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Case: 16-2881
Document: 003112445742
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Date Filed: 10/26/2016
No. 16-2881
____________________________________________________________________________________
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________________________________________________________________________________
DAVID DANON,
Plaintiff-Appellant,
v.
VANGUARD GROUP, INC.,
Defendant-Appellee.
____________________________________________________________________________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
____________________________________________________________________________________
BRIEF OF THE SECURITIES AND EXCHANGE COMMISSION,
AMICUS CURIAE IN SUPPORT OF THE APPELLANT
____________________________________________________________________________________
SANKET J. BULSARA
Deputy General Counsel
MICHAEL A. CONLEY
Solicitor
THOMAS J. KARR
Assistant General Counsel
STEPHEN G. YODER
Senior Litigation Counsel
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-9040
(202) 551-4532 (Yoder)
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ....................................................................................iv
STATEMENT OF THE ISSUE ................................................................................. 1
INTEREST OF THE SECURITIES AND EXCHANGE COMMISSION
AND SUMMARY OF ITS POSITION .......................................................... 2
STATEMENT OF THE CASE .................................................................................. 4
A.
The securities laws recognize that internal company reporting by
employees and others is important for deterring, detecting, and
stopping unlawful conduct that may harm investors. ...................................... 4
B.
By providing new incentives and protections for individuals to
engage in whistleblowing activity, the Dodd-Frank whistleblower
program enhances the existing securities-law enforcement scheme,
including internal company reporting. ............................................................ 8
1.
The Commission carefully calibrated the rules implementing
the monetary award component of the whistleblower program
to ensure that individuals were not disincentivized from first
reporting internally. ............................................................................... 9
2.
Using its broad rulemaking authority, the Commission
adopted a rule clarifying that employment retaliation is
prohibited against individuals who engage in any of the
whistleblowing activity described in Section
21F(h)(1)(A)(iii)—including making internal reports at public
companies of securities fraud violations. ............................................13
STANDARD OF REVIEW .....................................................................................17
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ARGUMENT ...........................................................................................................18
I.
Section 21F does not unambiguously demonstrate a Congressional
intent to restrict employment anti-retaliation protection to only those
individuals who provide the Commission with information relating
to a violation of the securities laws. ..............................................................18
II.
In light of the ambiguity here, the Commission adopted a reasonable
interpretation in Rule 21F-2(b)(1) that warrants judicial deference. ............ 27
III.
Failure to defer to Rule 21F-2(b)(1) could arbitrarily and irrationally
deny the employment retaliation protections afforded by DoddFrank to individuals who, before coming to the Commission, first
report potential securities law violations to the U.S. Department of
Justice or Self-Regulatory Organizations such as FINRA. ...........................31
CONCLUSION ........................................................................................................37
COMBINED CERTIFICATIONS
CERTIFICATE OF SERVICE
STATUTORY, REGULATORY, AND DECISIONAL ADDENDUM
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TABLE OF AUTHORITIES
CASES
Page
Asadi v. G.E. Energy (U.S.A.), L.L.C., 720 F.3d 620
(5th Cir. 2013) ..................................................................... 22, 24, 25, passim
Auer v. Robbins, 519 U.S. 452 (1997) .....................................................................29
Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015) ....................................27
Bussing v. COR Clearing, LLC, 20 F. Supp. 3d 719
(D. Neb. 2014) ................................................................................... 27-28, 35
Cheruku v. Att’y Gen., 662 F.3d 198 (3d Cir. 2011) ..............................................17
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837 (1984)...................................................................................1, 17
Connolly v. Remkes, No. 5:14-CV-01344, 2014 WL 5473144
(N.D. Cal. Oct. 28, 2014) ..............................................................................27
Davies v. Broadcom Corp., 130 F. Supp. 3d 1343
(C.D. Cal. 2015).............................................................................................28
Dressler v. Lime Energy, No. 3:14-cv-07060, 2015 WL
4773326 (D.N.J. Aug. 13, 2015) ...................................................................27
Duke v. Prestige Cruises Int’l, Inc., No. 14-23017-CIV, 2015
WL 4886088 (S.D. Fla. Aug. 14, 2015), appeal docketed,
No. 16-15426 (11th Cir. Aug. 11, 2016) .......................................................28
Englehart v. Career Educ. Corp., No. 8:14-cv-444,
2014 WL 2619501 (M.D. Fla. May 12, 2014) ..............................................28
Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208 (2009) .......................................18
Feltoon v. MG2 Corp., No. 2:15-cv-02032, Dkt. 22, slip op.
(W.D. Wash. Sept. 30, 2016).........................................................................27
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CASES (continued)
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Date Filed: 10/26/2016
Page
Free Enter. Fund v. Pub. Co. Accounting Oversight Bd.,
561 U.S. 477 (2010).........................................................................................6
Hagans v. Comm’r of Social Sec., 694 F.3d 287 (3d Cir. 2012) .......................17, 18
Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254
(5th Cir. 2014) (per curiam), reh’g en banc denied,
596 Fed. App’x 340 (5th Cir. 2015) ..............................................................26
Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176
(3d Cir. 2001).................................................................................................23
Jones v. SouthPeak Interactive Corp., 777 F.3d 658
(4th Cir. 2015) ...............................................................................................26
Lamb v. Rockwell Automation Inc., No. 15-cv-1415, 2016 WL
4273210 (E.D. Wis. Aug. 12, 2016) ..............................................................28
Lawson v. Suwannee Fruit & S.S. Co., 336 U.S. 198 (1949) ............................21, 28
Liu v. Siemens, A.G., 978 F. Supp. 2d 325 (S.D.N.Y. 2013),
aff’d on other grounds, 763 F.3d 175 (2d Cir. 2014) ....................................23
Lutzeier v. Citigroup, Inc., No. 14-cv-00183, 2015 WL
7306443 (E.D. Mo. Nov. 19, 2015) ...............................................................27
Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238 (2011) .....................................27
Nat’l Ass’n of Home Builders v. Defenders of Wildlife,
551 U.S. 644 (2007).......................................................................................17
Nw. Austin Mun. Util. Dist. No. One v. Holder,
557 U.S. 193 (2009)................................................................................. 27-28
Peters v. LifeLock Inc., No. 2:14-cv-00576, 2014 WL 12544495
(D. Ariz. Sept. 19, 2014) ...............................................................................27
Philko Aviation, Inc. v. Shacket, 462 U.S. 406 (1985) ............................................28
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CASES (continued)
Page
Puffenbarger v. Engility Corp., 151 F. Supp. 3d 651
(E.D. Va. 2015) ..............................................................................................28
Somers v. Dig. Realty Trust, Inc., 119 F. Supp. 3d 1088
(N.D. Cal. 2015), appeal docketed, No. 15-17352
(9th Cir. Dec. 1, 2015) (to be argued Nov. 16, 2016) ...................................27
Sullivan v. Everhart, 494 U.S. 83 (1990).................................................................18
United States v. Mead Corp., 533 U.S. 218 (2001) .................................................17
United States v. Wilson, 503 U.S. 329 (1992) .........................................................35
Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427 (2014) ......................................21
Verble v. Morgan Stanley Smith Barney LLC, 148 F. Supp. 3d
644 (E.D. Tenn. 2015), appeal docketed, No. 15-6397
(6th Cir. Dec. 17, 2015) (argued Sept. 14, 2016) .........................................28
Wadler v. Bio-Rad Labs., Inc., 141 F. Supp. 3d 1005
(N.D. Cal. 2015) ............................................................................................27
West v. Sullivan, 973 F.2d 179 (3d Cir. 1992) .........................................................17
STATUTES
Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, 124 Stat. 1376 (2010) (“Dodd-Frank”)
Dodd-Frank .............................................................................. 7, 8, 19, passim
Dodd-Frank §748, 124 Stat. at 1743-44 ........................................................20
Dodd-Frank §922, 124 Stat. at 1841-49 .......................................................... 2
Dodd-Frank §924(a), 124 Stat. at 1850 ........................................................... 2
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STATUTES (continued)
Page
Sarbanes-Oxley Act of 2002, Pub. L. No. 107, 116 Stat. 745
(“Sarbanes-Oxley”)
Sarbanes-Oxley ........................................................................ 6, 7, 14, passim
Sarbanes-Oxley §301, 116 Stat. at 775-77 ...................................................... 7
Sarbanes-Oxley §307, 15 U.S.C. §7245 ............................. 6-7, 15, 19, passim
Sarbanes-Oxley §404, 15 U.S.C. §7262 .......................................................... 6
Sarbanes-Oxley §806, 18 U.S.C. §1514A ................................ 7-8, 16, passim
Securities Exchange Act of 1934, 15 U.S.C. 78a, et seq.
