules securities law violations.
We request comment (including
109 15 U.S.C. 78w(a)(2).
empirical data and other factual
110 15 U.S.C. 78c(f).
support) on whether the Proposed
Rules, if adopted, would affect significant economic impact on a § 240.21F–1 General.

efficiency, competition, and capital substantial number of small entities. Section 21F of the Securities
formation. Exchange Act of 1934 (‘‘Exchange Act’’)
IX. Statutory Authority
(15 U.S.C. 78u-6), entitled ‘‘Securities
VII. Small Business Regulatory The Commission proposes the new Whistleblower Incentives and
Enforcement Fairness Act rules and forms contained in this Protection,’’ requires the Securities and
For purposes of the Small Business document under the authority set forth Exchange Commission (‘‘Commission’’)
Regulatory Enforcement Fairness Act of in Sections 3(b), 21F and 23(a) of the to pay awards, subject to certain
1996 (SBREFA),111 the Commission Exchange Act. limitations and conditions, to
solicits data to determine whether the
List of Subjects in 17 CFR Parts 240 and whistleblowers who provide the
proposed rule constitutes a ‘‘major’’ rule. Commission with original information
249
Under SBREFA, a rule is considered about violations of the Federal securities
‘‘major’’ where, if adopted, it results or Securities. laws. These rules describe the
is likely to result in: Text of the Proposed Rules whistleblower program that the
• An annual effect on the economy of Commission has established to
$100 million or more (either in the form In accordance with the foregoing, implement the provisions of Section
of an increase or a decrease); Title 17, Chapter II of the Code of 21F, and explain the procedures you
• A major increase in costs or prices Federal Regulations, is proposed to be will need to follow in order to be
for consumers or individual industries; amended as follows. eligible for an award. You should read
or these procedures carefully because the
PART 240—GENERAL RULES AND
• Significant adverse effects on failure to take certain required steps
REGULATIONS, SECURITIES
competition, investment or innovation. within the time frames described in
Commentators should provide EXCHANGE ACT OF 1934
these rules may disqualify you from
empirical data on (a) the potential 1. The authority citation for part 240 receiving an award for which you
annual effect on the economy; (b) any is amended by adding the following otherwise may be eligible. Unless
increase in costs or prices for consumers citation in numerical order to read as expressly provided for in these rules, no
or individual industries; and (c) any follows: person is authorized to make any offer
potential effect on competition, Authority: 15 U.S.C. 77c, 77d, 77g, 77j, or promise, or otherwise to bind the
investment or innovation. 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, Commission with respect to the
VIII. Regulatory Flexibility Act 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78–i, 78j, payment of any award or the amount
Certification
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78o– thereof. The Securities and Exchange
4, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll, Commission’s Whistleblower Office
Section 603(a) of the Regulatory 78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– administers our whistleblower program.
Flexibility Act 112 requires the 3, 80b–4, 80b–11, and 7201 et seq.; 18 U.S.C. Questions about the program or these
Commission to undertake an initial 1350; and 12 U.S.C. 5221(e)(3), unless
rules should be directed to the SEC
regulatory flexibility analysis of the otherwise noted.
Whistleblower Office, 100 F Street, NE.,
proposed rule on small entities unless * * * * * Washington, DC 20549.
the Commission certifies that the rule, if Section 240.21F is also issued under
adopted, would not have a significant Pub. L. 111–203, § 922(a), 124 Stat. 1841 § 240.21F–2 Definition of a Whistleblower.
economic impact on a substantial (2010). (a) You are a whistleblower if, alone
number of small entities.113 * * * * * or jointly with others, you provide the
Small entity is defined in 5 U.S.C. 2. Add §§ 240.21F–1 through Commission with information relating
601(6) to mean ‘‘small business,’’ ‘‘small 240.21F–16 to read as follows: to a potential violation of the securities
organization,’’ and ‘‘small governmental Sec. laws. A whistleblower must be an
jurisdiction’’ as defined in 5 U.S.C. * * * * *
individual. A company or another entity
601(3)—(5). The definition of ‘‘small 240.21F 1–General.
is not eligible to be a whistleblower.
entity’’ does not include individuals. 240.21F 2–Definition of a Whistleblower.
(b) The retaliation protections
The Proposed Rules apply only to an 240.21F 3–Payment of awards.
afforded to whistleblowers by the
individual, or individuals acting jointly, 240.21F 4–Other Definitions.
provisions of paragraph (h)(1) of Section
240.21F 5–Amount of award.
21F of the Exchange Act (15 U.S.C. 78u–
who provide information to the 240.21F 6–Criteria for determining amount
6(h)(1)) apply irrespective of whether a
Commission relating to the violation of of award.
the securities laws. Companies and 240.21F 7–Confidentiality of submissions.
whistleblower satisfies the procedures
other entities are not eligible to 240.21F 8–Eligibility. and conditions to qualify for an award.
participate in the Program as 240.21F 9–Procedures for submitting Moreover, for purposes of the anti-
whistleblowers. Consequently, the original information. retaliation provision of paragraph
persons that would be subject to the 240.21F 10–Procedures for making a claim (h)(1)(A)(i) of Section 21F, 15 U.S.C.
proposed rule are not ‘‘small entities’’ for for a whistleblower award in SEC actions 78u–6(h)(1)(A)(i), the requirement that a
purposes of the Regulatory Flexibility that result in monetary sanctions in whistleblower provide ‘‘information to
excess of $1,000,000. the Commission in accordance’’ with
Act. 240.21F 11–Procedures for determining
For the reasons stated above, the Section 21F (15 U.S.C. 78u–6) is
awards based upon a related action.