Section 10A, 15 U.S.C. §78j-1 ........................................................................ 6
Section 10A(b), 15 U.S.C. §78j-1(b) ........................................................... 5-6
Section 10A(m), 15 U.S.C. §78j-1(m) ....................................................14, 15
Section 10A(m)(4), 15 U.S.C. §78j-1(m)(4) .............................................7, 19
Section 12, 15 U.S.C. §78l .............................................................................. 5
Section 15(d), 15 U.S.C. §78o ......................................................................... 5
Section 21F, 15 U.S.C. §78u-6 .................................................. 2, 4, 8, passim
Section 21F(a), 15 U.S.C. §78u-6(a) .........................................................9, 10
Section 21F(a)(6), 15 U.S.C. §78u-6(a)(6)................................ 18, 20, passim
Section 21F(b), 15 U.S.C. §78u-6(b) .................................... 9, 10, 30, passim
Section 21F(c), 15 U.S.C. §78u-6(c) ..................................... 9, 10, 30, passim
Section 21F(d)(2)(A), 15 U.S.C. §78u-6(d)(2)(A) ........................................24
Section 21F(h)(1), 15 U.S.C. §78u-6(h)(1) ........................... 1, 13, 15, passim
Section 21F(h)(1)(A), 15 U.S.C. §78u-6(h)(1)(A) ........... 1, 13-14, 15, passim
Section 21F(h)(1)(A)(i),
15 U.S.C. §78u-6(h)(1)(A)(i) .................................... 13, 15, 19, passim
Section 21F(h)(1)(A)(ii),
15 U.S.C. §78u-6(h)(1)(A)(ii) ................................... 13, 15, 19, passim
Section 21F(h)(1)(A)(iii),
15 U.S.C. §78u-6(h)(1)(A)(iii) .................................. 13, 14, 16, passim
Section 21F(h)(1)(B), 15 U.S.C. §78u-6(h)(1)(B) ..................................14, 23
Section 21F(h)(1)(B)(i),
15 U.S.C. §78u-6(h)(1)(B)(i) ..............................................................14
Section 21F(h)(1)(C), 15 U.S.C. §78u-6(h)(1)(C) ........................................14
Section 21F(h)(2), 15 U.S.C. §78u-6(h)(2) ...................................................24
Section 21F(j), 15 U.S.C. §78u-6(j) ..........................................................9, 14
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STATUTES (continued)
Page
Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67,
§301, 109 Stat. 737, 762-64............................................................................. 5
Section 23(h)(1) of the Commodity Exchange Act,
7 U.S.C. §26(h)(1) .........................................................................................20
18 U.S.C. §1341 .........................................................................................................8
18 U.S.C. §1343 .........................................................................................................8
18 U.S.C. §1344 .........................................................................................................8
18 U.S.C. §1348 .........................................................................................................8
18 U.S.C. §1513(e) ............................................................................................14, 19
18 U.S.C. §1514A(a)..................................................................................................8
18 U.S.C. §1514A(a)(1)(A) ...............................................................................33, 34
18 U.S.C. §1514A(a)(1)(C) .......................................................................................8
18 U.S.C. §1514A(c)(1) ...........................................................................................26
18 U.S.C. §1514A(c)(2)(C) .....................................................................................26
RULES
Rules under the Securities Exchange Act of 1934, 17 C.F.R. Part 240
Rule 10A-3(b)(3), 17 C.F.R. §240.10A-3(b)(3) .............................................. 7
Rule 17a-5(h)(2), 17 C.F.R. §240.17a-5(h)(2) ................................................ 8
Rule 21F-2(b)(1), 17 C.F.R. §240.21F-2(b)(1) ..................... 3, 14, 16, passim
Rule 21F-2(b)(1)(ii), 17 C.F.R. §240.21F-2(b)(1)(ii) ...................................15
Rule 21F-2(b)(2), 17 C.F.R. §240.21F-2(b)(2) .............................................14
Rule 21F-4(b)(4), 17 C.F.R. §240.21F-4(b)(4) .............................................13
Rule 21F-4(b)(7), 17 C.F.R. §240.21F-4(b)(7) .................................12, 30, 32
Rule 21F-4(c)(3), 17 C.F.R. §240.21F-4(c)(3)..............................................11
Rule 21F-6(a)(4), 17 C.F.R. §240.21F-6(a)(4)..............................................12
Rule 21F-6(b)(3), 17 C.F.R. §240.21F-6(b)(3) .............................................12
Rules under the Investment Advisers Act of 1940, 17 C.F.R. Part 275
Rule 204A-1(a)(4), 17 C.F.R. §275.204A-1(a)(4) .......................................... 8
Rule 206(4)-2(a)(6)(ii), 17 C.F.R. §275.206(4)-2(a)(6)(ii) ............................. 8
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RULES (continued)
Page
Rule 38a-1 under the Investment Company Act of 1940,
17 C.F.R. §270.38a-1(a)(4) .............................................................................8
Rule 3(d)(2), Standards of Professional Conduct for Attorneys
Appearing and Practicing Before the Commission in the
Representation of an Issuer, 17 C.F.R. §205.3(d)(2) ...................................... 7
Procedures for Handling Retaliation Complaints under Section 806 of
the Sarbanes-Oxley Act of 2002, 29 C.F.R. Part 1980
29 C.F.R. §1980 .............................................................................................26
29 C.F.R. §1980.105 ......................................................................................26
29 C.F.R. §1980.106-110 ..............................................................................26
Fed. R. App. P. 29(a) .................................................................................................2
LEGISLATIVE MATERIALS
H.R. 4173, 111th Cong. §7203(a) (as passed by House Dec. 11, 2009) ................. 19
H.R. 4173, 111th Cong. §922(a) (as passed by Senate May 20, 2010) ...................20
H.R. 4173, 111th Cong. §922(a) (conference base text) .........................................20
SEC and Corporate Audits (Part 6): Hearings on Detecting and
Disclosing Financial Fraud Before Subcomm. on Oversight and
Investigations of the Comm. on Energy and Commerce,
99th Cong. 345 (1986) (testimony of John Shad, Chairman) ........................ 6
ADMINISTRATIVE MATERIALS
Interpretation of the SEC’s Whistleblower Rules Under Section 21F
of the Securities Exchange Act of 1934, Exchange Act Release
No. 34-75592, 80 Fed. Reg. 47,829 (Aug. 10, 2015) ....................................29
Proposed Rules for Implementing the Whistleblower Provisions of
Section 21F of the Securities Exchange Act of 1934,
75 Fed. Reg. 70,488 (Nov. 17, 2010) ...................................... 3, 4, 10, passim
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ADMINISTRATIVE MATERIALS (continued)
Date Filed: 10/26/2016
Page
Report of Investigation Pursuant to Section 21(A) of the Securities
Exchange Act of 1934 and Commission Statement on the
Relationship of Cooperation to Agency Enforcement Decisions,
2001 WL 1301408 (Oct. 23, 2001).............................................................. 4-5
Request for Comment on NASDAQ Petition, 68 Fed. Reg. 27,722
(May 20, 2003) ..............................................................................................36
Securities Whistleblower Incentives and Protections,
76 Fed. Reg. 34,300 (June 13, 2011) ......................................... 3, 4, 5, passim
MISCELLANEOUS
Orly Lobel, Lawyering Loyalties: Speech Rights and Duties Within
Twenty-First-Century New Governance, 77 Fordham L. Rev.
1245 (2009) ....................................................................................................16
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No. 16-2881
____________________________________________________________________________________
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________________________________________________________________________________
DAVID DANON,
Plaintiff-Appellant,
v.
VANGUARD GROUP, INC.,
Defendant-Appellee.
____________________________________________________________________________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
____________________________________________________________________________________
BRIEF OF THE SECURITIES AND EXCHANGE COMMISSION,
AMICUS CURIAE IN SUPPORT OF THE APPELLANT
____________________________________________________________________________________
STATEMENT OF THE ISSUE
The Securities and Exchange Commission (“Commission”), after noticeand-comment rulemaking, issued a rule to clarify an ambiguity in the
whistleblower employment anti-retaliation provisions in Section 21F(h)(1) of the
Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §78u-6(h)(1). The
Commission’s rule interpreted the anti-retaliation protections to extend to any
individual who engages in the whistleblowing activities described in Section
21F(h)(1)(A), irrespective of whether the individual makes a separate report to the
Commission. Is the Commission’s rule entitled to deference under Chevron,
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)?
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INTEREST OF THE SECURITIES AND EXCHANGE COMMISSION
AND SUMMARY OF ITS POSITION
The Commission—the agency principally responsible for the administration
of the federal securities laws—submits this brief as amicus curiae pursuant to Fed.
R. App. P. 29(a) to address an important securities law issue presented in this
appeal.
Congress, in Section 922 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank”), Pub. L. No. 111-203, 124 Stat. 1376,
1841-49 (2010), amended the Exchange Act to add Section 21F, entitled
“Securities Whistleblower Incentives and Protection” and codified at 15 U.S.C.
§78u-6. Section 21F directs the Commission to pay awards to individuals whose
reports to the Commission about violations of the securities laws result in
successful Commission enforcement actions, and prohibits employers from
retaliating against individuals in the terms and conditions of their employment
when they engage in certain specified whistleblowing activities. (The award
program and anti-retaliation protections are referred to collectively herein as “the
whistleblower program.”)
In May 2011, at Congress’s direction, the Commission issued final rules
“implementing the provisions of Section 21F.” See Dodd-Frank §924(a), 124 Stat.
at 1850. Throughout the rulemaking process, the Commission considered the
“significant issue” of how to ensure that the whistleblower program does not
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undermine the willingness of individuals to make whistleblower reports internally
at their companies before they make reports to the Commission. Securities
Whistleblower Incentives and Protections (“Adopting Release”), 76 Fed. Reg.
34300, 34300, 34323 (June 13, 2011); Proposed Rules for Implementing the
Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934
(“Proposing Release”), 75 Fed. Reg. 70488, 70488 (Nov. 17, 2010). The
Commission’s final rules were carefully calibrated to achieve this objective by
providing “strong incentives” for individuals in appropriate circumstances to report
internally in the first instance. Adopting Release at 34301, 34322. 1
One of those rules—Exchange Act Rule 21F-2(b)(1), 17 C.F.R. §240.21F2(b)(1)—is at issue in this litigation. 2 The Commission has a strong programmatic
interest in demonstrating that the rule’s reasonable interpretation of certain
1
The Commission recognized that internal reporting is not always
appropriate, and the decision whether to do so (either prior to reporting to the
Commission or at all) is best left for whistleblowers to determine based on the
particular facts and circumstances. See Adopting Release at 34327. Among the
considerations a whistleblower would likely consider are: (i) whether the
employer has an anonymous reporting system; (ii) whether the potential
misconduct involves upper-level management; (iii) whether the misconduct is still
ongoing and poses a risk of sufficiently significant harm to investors that
immediate reporting to the Commission is more appropriate; and (iv) whether the
employer may be prone to bad faith conduct such as the destruction of evidence.
Id. at 34326.
2
Each rule designated in this brief as Exchange Act Rule 21F-___ is codified
at 17 C.F.R. §240.21F-___.
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ambiguous statutory language was a valid exercise of the Commission’s broad
rulemaking authority under Section 21F. This interest arises for two related
reasons. First, the rule helps protect individuals who choose to report potential
violations internally in the first instance (i.e., before reporting to the Commission),
and thus is an important component of the overall design of the whistleblower
program. Second, if the rule were invalidated, the Commission’s authority to
pursue enforcement actions against employers that retaliate against individuals
who report internally would be substantially weakened.
STATEMENT OF THE CASE
A.
The securities laws recognize that internal company reporting by
employees and others is important for deterring, detecting, and
stopping unlawful conduct that may harm investors.
Companies’ processes for the internal reporting of violations of law and
other misconduct “play an important role in facilitating compliance with the
securities laws.” Adopting Release at 34325; accord id. at 34324. Among other
things, these internal reporting processes can help companies to promptly identify,
correct, and self-report unlawful conduct by officers, employees, or others
connected to the company. See generally Proposing Release at 70496. In this
way, “reporting through internal compliance procedures can complement or
otherwise appreciably enhance [the Commission’s] enforcement efforts … .”
Adopting Release at 34359 n.450; see also Report of Investigation Pursuant to
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Section 21(A) of the Securities Exchange Act of 1934 and Commission Statement
on the Relationship of Cooperation to Agency Enforcement Decisions, 2001 WL
1301408, at *1 (Oct. 23, 2001) (“When businesses seek out, self-report and rectify
illegal conduct, and otherwise cooperate with Commission staff, large expenditures
of government and shareholder resources can be avoided and investors can benefit
more promptly.”). 3
Recognizing the significant role that internal company reporting can play,
Congress for nearly two decades has enacted a series of amendments to the
securities laws to encourage, and in some instances to require, internal reporting of
potential misconduct. In 1995, Congress amended the Exchange Act to add
Section 10A(b), entitled “Required Response to Audit Discoveries.” See Private
Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, §301, 109 Stat. 737,
762-64. Section 10A(b) imposes a series of internal company disclosure
obligations on a registered public accounting firm that, during the course of
conducting an audit of a public company required by the Exchange Act, discovers
that an illegal act connected to the company has occurred. 4 Section 10A(b)
3
To be clear, as the Commission has advised, “while internal compliance
programs are valuable, they are not substitutes for strong law enforcement.”
Adopting Release at 34326 (emphasis added).
4
This brief uses the term “public company” to refer to a company with a class
of securities registered under Section 12 of the Exchange Act and those required to
file reports under Section 15(d) of that Act.