Commission certifies, pursuant to 5 240.21F 12–Appeals.
satisfied if an individual provides
U.S.C. 605(b), that the proposed rules 240.21F 13–Procedures applicable to the information to the Commission that
and forms to implement the payment of awards. relates to a potential violation of the
whistleblower provisions of Section 21F 240.21F 14–No amnesty. securities laws.
of the Exchange Act would not have a 240.21F 15–Awards to whistleblowers who (c) To be eligible for an award,
engage in culpable conduct. however, a whistleblower must submit
111 Pub. L. 104–121, tit.II, 110 Stat. 857 (1996).
240.21F 16–Staff communications with original information to the Commission
112 5 U.S.C. 603(a).
whistleblowers. in accordance with the procedures and
113 5 U.S.C. 605(b).
* * * * * conditions described in §§ 240.21F–4,
240.21F–8, and 240.21F–9 of this related actions. These are described in unless you are the original source of the
chapter. § 240.21F–11 and § 240.21F–13. information;
(d) The Commission will not make an (iii) Not exclusively derived from an
§ 240.21F–3 Payment of awards. allegation made in a judicial or
award to you for a related action if you
(a) Subject to the eligibility have already been granted an award by administrative hearing, in a
requirements described in §§ 240.21F–2 the Commodity Futures Trading governmental report, hearing, audit, or
and 240.21F–8 of this chapter, and to Commission (‘‘CFTC’’) for that same investigation, or from the news media,
§ 240.21F–14 of this chapter, the action pursuant to its whistleblower unless you are a source of the
Commission will pay an award or award program under section 23 of the information; and
awards to one or more whistleblowers Commodity Exchange Act, 7 U.S.C. 26. (iv) Provided to the Commission for
who: Similarly, if the CFTC has previously the first time after July 21, 2010 (the
(1) Voluntarily provide the denied an award to you in a related date of enactment of the Dodd-Frank
Commission action, you will be collaterally estopped Wall Street Reform and Consumer
(2) With original information from relitigating any issues before the Protection Act).
(3) That leads to the successful Commission that were necessary to the (2) Independent knowledge means
enforcement by the Commission of a CFTC’s denial. factual information in your possession
Federal court or administrative action that is not derived from publicly
(4) In which the Commission obtains § 240.21F–4 Other Definitions. available sources. You may gain
monetary sanctions totaling more than (a) Voluntary submission of independent knowledge from your
$1,000,000. information. (1) Your submission of experiences, communications and
information is made voluntarily within observations in your business or social
Note to paragraph (a): The terms
voluntarily, original information, leads to the meaning of § 240.21F of this chapter interactions.
successful enforcement, action, and if you provide the Commission with the (3) Independent analysis means your
monetary sanctions are defined in § 240.21F– information before you or anyone own analysis, whether done alone or in
4 of this chapter. representing you (such as an attorney) combination with others. Analysis
receives any request, inquiry, or means your examination and evaluation
(b) The Commission will also pay an of information that may be generally
award based on amounts collected in demand from the Commission, the
Congress, any other Federal, State, or available, but which reveals information
certain ‘‘related actions.’’ A related that is not generally known or available
action is a judicial or administrative local authority, any self-regulatory
organization, or the Public Company to the public.
action that is brought by: (4) The Commission will not consider
(1) The Attorney General of the Accounting Oversight Board about a
matter to which the information in your information to be derived from your
United States; independent knowledge or independent
(2) An appropriate regulatory agency; submission is relevant. If the
Commission or any of these other analysis if you obtained the knowledge
(3) A self-regulatory organization; or or the information upon which your
(4) A state attorney general in a authorities make a request, inquiry, or
demand to you or your representative analysis is based:
criminal case, and is based on the same (i) Through a communication that was
original information that the first, your submission will not be
subject to the attorney-client privilege,
whistleblower voluntarily provided to considered voluntary, and you will not
unless disclosure of that information is
the Commission, and that led the be eligible for an award, even if your
otherwise permitted by § 205.3(d)(2) of
Commission to obtain monetary response is not compelled by subpoena
this chapter, the applicable state
sanctions totaling more than $1,000,000. or other applicable law.