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describes a process of disclosure by the auditor to the Commission after the
auditor’s internal disclosures occur and certain other conditions are met, including
a failure on the company’s part to take an appropriate response.5
In 2002, Congress enacted the Sarbanes-Oxley Act of 2002 (“SarbanesOxley”), Pub. L. No. 107-204, 116 Stat. 745, in response to “a series of celebrated
accounting debacles” 6 involving companies such as Enron and WorldCom. As
part of Sarbanes-Oxley, Congress enacted several additional provisions related to
the internal company reporting of wrongdoing. 7 In Section 307, for example,
Congress directed the Commission to issue rules requiring attorneys appearing and
practicing before the Commission in the representation of public companies “to
report evidence of a material violation” of the securities laws or any “breach of
5
An early version of the legislative proposal that became Section 10A would
have required auditors to report immediately to the Commission. SEC Chairman
John Shad testified before Congress at the time in opposition to such a reporting
requirement. See SEC and Corporate Audits (Part 6): Hearings on Detecting and
Disclosing Financial Fraud Before Subcomm. on Oversight and Investigations of
the Comm. on Energy and Commerce, 99th Cong. 345 (1986) (“[W]hy not give
management an opportunity to respond to suspicions and take corrective action?”).
6
Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 484
(2010).
7
A principal aim of Sarbanes-Oxley was to promote the establishment of
robust internal corporate governance mechanisms and processes that could
promptly identify and remedy violations. See, e.g., Sarbanes-Oxley §404, 15
U.S.C. §7262 (requiring internal compliance systems and an annual audit by
outside auditors).
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fiduciary duty or similar violation by the company or any agent thereof” to
specified company officials. Sarbanes-Oxley §307, 15 U.S.C. §7245. These
attorneys are not required to make reports to the Commission and, indeed, may
often be precluded from doing so as a result of their ethical obligations to their
clients.8 Similarly, Sarbanes-Oxley added Exchange Act Section 10A(m)(4),
which required the Commission, by rule, to direct that national securities
exchanges and national securities associations require that audit committees of
listed companies establish internal company procedures allowing employees and
others to submit complaints “regarding accounting, internal accounting controls, or
auditing matters,” and to report anonymously “concerns regarding questionable
accounting or auditing matters.” See Sarbanes-Oxley §301, 116 Stat. at 775-77; 17
C.F.R. §240.10A-3(b)(3).
Further, Section 806 of Sarbanes-Oxley (as later amended by Dodd-Frank)
prohibited public companies, certain related persons or entities, and nationally
recognized statistical rating organizations from engaging in employment retaliation
8
Only in limited situations—where an attorney reasonably believes it is
“necessary” to report to the Commission to prevent a securities law violation that
will cause substantial financial injury, or to correct past violations of similar
severity where the attorney’s services were used—may attorneys report evidence
of a material violation to the Commission. 17 C.F.R. §205.3(d)(2). But even when
such disclosure to the Commission is permitted, an attorney will typically need to
report internally first in order to satisfy the requirement that disclosure to the
Commission may be necessary.
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against an employee who makes certain whistleblower disclosures concerning,
among other things, securities fraud (18 U.S.C. §1348), bank fraud (id. §1344),
mail fraud (id. §1341), wire fraud (id. §1343), or any violation of a Commission
rule or regulation. 18 U.S.C. §1514A(a). The whistleblower disclosures are
protected if they are made to “a person with supervisory authority over the
employee (or such other person working for the employer who has the authority to
investigate, discover, or terminate misconduct),” or to Congress or certain
governmental agencies (including the Commission). Id. §1514A(a)(1)(C).9
B.
By providing new incentives and protections for individuals to engage in
whistleblowing activity, the Dodd-Frank whistleblower program
enhances the existing securities-law enforcement scheme, including
internal company reporting.
As noted above, Dodd-Frank established the Commission’s new
whistleblower program in 2010 by adding Section 21F to the Exchange Act.
Section 21F expressly authorized the Commission “to issue such rules and
9
The Commission has periodically adopted rules and regulations requiring
internal reporting in certain circumstances either within or among regulated
entities. See, e.g., 17 C.F.R. §270.38a-1(a)(4) (requiring the chief compliance
officer of a mutual fund to report the details of any material compliance matters to
the fund’s board); 17 C.F.R. §240.17a-5(h)(2) (requiring the auditor of a brokerdealer to report material inadequacies to the chief financial officer); 17 C.F.R.
§275.204A-1(a)(4) (requiring each investment adviser to establish a code of ethics
requiring supervised persons to report any violations thereof to the chief
compliance officer); 17 C.F.R. §275.206(4)-2(a)(6)(ii) (requiring each investment
adviser to obtain an internal control report with respect to custody of client assets
maintained by the investment adviser or an affiliate).
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regulations as may be necessary or appropriate to implement the provisions of this
section consistent with the purposes of this section.” Exchange Act §21F(j). In
May 2011, the Commission used that broad authority to adopt final rules
implementing both the monetary award and employment anti-retaliation aspects of
the whistleblower program.
1.
The Commission carefully calibrated the rules implementing the
monetary award component of the whistleblower program to
ensure that individuals were not disincentivized from first
reporting internally.
Section 21F directs the Commission to pay awards, subject to certain
limitations and conditions, to individuals who voluntarily provide the Commission
with original information about a violation of the securities laws that leads to the
successful enforcement of an action brought by the Commission resulting in
monetary sanctions exceeding $1,000,000. 10 See Exchange Act §21F(a)-(c).
Further, Section 21F affords the Commission discretion to set the amount of each
award within a range of 10 percent to 30 percent of the total monetary sanctions
collected. Id.
10
As discussed infra Argument Part III, Section 21F also provides for awards
where the same original information that led to a successful Commission
enforcement action also led to a successful enforcement action by certain other
statutorily specified law enforcement and regulatory authorities, including the U.S.
Department of Justice and the various self-regulatory organizations that are under
the Commission’s supervision (e.g., FINRA).
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A principal challenge the Commission faced in crafting rules to implement
the award program was ensuring that employees and others were not dissuaded
from reporting internally due to the possibility of a monetary award. See
Proposing Release at 70488 (expressing the Commission’s desire “not to
discourage whistleblowers who work for companies that have robust compliance
programs [from] first report[ing] the violation to appropriate company personnel”)
(emphasis added). Were this to happen, the Commission recognized, the result
could be a reduction in the “effectiveness of a company’s existing compliance,
legal, audit and similar internal processes for investigating and responding to
potential violations of the Federal securities laws,” which in turn could weaken
corporate compliance with the securities laws. Id. at 70488.11 The Commission
also recognized that “reporting through internal compliance procedures can
complement or otherwise appreciably enhance [its] enforcement efforts in
appropriate circumstances.” Adopting Release at 34359 n.450.
For instance, the subject company may at times be better able to
distinguish between meritorious and frivolous claims, and may make
such findings available for the Commission. This would be
particularly true in instances where the reported matter entails a high
11
Cf. Proposing Release at 70516 (explaining that “allow[ing] a company a
reasonable period of time to investigate and respond to potential securities laws
violations (or at least begin an investigation) prior to [an individual making a
report] to the Commission” is “consistent with the Commission’s efforts to
encourage companies to create and implement strong corporate compliance
programs”).
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level of institutional or company-specific knowledge and/or the
company has a well-functioning internal compliance program in
place. Screening allegations through internal compliance programs
may limit false or frivolous claims, provide the entity an opportunity
to resolve the violation and report the result to the Commission, and
allow the Commission to use its resources more efficiently.
Id. 12
Accordingly, the Commission “tailored the final rules to provide
whistleblowers who are otherwise pre-disposed to report internally, but who may
also be affected by financial incentives, with additional economic incentives to
continue to report internally” in the first instance.13 Id. at 34360. The final rules
seek to do this in three principal ways:
An individual “who reports internally can collect a whistleblower
award from the Commission if his internal report to the company or
entity results in a successful covered action.” Id. (discussing
Exchange Act Rule 21F-4(c)(3)).
An individual “who first reports [pursuant] to an entity’s internal
whistleblower, legal, or compliance procedures for reporting
allegations of possible violations of law and within 120 days reports
12
See also Proposing Release at 70516 (explaining that allowing individuals to
first report internally “provides a mechanism by which some of th[e] erroneous
[tips] may be eliminated before reaching the Commission,” and that otherwise “a
large number of tips of varying quality [could] caus[e] the Commission to incur
costs to process and validate the information”).
13
Many commenters during the rulemaking, particularly industry-affiliated
commenters, urged the Commission to encourage or require individuals to report
internally before reporting to the Commission. See, e.g., Adopting Release at
34326 n.230 (citing comment letters from, among others, the Business Roundtable
and the U.S. Chamber of Commerce).
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to the Commission” will be treated for purposes of an award as “if
[the submission to the Commission] had been made at the earlier
internal reporting date.” Id. at 34322 (emphasis added) (discussing
Exchange Act Rule 21F-4(b)(7)). “This means that even if, in the
interim, another whistleblower has made a submission that caused the
[Commission’s] staff to begin an investigation into the same matter,
the [individual] who had first reported internally will be considered
the first whistleblower who came to the Commission … .” Id.
“In addition, the final rules provide that when determining the amount
of an award, the Commission will consider as a plus-factor the
whistleblower’s participation in an entity’s internal compliance
procedures.” Id. at 34360 (discussing Exchange Act Rule 21F6(a)(4)).14 The ability to adjust an award upward based on internal
reporting, the Commission explained, would “allow [the Commission]
to account for a reduced monetary sanction … where the internal
reporting potentially resulted in a lower monetary sanction” because
the company responded to the internal report by engaging in
remediation, self-reporting and cooperating with the Commission. Id.
at 34360 n.455.
Beyond the tailored financial incentives that the Commission crafted
to encourage individuals to report internally in appropriate situations, the
final rules also require that officers, directors, trustees, and partners, as well
as other specified personnel having internal audit or compliance
responsibilities, must in certain instances first internally disclose the
information about potential securities law violations and then wait 120 days
before reporting the information to the Commission. See Exchange Act
14
Relatedly, the Commission’s rules also provide that “a whistleblower’s
interference with internal compliance and reporting is a factor that can decrease the
amount of an award.” Adopting Release at 34301, 34331 (discussing Exchange
Act Rule 21F-6(b)(3)).
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Rule 21F-4(b)(4). The Commission determined that this restriction was
necessary to discourage “whistleblower submission[s] [that] might
undermine the proper operation of internal compliance systems” that
companies have established for responding to violations of law. Adopting
Release at 34317.
2.
Using its broad rulemaking authority, the Commission adopted a
rule clarifying that employment retaliation is prohibited against
individuals who engage in any of the whistleblowing activity
described in Section 21F(h)(1)(A)(iii)—including making internal
reports at public companies of securities fraud violations.
Section 21F(h)(1) is designed to protect employees who engage in certain
specified whistleblowing activities. It does this in two significant ways.
First, subparagraph (A) seeks to prevent employment retaliation by placing
employers on notice that they may not retaliate against employees who engage in
certain whistleblowing activity. This is clear from the express terms of the
subparagraph, which is drafted as a prohibition directed to employers:
(A)
In General. No employer may discharge, demote, suspend,
threaten, harass, directly or indirectly, or in any other manner
discriminate against, a whistleblower in the terms and
conditions of employment because of any lawful act done by
the whistleblower—
(i)
in providing information to the Commission in
accordance with this section;
(ii)
in initiating, testifying in, or assisting in any investigation
or judicial or administrative action of the Commission
based upon or related to such information; or
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in making disclosures that are required or protected under
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.),
this chapter [i.e., the Exchange Act], including section
78j-1(m) of this title [i.e., Section 10A(m) of the
Exchange Act], section 1513(e) of Title 18, and any other
law, rule, or regulation subject to the jurisdiction of the
Commission.15
Second, subparagraphs (B) and (C) address the legal remedies that employees can
pursue against employers who have failed to heed subparagraph (A)’s
prohibition.16
The Commission, employing its broad rulemaking authority under Section
21F(j), adopted two clarifying rules related to the prohibition in subparagraph (A).
The first rule expressly stated that the Commission possesses authority to bring
civil enforcement actions and proceedings against employers who violate the
retaliation prohibition. See Exchange Act Rule 21F-2(b)(2).
The second rule, Exchange Act Rule 21F-2(b)(1), clarified that the
retaliation prohibition in subparagraph (A) protects any employee who engages in
15
As discussed infra 15-16, the disclosures listed in clause (iii) include the
internal company reporting disclosures described above in Part A.
16
Subparagraph (B) provides a cause of action in federal district court for any
“individual who alleges discharge or other discrimination in violation of
subparagraph (A).” Exchange Act §21F(h)(1)(B)(i). Subparagraph (C) provides
that relief in a successful action shall include reinstatement, two times back pay,
compensation for litigation costs, expert witness fees, and reasonable attorneys’
fees. Id. §21F(h)(1)(C).
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any of the whistleblowing activities specified in clauses (i)-(iii) above, irrespective
of whether the employee separately reports the information to the Commission. It
provides in pertinent part:
For purposes of the anti-retaliation protections afforded by Section
21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), you are a
whistleblower if:
(ii)
You provide that information in a manner described in Section
21F(h)(1)(A) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)).
17 C.F.R. §240.21F-2(b)(1)(ii).
As the Commission explained in the adopting release, this rule reflects the
fact that clause (iii) prohibits employers from retaliating against “individuals who
report to persons or governmental authorities other than the Commission.”
Adopting Release at 34304 (emphasis in original). In particular, clause (iii)
prohibits employers from retaliating against employees who make the “disclosures
that are required or protected under the Sarbanes-Oxley Act” or the other securities
laws, including the internal company disclosures described above in Part A. For
example:
Disclosures that Sarbanes-Oxley Section 307 requires attorneys for
the public company to make to the company’s general counsel
regarding potential evidence of a material violation of the securities
laws or a breach of fiduciary duty by a corporate director;
Disclosures to an audit committee pursuant to Section 10A(m) of the
Exchange Act concerning “questionable accounting or auditing
matters” at a public company; and
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Disclosures protected under Sarbanes-Oxley Section 806 to a
supervisor or compliance official at a public company concerning
possible securities fraud, wire fraud, bank fraud, or mail fraud.
Significantly, by clarifying that the prohibition on employment
retaliation extends to individuals who report internally in instances such as
these (irrespective of whether they have reported to the Commission), Rule
21F-2(b)(1) complements the overall goal of the whistleblower program
rulemaking to maintain incentives for individuals to first report internally in
appropriate circumstances. In the adopting release, the Commission
recognized that the prohibition on employment retaliation would help
preserve these incentives for internal reporting, since “[e]mployees who
report internally in this manner will have anti-retaliation employment
protection to the extent provided for by [Section 21F(h)(1)(A)(iii)], which
incorporates the broad anti-retaliation protections of Sarbanes-Oxley Section
806.” Adopting Release at 34325 n.223. See generally Orly Lobel,
Lawyering Loyalties: Speech Rights and Duties Within Twenty-FirstCentury New Governance, 77 FORDHAM L. REV. 1245, 1250 (2009)
(“[I]nternal protections are particularly crucial in view of research findings
that … employees are more likely to choose internal reporting systems.”).