attorney conduct rules, or otherwise;
The terms appropriate regulatory (2) For purposes of this paragraph, (ii) As a result of the legal
agency and self-regulatory organization you will be considered to have received representation of a client on whose
are defined in § 240.21F–4 of this a request, inquiry or demand if behalf your services, or the services of
chapter. documents or information from you are your employer or firm, have been
(c) In order for the Commission to within the scope of a request, inquiry, retained, and you seek to use the
make an award in connection with a or demand that your employer receives information to make a whistleblower
related action, the Commission must unless, after receiving the documents or submission for your own benefit, unless
determine that the same original information from you, your employer disclosure is authorized by § 205.3(d)(2)
information that the whistleblower gave fails to provide your documents or of this chapter, the applicable state
to the Commission also led to the information to the requesting authority attorney conduct rules, or otherwise;
successful enforcement of the related in a timely manner. (iii) Through the performance of an
action under the same criteria described (3) In addition, your submission will engagement required under the
in these rules for awards made in not be considered voluntary if you are securities laws by an independent
connection with Commission actions. under a pre-existing legal or contractual public accountant, if that information
The Commission may seek assistance duty to report the securities violations relates to a violation by the engagement
and confirmation from the authority that are the subject of your original client or the client’s directors, officers or
bringing the related action in making information to the Commission or to any other employees;
this determination. If the Commission of the other authorities described in (iv) Because you were a person with
determines that the criteria for an award paragraph (1) of this section. legal, compliance, audit, supervisory, or
are not satisfied, or if the Commission (b) Original information. (1) In order governance responsibilities for an
is unable to obtain sufficient and for your whistleblower submission to be entity, and the information was
reliable information about the related considered original information, it must communicated to you with the
action to make a conclusive be: reasonable expectation that you would
determination, the Commission will (i) Derived from your independent take steps to cause the entity to respond
deny an award in connection with the knowledge or independent analysis; appropriately to the violation, unless
related action. Additional procedures (ii) Not already known to the the entity did not disclose the
apply to the payment of awards in Commission from any other source, information to the Commission within a
reasonable time or proceeded in bad eligible to be considered for an award, registered securities association,
faith; or then, for purposes of evaluating your registered clearing agency, the
(v) Otherwise from or through an claim to an award under §§ 240.21F–10 Municipal Securities Rulemaking Board,
entity’s legal, compliance, audit or other and 240.21F–11 of this chapter, the and any other organizations that may be
similar functions or processes for Commission will consider that you defined as self-regulatory organizations
identifying, reporting and addressing provided information as of the date of under Section 3(a)(26) of the Exchange
potential non-compliance with law, your original disclosure, report or Act (15 U.S.C. 78c(a)(26)).
unless the entity did not disclose the submission to one of these other
information to the Commission within a authorities or persons. You must § 240.21F–5 Amount of award.
reasonable time or proceeded in bad establish the effective date of any prior (a) If all of the conditions are met for
faith; disclosure, report, or submission, to the a whistleblower award in connection
(vi) By a means or in a manner that Commission’s satisfaction. The with a Commission action or a related
violates applicable Federal or State Commission may seek assistance and action, the Commission will then decide
criminal law; or confirmation from the other authority or the amount of the award pursuant to the
(vii) From any of the individuals person in making this determination. procedures set forth in §§ 240.21F–10
described in paragraphs (b)(4)(i)–(vi) of (c) Information that leads to and 240.21F–11 of this chapter. The
this section. successful enforcement. The amount will be at least 10 percent and
(5) The Commission will consider you Commission will consider that you no more than 30 percent of the
to be an original source of the same provided original information that led to monetary sanctions that the
information that we obtain from another the successful enforcement of a judicial Commission and the other authorities
source if the information satisfies the or administrative action in the following are able to collect. The percentage
definition of original information and circumstances: awarded in connection with a
the other source obtained the (1) If you gave the Commission Commission action may differ from the
information from you or your original information that caused the percentage awarded in connection with
representative. In order to be considered staff to commence an examination, open a related action.
an original source of information that an investigation, reopen an investigation (b) If the Commission makes awards
the Commission receives from Congress, that the Commission had closed, or to to more than one whistleblower in
any other Federal, State, or local inquire concerning new or different connection with the same action or
authority, any self-regulatory conduct as part of a current examination related action, the Commission will
organization, or the Public Company or investigation, and your information determine an individual percentage
Accounting Oversight Board, you must significantly contributed to the success award for each whistleblower, but in no
have voluntarily given such authorities of the action; or event will the total amount awarded to
the information within the meaning of (2) If you gave the Commission all whistleblowers as a group be less
these rules. You must establish your original information about conduct that than 10 percent or greater than 30
status as the original source of was already under examination or percent of the amount the Commission
information to the Commission’s investigation by the Commission, or the other authorities collect.
satisfaction. In determining whether you Congress, any other Federal, State, or
are the original source of information, local authority, any self-regulatory § 240.21F–6 Criteria for determining
the Commission may seek assistance organization, or the Public Company amount of award.
and confirmation, from one of the other Accounting Oversight Board (except in In determining the amount of an
authorities described above, or from cases where you were an original source award, the Commission will take into
another entity (including your of this information as defined in consideration:
employer), in the event that you claim paragraph (b)(4) of this section), and (a) The significance of the information
to be the original source of information your information would not otherwise provided by a whistleblower to the
that an authority or another entity have been obtained and was essential to success of the Commission action or
provided to the Commission. the success of the action. related action;
(6) If the Commission already knows (d) Action means a single captioned (b) The degree of assistance provided
some information about a matter from judicial or administrative proceeding. by the whistleblower and any legal
other sources at the time you make your (e) Monetary sanctions means any representative of the whistleblower in
submission, and you are not an original money, including penalties, the Commission action or related action;
source of that information under disgorgement, and interest, ordered to (c) The programmatic interest of the
paragraph (b)(5) of this section, the be paid and any money deposited into Commission in deterring violations of
Commission will consider you an a disgorgement fund or other fund the securities laws by making awards to
original source of any information you pursuant to Section 308(b) of the whistleblowers who provide
provide that is derived from your Sarbanes-Oxley Act of 2002, 15 U.S.C. information that leads to the successful
independent knowledge or analysis and 7246(b), as a result of a Commission enforcement of such laws; and
that materially adds to the information action or a related action. (d) Whether the award otherwise
that the Commission already possesses. (f) Appropriate regulatory agency enhances the Commission’s ability to
(7) If you provide information to means the Commission, the Comptroller enforce the Federal securities laws,
Congress, any other Federal, State, or of the Currency, the Board of Governors protect investors, and encourage the
local authority, any self-regulatory of the Federal Reserve System, the submission of high quality information
organization, the Public Company Federal Deposit Insurance Corporation, from whistleblowers.