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STANDARD OF REVIEW
“An agency’s construction of its statutory mandate is entitled to a certain
degree of deference.” West v. Sullivan, 973 F.2d 179, 185 (3d Cir. 1992). See also
United States v. Mead Corp., 533 U.S. 218, 226-27 (2001) (“administrative
implementation of a particular statutory provision qualifies for Chevron deference
when it appears that Congress delegated authority to the agency generally to make
rules carrying the force of law, and that the agency interpretation claiming
deference was promulgated in the exercise of that authority”). Consideration of
whether an agency interpretation is permissible involves two steps. First, this
Court considers “‘whether Congress has directly spoken to the precise question at
issue,’” and if so, then “the clear intent of Congress binds both the agency and the
court.” Hagans v. Comm’r of Social Sec., 694 F.3d 287, 294 (3d Cir. 2012)
(quoting Chevron, 467 U.S. at 842). A “fundamental ambiguity” arises where two
statutory provisions present “seemingly categorical—and, at first glance,
irreconcilable—legislative commands,” thereby affording the agency discretion to
“harmonize[]” the provisions. Nat’l Ass’n of Home Builders v. Defenders of
Wildlife, 551 U.S. 644, 661-73 (2007); accord Cheruku v. Att’y Gen., 662 F.3d
198, 203-07 (3d Cir. 2011) (where “straightforward application of [one provision]
would render [another provision] a nullity,” statutory scheme was ambiguous and
agency’s reasonable interpretation was entitled to Chevron deference).
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Second, if the statute is silent or ambiguous with respect to the specific issue,
this Court determines whether the agency’s interpretation is reasonable, which
means the interpretation is rational and not inconsistent with the statute. See, e.g.,
Sullivan v. Everhart, 494 U.S. 83, 89 (1990); Hagans, 694 F.3d at 294. “The
agency’s interpretation will prevail so long as ‘it is a reasonable interpretation of
the statute—not necessarily the only possible interpretation, nor even the
interpretation deemed most reasonable by the courts.’” Hagans, 694 F.3d at 294
(quoting Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218 (2009)).
ARGUMENT
I.
Section 21F does not unambiguously demonstrate a Congressional
intent to restrict employment anti-retaliation protection to only those
individuals who provide the Commission with information relating to a
violation of the securities laws.
Congress did not unambiguously limit the employment anti-retaliation
protections in Section 21F(h)(1) to only those individuals who provide the
Commission with information relating to a securities law violation. Rather, there
is ambiguity on this issue given the considerable tension between clause (iii) of
Section 21F(h)(1)(A), which as discussed above lists a broad array of
whistleblowing activity to entities and persons other than just the Commission, and
Section 21F(a)(6), which defines “whistleblower.”
To appreciate the significant tension between these two provisions, it is
useful to first examine the language and structure of Section 21F(h)(1)(A). As
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quoted in full supra 13-14, Section 21F(h)(1)(A) prohibits an employer from
retaliating against a whistleblower: (i) for “providing information to the
Commission in accordance with this section”; (ii) for assisting in an investigation
or action of the Commission “based upon or related to such information”; or (iii)
for “making disclosures that are required or protected under” Sarbanes-Oxley, the
Exchange Act, 18 U.S.C. §1513(e), “and any other law, rule, or regulation subject
to the jurisdiction of the Commission.”
As the quoted language makes evident, clauses (i) and (ii), together, protect
individuals for whistleblowing to the Commission about securities law violations.
But the anti-retaliation protection that clause (iii) affords reaches beyond just
disclosures involving securities law violations and disclosures to the Commission.
It covers, among other things, an employee’s submission to a public company’s
audit committee about questionable accounting practices (including those
questionable practices that do not rise to the level of a securities law violation)
under Section 10A(m)(4) of the Exchange Act, or an in-house counsel’s disclosure
under Section 307 of Sarbanes-Oxley about a potential breach of the CEO’s
fiduciary duty. 17
17
The legislative history adds no clarity concerning Congress’s intention in
adding clause (iii) to Section 21F(h)(1)(A). Indeed, the provision was added
relatively late in the Dodd-Frank legislative process; it was not included either in
the original version of the bill that passed the House, see H.R. 4173, 111th Cong.
§7203(a) (as passed Dec. 11, 2009), or in the version that initially passed the
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Yet, the interplay of Section 21F(h)(1)(A) with the definition of
“whistleblower” in Section 21F(a)(6) may suggest a different result. Section
21F(h)(1)(A) protects “a whistleblower in the terms and conditions of
employment,” and Section 21F(a)(6) in turn defines a “whistleblower” as “any
individual who provides … information relating to a violation of the securities
laws to the Commission.” If Section 21F(a)(6)’s narrow whistleblower definition
is read as a limitation on the overall scope of Section 21F(h)(1)(A), the disclosures
protected under clause (iii) would be significantly restricted. Specifically, an
individual would be protected for making one of the whistleblower disclosures
identified in clause (iii) only if two preconditions are met:
(1)
the individual has separately submitted that same information to
Commission, and
(2)
that information involves a securities law violation.
But this reading raises an immediate question: If Congress had actually
intended to protect only those “required or protected” disclosures that satisfy these
Senate, see H.R. 4173, 111th Cong. §922(a) (as passed May 20, 2010). The
language first appeared in the base conference committee draft that the Senate in
May 2010 approved for use in the Dodd-Frank conference committee, see H.R.
4173, 111th Cong. §922(a) (conference base text), and it remained in the final
version of the committee bill that the House and Senate subsequently approved.
Notably, the nearly identical statutory provision of Dodd-Frank that authorized a
whistleblower program for the Commodity Futures Trading Commission does not
include language comparable to clause (iii). See Dodd-Frank §748, 124 Stat. at
1743-44 (enacting employment anti-retaliation protections as new Section 23(h)(1)
to the Commodity Exchange Act, codified at 7 U.S.C. §26(h)(1)).
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two conditions, why would Congress craft clause (iii) to unnecessarily suggest that
it protects a much broader class of disclosures than it actually does? Surely
Congress could have been more explicit and more direct if it in fact intended to
protect only those disclosures that involve securities law violations, and only if the
employee has made a separate disclosure to the Commission. See Util. Air
Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2441 (2014) (“[T]he presumption of
consistent usage readily yields to context, and a statutory term—even one defined
in the statute—may take on distinct characters from association with distinct
statutory objects calling for different implementation strategies.”) (quotation marks
omitted). See also Lawson v. Suwannee Fruit & S.S. Co., 336 U.S. 198, 201
(1949) (rejecting mechanical use of a statutory definition that would “destroy one
of the major purposes of” enacting the provision).
That Congress did not unambiguously intend such a result becomes apparent
by considering the bizarre consequences that such a narrow reading produces.
With one possible exception, clause (iii) becomes superfluous. If an employer
knows that an individual has made a disclosure listed in clause (iii), such as an
internal report about a potential securities fraud violation, and the employer is also
aware that the individual has provided the same information to the Commission,
then as a practical matter the individual will be protected from retaliation under
clauses (i) and (ii). An employer will not be able to disaggregate the
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whistleblowing to the Commission from the internal whistleblowing so as
persuasively to claim that any retaliation was solely in connection with the latter.
Thus, where an employer knows that an individual has reported to the
Commission, clauses (i) and (ii) would already sufficiently protect the individual
from retaliation should the individual also wish to make the disclosures specified
in clause (iii).
That leaves only one situation where clause (iii) might conceivably have
independent utility—where the employer, unaware that the individual had already
reported to the Commission, takes an adverse employment action against the
employee for a disclosure listed in clause (iii). Although the Fifth Circuit has
reasoned that this potential scenario saves clause (iii) from being superfluous under
the narrow reading of Section 21F(h)(1)’s employment anti-retaliation protection,
Asadi v. G.E. Energy (U.S.A.), L.L.C., 720 F.3d 620, 627-28 (5th Cir. 2013), that is
far from clear for two reasons. First, as discussed above, subparagraph (A)
principally operates as a prohibition directed to employers; it seeks to prevent
retaliation by placing employers on notice that they may not take adverse
employment action against employees who engage in certain whistleblowing
activity. But under the scenario posited by the Asadi court, clause (iii) would be
utterly ineffective as a preventive measure. Put simply, because in this scenario
employers would not know that a report was made to the Commission, clause (iii)
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would have no appreciable effect in deterring employers from taking adverse
employment action for internal reports or the other disclosures listed in clause (iii).
Second, it is unlikely that an employee who suffers an adverse employment action
in this situation could even rely on clause (iii) to successfully pursue a private
action against the employer under Section 21F(h)(1)(B). Whether an individual’s
disclosures constitute a “protected activity” under the Fifth Circuit’s narrow
reading of clause (iii) would turn on whether the individual has made a separate
disclosure to the Commission. But if an employer is genuinely unaware that the
employee has separately disclosed to the Commission, any adverse employment
action that the employer takes would appear to lack the requisite retaliatory
intent—i.e., the intent to punish the employee for engaging in a protected
activity.18 Cf. Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 186 (3d Cir.
2001) (for retaliation claim under False Claims Act, “a plaintiff must show that (1)
his employer had knowledge he was engaged in protected conduct; and (2) that his
18
As at least one district court has recognized, the alternative would be to
construe the anti-retaliation provision to impose strict liability on an employer (i.e.,
intent would not be an element of a retaliation claim). See Liu v. Siemens, A.G.,
978 F. Supp. 2d 325, 332 (S.D.N.Y. 2013), aff’d on other grounds, 763 F.3d 175
(2d Cir. 2014). But we are aware of no precedent for treating an employment antiretaliation provision as a strict liability scheme.
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employer’s retaliation was motivated, at least in part, by the employee’s engaging
in protected conduct”) (quotations omitted). 19
This examination of the relevant statutory language demonstrates, at a
minimum, considerable tension and inconsistency within the text, thus revealing
that Congress did not unambiguously express an intent to limit the employment
anti-retaliation protections under Section 21F(h)(1) to only those individuals who
report securities law violations to the Commission.
Although the Fifth Circuit reached a contrary conclusion in Asadi, the
court’s holding that the statutory language compels the narrow reading described
above is based on a flawed understanding of the statutory scheme. The court
approached Section 21F as though its sole purpose is “to require individuals to
report information to the SEC to qualify as a whistleblower.” Asadi, 720 F.3d at
630. But this fails to consider the role that Section 21F occupies within the
broader securities-law framework, particularly the internal reporting processes that
Congress has previously established. As discussed infra Part II, the Commission
reasonably chose to interpret clause (iii) of Section 21F(h)(1)(A) against that
19
A further anomaly resulting from this interpretation is that the individual, in
order to successfully maintain a retaliation claim, would be required to “out”
himself as someone who reported information to the Commission. This conflicts
with Congress’s strong desire to shield a whistleblower’s identity from public
disclosure to the fullest extent possible. See Exchange Act §21F(h)(2)
(confidentiality provisions); see also id. §21F(d)(2)(A) (permitting anonymous
disclosures to the Commission).
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broader framework, construing the statute to afford the same employment antiretaliation protections for individuals regardless of whether they report to the
Commission under the new procedures established by Section 21F or instead make
the disclosures “required or protected” under the other provisions of the securities
laws.
The Fifth Circuit also erroneously believed that its interpretation was
necessary to avoid rendering the private cause of action under Sarbanes-Oxley
Section 806, “for practical purposes, moot.” Asadi, 720 F.3d at 628. The court,
after observing that clause (iii) covers the disclosures protected by Section 806,
reasoned that “[i]t is unlikely … that an individual would choose to raise a
[Sarbanes-Oxley] anti-retaliation claim instead of a Dodd-Frank whistleblowerprotection claim” because: (i) Section 21F provides “for greater monetary
damages because it allows for recovery of two times back pay, whereas [Section
806] provides for only back pay,” and (ii) “the applicable statute of limitations is
substantially longer for Dodd-Frank whistleblower-protection claims.” Id. at 62829.
But the Fifth Circuit ignored at least two countervailing advantages of a
Sarbanes-Oxley Section 806 claim over a Dodd-Frank Section 21F claim:
For individuals who want to avoid the burdens of pursuing the claim in
court, including potential high litigation costs that they might bear if they
do not prevail, actions under Section 806 may be attractive because the
claims are heard (at least in the first instance) in an administrative forum
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at the Department of Labor (“DOL”). Moreover, DOL assumes
responsibility for investigating the retaliation claim and preparing the
evidence for an administrative law judge’s review. 20
Depending on the nature of the injury, a claim under Section 806 may
afford a greater recovery. Unlike Section 21F, Section 806 provides for
“all relief necessary to make the employee whole” and for “compensation
for any special damages.” 18 U.S.C. §1514A(c)(1) & (c)(2)(C). This
language has been held to authorize compensation for emotional distress
and reputational harm. 21 Thus, individuals who have experienced
minimal pay loss, but significant emotional injuries, may find Section
806 actions more attractive.
Finally, the Fifth Circuit expressed concern that any other reading of Section
21F “would read the words ‘to the Commission’ out of the definition of
‘whistleblower’ for purposes of the whistleblower-protection provision.” Asadi,
720 F.3d at 628. But applying the Section 21F(a)(6) definition of whistleblower to
Section 21F(h)(1)(A) makes the phrase “to the Commission” in clause (i) and the
similar reference in clause (ii) superfluous. That either of two competing
interpretations yields superfluous statutory language confirms that Congress did
20
DOL has delegated to its sub-agency the Occupational Safety and Health
Administration (“OSHA”) responsibility for receiving and investigating claims
under Section 806. See generally 29 C.F.R. §1980. If OSHA finds the employee
suffered retaliation, it may order immediate reinstatement. Id. §1980.105.
OSHA’s findings are subject to a de novo hearing before an administrative law
judge and review by DOL’s Administrative Review Board. Id. §§1980.106-110.
21
See Jones v. SouthPeak Interactive Corp., 777 F.3d 658, 663 (4th Cir. 2015)
(“emotional distress damages are available” under Section 806); Halliburton, Inc.
v. Admin. Review Bd., 771 F.3d 254, 266 (5th Cir. 2014) (per curiam) (Section 806
“affords noneconomic compensatory damages”), reh’g en banc denied, 596 Fed.
App’x 340 (5th Cir. 2015).