Accounting Oversight Board, or to any the Office of Thrift Supervision, and any
of the persons described in paragraphs other agencies that may be defined as § 240.21F–7 Confidentiality of
(b)(4)(iv) and (v) of this section, and appropriate regulatory agencies under submissions.
you, within 90 days, submit the same Section 3(a)(34) of the Exchange Act (15 (a) The law requires that the
information to the Commission U.S.C. 78c(a)(34)). Commission not disclose information
pursuant to § 240.21F–9 of this chapter, (g) Self-regulatory organization means that could reasonably be expected to
as you must do in order for you to be any national securities exchange, reveal the identity of a whistleblower,
except that the Commission may need to follow them in order to be (5) You acquired the information you
disclose such information in the eligible for an award, except that the gave the Commission from any of the
following circumstances: Commission may, in its sole discretion, individuals described in paragraphs
(1) When disclosure is required to a waive any of these procedures based (c)(1), (2), (3), or (4) of this section;
defendant or respondent in connection upon a showing of extraordinary (6) You are the spouse, parent, child,
with a Federal court or administrative circumstances. or sibling of a member or employee of
action that the Commission files or in (b) In addition to any forms required the Commission, or you reside in the
another public action or proceeding that by these rules, the Commission may also same household as a member or
is filed by an authority to which we require that you provide certain employee of the Commission; or
provide the information, as described additional information. If requested by (7) In your whistleblower submission,
below; Commission staff, you may be required your other dealings with the
(2) When the Commission determines to: Commission, or your dealings with
that it is necessary to accomplish the (1) Provide explanations and other another authority in connection with a
purposes of the Exchange Act and to assistance in order that the staff may related action, you knowingly and
protect investors, it may provide your evaluate and use the information that willfully make any false, fictitious, or
information to the Department of you submitted; fraudulent statement or representation,
Justice, an appropriate regulatory (2) Provide all additional information or use any false writing or document,
agency, a self regulatory organization, a in your possession that is related to the knowing that it contains any false,
state attorney general in connection subject matter of your submission in a fictitious, or fraudulent statement or
with a criminal investigation, any complete and truthful manner, through entry.
appropriate state regulatory authority, follow-up meetings, or in other forms
the Public Company Accounting that our staff may agree to; § 240.21F–9 Procedures for submitting
Oversight Board, or foreign securities original information.
(3) Provide testimony or other
and law enforcement authorities. Each evidence acceptable to the staff relating The submission of original
of these entities other than foreign to whether you are eligible, or otherwise information to the Commission is a two-
securities and law enforcement satisfy any of the conditions, for an step process:
authorities is subject to the award; and (a) First, you will need to submit your
confidentiality requirements set forth in (4) Enter into a confidentiality information to us. You may submit your
Section 21F(h) of the Exchange Act, 15 agreement in a form acceptable to the information:
U.S.C. 78u–6(h). The Commission may Whistleblower Office, including a (1) Online, through the Commission’s
determine what assurances of provision that a violation may lead to Electronic Data Collection System, or;
confidentiality it deems appropriate in your ineligibility to receive an award. (2) By completing Form TCR (Tip,
providing such information to foreign (c) You are not eligible to be Complaint or Referral) (referenced in
securities and law enforcement considered for an award if you do not § 249.1800 of this chapter) and mailing
authorities. satisfy the requirements of paragraphs or faxing the form to the SEC
(3) The Commission may make (a) and (b) of this section. In addition, Whistleblower Office, 100 F Street, NE.,
disclosures in accordance with the you are not eligible if: Washington, DC 20549–XXXX, Fax
Privacy Act of 1974 (5 U.S.C. 552a). (1) You are, or were at the time you (202) XXX–XXXX.
(b) You may submit information to the (b) Second, in addition to submitting
acquired original information, a
Commission anonymously. If you do so, your information pursuant to paragraph
member, officer, or employee of the
however, you must also do the (a) of this section, you will also need to
Department of Justice, an appropriate
following: complete and provide to the
regulatory agency, a self-regulatory
(1) You must have an attorney Commission a Form WB–DEC,
organization, the Public Company
represent you in connection with both Declaration Concerning Original
Accounting Oversight Board, or any law
your submission of information and Information Provided Pursuant to § 21F
enforcement organization;
your claim for an award, and your of the Securities Exchange Act of 1934,
(2) You are, or were at the time you
attorney’s name and contact information signed under penalty of perjury. Your
acquired original information, a
must be provided to the Commission at Form WB–DEC must be submitted as
member, officer, or employee of a
the time you submit your information; follows:
(2) You and your attorney must follow foreign government, any political
subdivision, department, agency, or (1) If you submit your information
the procedures set forth in § 240.21F–9
instrumentality of a foreign government, online, your FORM WB–DEC
of this chapter for submitting original
or any other foreign financial regulatory (referenced in § 249.1801 of this
information anonymously; and
(3) Before the Commission will pay authority as that term is defined in chapter) must be submitted either:
any award to you, you must disclose Section 3(a)(52) of the Exchange Act (i) Electronically (in accordance with
your identity and your identity must be (15 U.S.C. 78c(a)(52)); the instructions set forth on the
verified as set forth in § 240.21F–10 of (3) You are convicted of a criminal Commission’s Web site); or
this chapter. violation that is related to the (ii) By mailing or faxing the signed
Commission action or to a related action form to the SEC Whistleblower Office.
§ 240.21F–8 Eligibility. (as defined in § 240.21F–4 of this Your Form WB–DEC (referenced in
(a) To be eligible for a whistleblower chapter) for which you otherwise could § 249.1801 of this chapter) must be
award, you must give the Commission receive an award; received within thirty (30) days of the
information in the form and manner that (4) You obtained the information that Commission’s receipt of your
the Commission requires. The you gave the Commission through an information in the Electronic Data
procedures for submitting information audit of a company’s financial Collection System.
and making a claim for an award are statements, and making a whistleblower (2) If you submit a Form TCR
described in § 240.21F–9 to § 240.21F– submission would be contrary to the (referenced in § 249.1800 of this
11 of this chapter. You should read requirements of Section 10A of the chapter), your Form WB–DEC
these procedures carefully because you Exchange Act (15 U.S,C. 78j–1)); or (referenced in § 249.1801 of this
chapter) must be submitted by mail or days of the deposit of monetary (1) Before determining whether to
fax at the same time as the Form TCR. sanctions exceeding $1,000,000 into a contest a Preliminary Determination,
(c) Notwithstanding paragraph (b) of disgorgement or other fund pursuant to you may:
this section, if you submitted your Section 308(b) of the Sarbanes-Oxley (i) Within thirty (30) days of the date
original information to the Commission Act of 2002. A claimant will have sixty of the Preliminary Determination,
anonymously, then you must provide (60) days from the date of the Notice of request that the Whistleblower Office
your attorney with the completed and Covered Action to file a claim for an make available for your review the
signed Form WB–DEC (referenced in award based on that action, or the claim materials that formed the basis of the
§ 249.1801 of this chapter). In addition, will be barred. Claims Review Staff’s Preliminary
your attorney must also provide the (b) To file a claim for a whistleblower Determination. The Whistleblower
Commission with a separate Form award, you must file Form WB–APP, Office will make these materials
WB–DEC certifying that he or she has Application for Award for Original available to you subject to any
verified your identity, has reviewed the Information Provided Pursuant to § 21F redactions necessary to comply with
form for completeness and accuracy, of the Securities Exchange Act of 1934 any statutory restrictions or protect the
and will retain the signed original of (referenced in § 249.1802 of this Commission’s law enforcement and
your Form WB–DEC in his or her chapter). You must sign this form as the regulatory functions. The Whistleblower
records. Such certification must be claimant and submit it to the Office may also require you to sign a
submitted in the manner described in Whistleblower Office by mail or fax. All confidentiality agreement, as set forth in
paragraph (b) of this section. claim forms, including any attachments, § 240.21F–(8)(b) of this chapter, prior to
(d) If you submitted original must be received by the Whistleblower providing these materials.
information in writing to the Office within sixty (60) calendar days of (ii) Within thirty (30) calendar days of
Commission after July 21, 2010 (the date the date of the Notice of Covered Action the date of the Preliminary
of enactment of the Dodd-Frank Wall in order to be considered for an award. Determination, request a meeting with
Street Reform and Consumer Protection (c) If you provided your original the Whistleblower Office; however,
Act) but before the effective date of information to the Commission such meetings are not required and the
these rules, you will be eligible for an anonymously, you must disclose your office may in its sole discretion decline
award only if: identity on the Form WB–APP the request.
(1) In the event that you provided the (referenced in § 249.1802 of this (2) If you decide to contest the
original information to the Commission chapter), and your identity must be Preliminary Determination, you must
in a format or manner other than that verified in a form and manner that is submit your written response and
described in paragraph (a) of this acceptable to the Whistleblower Office supporting materials within thirty (30)
section, you either submit your prior to the payment of any award. calendar days of the date of the
information online through the (d) Once the time for filing any Preliminary Determination, or if a
Commission’s Electronic Data appeals of the Commission’s judicial or request to review materials is made
Collection System or complete Form administrative action has expired, or pursuant to paragraph (e)(1) of this
TCR (referenced in § 249.1800 of this where an appeal has been filed, after all section, then within thirty (30) calendar
chapter) within one hundred twenty appeals in the action have been days of the Whistleblower Office
(120) days of the effective date of these concluded, the Whistleblower Office making those materials available for
rules and otherwise follow the and designated staff (‘‘Claims Review your review.
Staff’’) will evaluate all timely (f) If you fail to submit a timely
procedures set forth in paragraph (b) of
whistleblower award claims submitted response pursuant to paragraph (e) of
this section; or
(2) In the event that you provided the on Form WB–APP (referenced in this section, then the Preliminary
original information to the Commission § 249.1802 of this chapter) in Determination will become the Final
in the format or manner described in accordance with the criteria set forth in Order of the Commission (except where
paragraph (a) of this section you submit these rules. In connection with this the Preliminary Determination
a Form WB–DEC (referenced in process, the Whistleblower Office may recommended an award, in which case
§ 249.1801 of this chapter) within one require that you provide additional the Preliminary Determination will be
hundred twenty (120) days of the information relating to your eligibility deemed a Proposed Final Determination
effective date of this section in the for an award or satisfaction of any of the for purposes of paragraph (h) of this
conditions for an award, as set forth in section). Your failure to submit a timely
manner set forth in paragraph (b) of this
§ 240.21F–(8)(b) of this chapter. response contesting a Preliminary
section.
Following that evaluation, the Determination will constitute a failure
§ 240.21F–10 Procedures for making a Whistleblower Office will send you a to exhaust administrative remedies, and
claim for a whistleblower award in SEC Preliminary Determination setting forth you will be prohibited from pursuing an
actions that result in monetary sanctions in a preliminary assessment as to whether appeal pursuant to § 240.21F–12 of this
excess of $1,000,000. the claim should be allowed or denied chapter.
(a) Whenever a Commission action and, if allowed, setting forth the (g) If you submit a timely response
results in monetary sanctions totaling proposed award percentage amount. pursuant to paragraph (e) of this section,
more than $1,000,000, the (e) You may contest the Preliminary then the Claims Review Staff will
Whistleblower Office will cause to be Determination made by the Claims consider the issues and grounds
published on the Commission’s Web Review Staff by submitting a written advanced in your response, along with
site a ‘‘Notice of Covered Action.’’ Such response to the Whistleblower Office any supporting documentation you
Notice will be published subsequent to setting forth the grounds for your provided, and will make its Proposed
the entry of a final judgment or order objection to either the denial of an Final Determination.
that alone, or collectively with other award or the proposed amount of an (h) The Whistleblower Office will
judgments or orders previously entered award. You may also include then notify the Commission of each
in the Commission action, exceeds documentation or other evidentiary Proposed Final Determination. Within
$1,000,000; or, in the absence of such support for the grounds advanced in thirty 30 days thereafter, any
judgment or order, within thirty (30) your response. Commissioner may request that the
Proposed Final Determination be and confirmation from the other agency supporting materials within thirty (30)
reviewed by the Commission. If no in making this determination. calendar days of the date of the
Commissioner requests such a review (d) Once the time for filing any Preliminary Determination, or if a
within the 30-day period, then the appeals of the final judgment or order in request to review materials is made
Proposed Final Determination will a related action has expired, or if an pursuant to paragraph (e)(1)(i) of this
become the Final Order of the appeal has been filed, after all appeals section, then within thirty (30) calendar
Commission. In the event a in the action have been concluded, the days of the Whistleblower Office
Commissioner requests a review, the Claims Review Staff will evaluate all making those materials available for
Commission will review the record that timely whistleblower award claims your review.
the staff relied upon in making its submitted on Form WB–APP (f) If you fail to submit a timely
determinations, including your previous (referenced in § 249.1802 of this response pursuant to paragraph (e) of
submissions to the Whistleblower chapter) in connection with the related this section, then the Preliminary
Office, and issue its Final Order. action. The evaluation will be Determination will become the Final
(i) The Office of the Secretary of the undertaken pursuant to the criteria set Order of the Commission (except where
SEC will provide you with the Final forth in these rules. In connection with the Preliminary Determination
Order of the Commission. this process, the Whistleblower Office recommended an award, in which case
may require that you provide additional the Preliminary Determination will be
§ 240.21F–11 Procedures for determining information relating to your eligibility deemed a Proposed Final Determination
awards based upon a related action. for an award or satisfaction of any of the for purposes of paragraph (h) of this
(a) If you are eligible to receive an conditions for an award, as set forth in section). Your failure to submit a timely
award following a Commission action § 240.21F–(8)(b) of this chapter. response contesting a Preliminary
that results in monetary sanctions Following this evaluation, the Determination will constitute a failure
totaling more than $1,000,000, you also Whistleblower Office will send you a to exhaust administrative remedies, and
may be eligible to receive an award Preliminary Determination setting forth you will be prohibited from pursuing an
based on the monetary sanctions that a preliminary assessment as to whether appeal pursuant to § 240.21F–12 of this
are collected from a related action (as the claim should be allowed or denied chapter.
defined in § 240.21F–3 of this chapter). and, if allowed, setting forth the (g) If you submit a timely response
(b) You must also use Form WB–APP proposed award percentage amount. pursuant to paragraph (e) of this section,
(referenced in § 249.1802 of this (e) You may contest the Preliminary then the Claims Review Staff will
chapter) to submit a claim for an award Determination made by the Claims consider the issues and grounds that
in a related action. You must sign this Review Staff by submitting a written you advanced in your response, along
form as the claimant and submit it to the response to the Whistleblower Office with any supporting documentation you
Whistleblower Office by mail or fax as setting forth the grounds for your provided, and will make its Proposed
follows: objection to either the denial of an Final Determination.
award or the proposed amount of an (h) The Whistleblower Office will
(1) If a final order imposing monetary
award. You may also include then notify the Commission of each
sanctions has been entered in a related
documentation or other evidentiary Proposed Final Determination. Within
action at the time you submit your claim
support for the grounds advanced in thirty (30) days thereafter, any
for an award in connection with a
your response. Commissioner may request that the
Commission action, you must submit (1) Before determining whether to Proposed Final Determination be
your claim for an award in that related contest a Preliminary Determination, reviewed by the Commission. If no
action on the same Form WB–APP you may: Commissioner requests such a review
(referenced in § 249.1802 of this (i) Within thirty (30) days of the date within the 30-day period, then the
chapter) that you use for the of the Preliminary Determination, Proposed Final Determination will
Commission action. request that the Whistleblower Office become the Final Order of the
(2) If a final order imposing monetary make available for your review the Commission. In the event a
sanctions in a related action has not materials that formed the basis of the Commissioner requests a review, the
been entered at the time you submit Claims Review Staff’s Preliminary Commission will review the record that
your claim for an award in connection Determination. The Whistleblower the staff relied upon in making its
with a Commission action, you must Office will make these materials determinations, including your previous
submit your claim on Form WB–APP available to you subject to any submissions to the Whistleblower
(referenced in § 249.1802 of this redactions necessary to comply with Office, and issue its Final Order.
chapter) within sixty (60) days of the any statutory restrictions or protect the (i) The Office of the Secretary of the
issuance of a final order imposing Commission’s law enforcement and SEC will provide you with the Final
sanctions in the related action. regulatory functions. The Whistleblower Order of the Commission.
(c) The Whistleblower Office may Office may also require you to sign a
request additional information from you confidentiality agreement, as set forth in § 240.21F–12 Appeals.
in connection with your claim for an § 240.21F–(8)(b) of this chapter, prior to (a) Section 21F of the Exchange Act,
award in a related action to demonstrate providing these materials. 15 U.S.C. 78u–6, commits
that you directly (or through the (ii) Within thirty (30) calendar days of determinations of whether, to whom,
Commission) voluntarily provided the the date of the Preliminary and in what amount to make awards to
governmental agency, regulatory Determination, request a meeting with the Commission’s discretion. A
authority or self-regulatory organization the Whistleblower Office; however, determination of whether or to whom to
the same original information that led to such meetings are not required and the make an award may be appealed within
the Commission’s successful covered office may in its sole discretion decline 30 days after the Commission issues its
action, and that this information led to the request. final decision to the United States Court
the successful enforcement of the (2) If you decide to contest the of Appeals for the District of Columbia
related action. The Whistleblower Office Preliminary Determination, you must Circuit, or to the circuit where the
may, in its discretion, seek assistance submit your written response and aggrieved person resides or has his
principal place of business. Where the payment shall be paid when amounts calculation of the amounts collected for
Commission followed the statutory become available in the Fund, as purposes of making payments.
mandate that it award not less than 10 follows:
percent and not more than 30 percent of (1) Where multiple whistleblowers are § 240.21F–16 Staff communications with
whistleblowers.
the monetary sanctions collected in the owed payments from the Fund based on
Commission or related action, the awards that do not arise from the same (a) No person may take any action to
Commission’s determination regarding Notice of Covered Action (or related impede a whistleblower from
the amount of an award (including the action), priority in making these communicating directly with the
allocation of an award as between payments will be determined based Commission staff about a potential
multiple whistleblowers) is not upon the date that the collections for securities law violation, including
appealable. which the whistleblowers are owed enforcing, or threatening to enforce, a
(b) The record on appeal shall consist payments occurred. If two or more of confidentiality agreement (other than
of the Whistleblower Office’s these collections occur on the same agreements dealing with information
Preliminary Determination, any date, those whistleblowers owed covered by § 240.21F–4(b)(4)(i) and (ii)
materials submitted by the claimant or payments based on these collections of this chapter related to the legal
claimants (including the claimant’s will be paid on a pro rata basis until representation of a client) with respect
Form TCR (referenced in § 249.1800 of sufficient amounts become available in to such communications.
this chapter) or any electronic the Fund to pay their entire payments. (b) If you are a whistleblower who is
submission made by the whistleblower, (2) Where multiple whistleblowers are a director, officer, member, agent, or
the Forms WB–DEC (referenced in owed payments from the Fund based on employee of an entity that has counsel,
§ 249.1801 of this chapter) and WB–APP awards that arise from the same Notice and you have initiated communication
(referenced in § 249.1802 of this of Covered Action (or related action), with the Commission relating to a
chapter), and materials filed in response they will share the same payment potential securities law violation, the
to the Preliminary Determination), and priority and will be paid on a pro rata staff is authorized to communicate
any other materials that supported the basis until sufficient amounts become directly with you regarding the subject
Final Order of the Commission, with the available in the Fund to pay their entire of your communication without seeking
exception of internal deliberative payments. the consent of the entity’s counsel.
process materials that are prepared PART 249—FORMS, SECURITIES
§ 240.21F–14 No amnesty.
exclusively to assist the Commission in EXCHANGE ACT OF 1934
deciding the claim (including the staff’s The Securities Whistleblower
Draft Final Determination in the event Incentives and Protection provisions do 3. The authority citation for Part 249
that the Commissioners reviewed the not provide amnesty to individuals who is amended by adding the following
claim and issued the Final Order). provide information to the Commission. citations in numerical order to read as
The fact that you may become a follows:
§ 240.21F–13 Procedures applicable to the whistleblower and assist in Commission
payment of awards. investigations and enforcement actions Authority: 15 U.S.C. 78a, et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
(a) Any award made pursuant to these does not preclude the Commission from
noted.
rules will be paid from the Securities bringing an action against you based
and Exchange Commission Investor upon your own conduct in connection * * * * *
Section 249.1800 is also issued under Pub.
Protection Fund (the ‘‘Fund’’). with violations of the Federal securities
L. 111.203, § 922(a), 124 Stat 1841 (2010).
(b) A recipient of a whistleblower laws. If such an action is determined to Section 249.1801 is also issued under Pub.
award is entitled to payment on the be appropriate, however, the L. 111.203, § 922(a), 124 Stat 1841 (2010).
award only to the extent that a monetary Commission will take your cooperation Section 249.1802 is also issued under Pub.
sanction is collected in the Commission into consideration in accordance with L. 111.203, § 922(a), 124 Stat 1841 (2010).
action or in a related action upon which its Policy Statement Concerning * * * * *
the award is based. Cooperation by Individuals in [SEC] 4. Add Subpart S to read as follows:
(c) Payment of a whistleblower award Investigations and Related Enforcement
for a monetary sanction collected in a Actions (17 CFR 202.12). Subpart S—Whistleblower Forms
Commission action or related action Sec.
shall be made following the later of: § 240.21F–15 Awards to whistleblowers 249.1800 Form TCR, Tip, Complaint or
(1) The date on which the monetary who engage in culpable conduct. Referral
sanction is collected; or In determining whether the required 249.1801 Form WB–DEC, Declaration of
(2) The completion of the appeals $1,000,000 threshold has been satisfied Original Information Submitted Pursuant
process for all whistleblower award (this threshold is further explained in to Section 21F of the Securities Exchange
claims arising from: § 240.21F–10 of this chapter) for Act of 1934
purposes of making any award, the 249.1802 Form WB–APP, Application for
(i) The Notice of Covered Action, in
Award for Original Information
the case of any payment of an award for Commission will not take into account
Submitted Pursuant to Section 21F of the
a monetary sanction collected in a any monetary sanctions that the Securities Exchange Act of 1934.
Commission action; or whistleblower is ordered to pay, or that
(ii) The related action, in the case of are ordered against any entity whose § 249.1800 Form TCR, Tip, Complaint or
any payment of an award for a monetary liability is based substantially on Referral.
sanction collected in a related action. conduct that the whistleblower directed, This form may be used by anyone
(d) If there are insufficient amounts planned, or initiated. Similarly, if the wishing to provide the SEC with
available in the Fund to pay the entire Commission determines that a information concerning a violation of
amount of an award payment within a whistleblower is eligible for an award, the Federal securities laws. The
reasonable period of time from the time any amounts that the whistleblower or information provided may be disclosed
for payment specified by paragraph (c) such an entity pay in sanctions as a to Federal, state, local, or foreign
of this section, then subject to the result of the action or related actions agencies responsible for investigating,
following terms, the balance of the will not be included within the prosecuting, enforcing, or implementing
the Federal securities laws, rules, or disclosed to Federal, state, local, or information provided will enable the
regulations consistent with the foreign agencies responsible for Commission to determine your
confidentiality requirements set forth in investigating, prosecuting, enforcing, or eligibility for payment of an award
Section 21F(h)(2) of the Exchange Act, implementing the Federal securities pursuant to Section 21F of the
15 U.S.C. 78u–6(h)(2), and § 240.21F–7 laws, rules, or regulations consistent Securities Exchange Act of 1934, 15
of this chapter. with the confidentiality requirements U.S.C. 78u–6. This information may be
set forth in Section 21F(h)(2) of the disclosed to Federal, state, local, or
§ 249.1801 Form WB–DEC, Declaration of Exchange Act, 15 U.S.C. 78u–6(h)(2), foreign agencies responsible for
Original Information Submitted Pursuant to
Section 21F of the Securities Exchange Act
and § 240.21F–7 of this chapter. investigating, prosecuting, enforcing, or
of 1934. Furnishing the information is voluntary, implementing the Federal securities
but a decision not to do so may result laws, rules, or regulations consistent
This form must be used by persons in you not being eligible for award with the confidentiality requirements
who provide the SEC with information consideration. set forth in Section 21F(h)(2) of the
concerning a violation of the Federal Exchange Act, 15 U.S.C. 78u–6(h)(2)
securities laws and who wish to be § 249.1802 Form WB–APP, Application for and § 240.21F–7 of this chapter.
considered for a whistleblower award Award for Original Information Submitted
Pursuant to Section 21F of the Securities
Furnishing the information is voluntary,
pursuant to the SEC’s whistleblower but a decision not to do so may result
Exchange Act of 1934.
program. The information provided will in you not being eligible for award
enable the Commission to determine This form must be used by persons consideration.
your eligibility for payment of an award making a claim for a whistleblower
pursuant to Section 21F of the award in connection with information Note: The following Forms will not appear
Securities Exchange Act of 1934, 15 provided to the SEC or to another in the Code of Federal Regulations.
U.S.C. 78u–6. This information may be agency in a related action. The BILLING CODE 8011–01–P
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By the Commission.
Dated: November 3, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–28186 Filed 11–16–10; 8:45 am]
BILLING CODE 8011–01–C
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Federal Register Whistle Blower Rule SEC 4-27-11

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Federal Register Whistle Blower Rule SEC 4-27-11

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Wednesday,

November 17, 2010

Source of employee’s knowledge Does it qualify as ‘‘independent knowledge’’?

Finally. in order to prevent evasion of knowledge learned from publicly-

to the Commission about a matter that is already

6(h)(2)(D)(i)((II)). Because we do not believe that making awards to whistleblowers that

that will be siphoned off by the lawyer significantly

Rules, if adopted, would affect significant economic impact on a § 240.21F–1 General.

Dated: November 3, 2010.

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