26
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not speak unambiguously on the issue. See Microsoft Corp. v. i4i Ltd. P’ship, 131
S. Ct. 2238, 2248 (2011) (“[T]he canon against superfluity assists only where a
competing interpretation gives effect to every clause and word of a statute.”)
(quotation omitted).
II.
In light of the ambiguity here, the Commission adopted a reasonable
interpretation in Rule 21F-2(b)(1) that warrants judicial deference.
By adopting Exchange Act Rule 21F-2(b)(1) to specify what persons are
whistleblowers for purposes of the anti-retaliation provisions, the Commission
revealed its view that Section 21F(h)(1)(A) is best read as an implied exception to
the definition of whistleblower in Section 21F(a)(6). Because the language of
Section 21F is ambiguous in this respect, the Second Circuit and the majority of
district courts addressing the issue have deferred to Rule 21F-2(b)(1) as embodying
the Commission’s reasonable reading of the statute. Berman v. Neo@Ogilvy LLC,
801 F.3d 145, 153-55 (2d Cir. 2015) (collecting district court decisions and
expressly rejecting Asadi).22 See generally Nw. Austin Mun. Util. Dist. No. One v.
22
See also Feltoon v. MG2 Corp., No. 2:15-cv-02032, Dkt. 22, slip op. 4-5
(W.D. Wash. Sept. 30, 2016) (following Berman); Lutzeier v. Citigroup, Inc., No.
14-cv-00183, 2015 WL 7306443, at *2 (E.D. Mo. Nov. 19, 2015); Wadler v. BioRad Labs., Inc., 141 F. Supp. 3d 1005, 1023-27 (N.D. Cal. 2015); Dressler v. Lime
Energy, No. 3:14-cv-07060, 2015 WL 4773326, at *4-16 (D.N.J. Aug. 13, 2015);
Somers v. Dig. Realty Trust, Inc., 119 F. Supp. 3d 1088, 1094-1106 (N.D. Cal.
2015), appeal docketed, No. 15-17352 (9th Cir. Dec. 1, 2015) (to be argued Nov.
16, 2016); Connolly v. Remkes, No. 5:14-CV-01344, 2014 WL 5473144, at *4-6
(N.D. Cal. Oct. 28, 2014); Peters v. LifeLock Inc., No. 2:14-cv-00576, 2014 WL
12544495, at *4-7 (D. Ariz. Sept. 19, 2014); Bussing v. COR Clearing, LLC, 20 F.
27
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Holder, 557 U.S. 193, 206-207 (2009) (“‘Statutory definitions control the meaning
of statutory words, of course, in the usual case. But this is an unusual case.”)
(quoting Lawson, 336 U.S. at 201); Philko Aviation, Inc. v. Shacket, 462 U.S. 406,
411-12 (1983) (similar).
The Commission thus promulgated Exchange Act Rule 21F-2(b)(1) to
clarify that, “[f]or purposes of the anti-retaliation protections afforded by Section
21F(h)(1) of the Exchange Act, you are a whistleblower if … [y]ou provide that
information in a manner described in Section 21F(h)(1)(A).” In doing so, the
Commission concluded “that the statutory anti-retaliation protections apply to three
different categories of whistleblowers, and the third category [i.e., clause (iii)]
includes individuals who report to persons or governmental authorities other than
the Commission.” Adopting Release at 34304. The Commission explained that,
accordingly, the anti-retaliation protections will extend to, among others,
employees of public companies who make certain disclosures internally to “a
Supp. 3d 719, 727-35 (D. Neb. 2014). But see also Lamb v. Rockwell Automation
Inc., No. 15-cv-1415, 2016 WL 4273210, at *3-4 (E.D. Wis. Aug. 12, 2016)
(following Asadi); Puffenbarger v. Engility Corp., 151 F. Supp. 3d 651, 663-65
(E.D. Va. 2015); Verble v. Morgan Stanley Smith Barney LLC, 148 F. Supp. 3d
644, 650-56 (E.D. Tenn. 2015), appeal docketed, No. 15-6397 (6th Cir. Dec. 17,
2015) (argued Sept. 14, 2016); Davies v. Broadcom Corp., 130 F. Supp. 3d 1343,
1347-50 (C.D. Cal. 2015); Duke v. Prestige Cruises Int’l, Inc., No. 14-23017-CIV,
2015 WL 4886088, at *3 (S.D. Fla. Aug. 14, 2015), appeal docketed, No. 1615426 (11th Cir. Aug. 11, 2016); Englehart v. Career Educ. Corp., No. 8:14-cv444, 2014 WL 2619501, at *3-9 (M.D. Fla. May 12, 2014).
28
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person with supervisory authority over the employee or such other person working
for the employer who has authority to investigate, discover, or terminate
misconduct.” Id. 23
The Commission’s interpretation is reasonable because it resolves the
statutory ambiguity in a manner that effectuates the broad employment antiretaliation protections that clause (iii) contemplates. The Commission’s
interpretation is also reasonable because, by ensuring that individuals who report
internally first will not be potentially disadvantaged by losing employment antiretaliation protection under Section 21F, it better supports a core overall objective
of the whistleblower rulemaking—avoiding disincentivizing individuals from
reporting internally first in appropriate circumstances. By establishing parity
between individuals who first report to the Commission and those who first report
internally, the Commission’s rule avoids a two-tiered structure of anti-retaliation
protections that might discourage some individuals from first reporting internally
23
The Fifth Circuit in Asadi questioned whether under the Commission’s
whistleblower rules Rule 21F-2(b)(1) actually governs the reporting methods that
qualify an individual as a whistleblower for the purpose of receiving employment
retaliation protections. 720 F.3d at 629-30. Although the Commission disagrees
that there was any ambiguity or inconsistency, the Commission has since issued an
interpretive rule to provide absolute clarity on the issue. Interpretation of the
SEC’s Whistleblower Rules Under Section 21F of the Securities Exchange Act of
1934, Exchange Act Release No. 34-75592, 80 Fed. Reg. 47,829, 47,829-30 (Aug.
10, 2015). That interpretation is “controlling.” Auer v. Robbins, 519 U.S. 452,
461 (1997).
29
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in appropriate circumstances and, thus, jeopardize the benefits that can result from
internal reporting, supra 4-5, 16. The Commission’s decision to adopt this
interpretation was reasonable in light of its view, based on its experience and
expertise, that if internal compliance and reporting procedures “are not utilized or
working, our system of securities regulation will be less effective.” Proposing
Release at 70500.24
Lastly, the Commission’s interpretation was reasonable because it enhances
the Commission’s ability to bring enforcement actions when employers take
adverse employment actions against employees for reporting securities law
violations internally. A contrary result that narrowly cabined this enforcement
authority to only those situations where the employee has separately reported to the
24
Rule 21F-2(b)(1) also supports the whistleblower program by extending
anti-retaliation protection to individuals who first report to designated authorities
other than the Commission. Section 21F(b) & (c) authorize awards to such
individuals under certain circumstances when their information leads to successful
“related actions” by the other designated authorities. To facilitate this reporting,
the Commission adopted Rule 21F-4(b)(7), under which individuals who first
provide information to a designated authority and then within 120 days submit the
same information to the Commission will be treated as though they reported to the
Commission as of the date of the original report to the designated authority. Rule
21F-2(b)(1) ensures that individuals who follow this reporting approach will not
lose anti-retaliation protection during the period prior to their report to the
Commission.
30
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Commission would significantly weaken the deterrence effect on employers who
might otherwise consider taking an adverse employment action. 25
III.
Failure to defer to Rule 21F-2(b)(1) could arbitrarily and irrationally
deny the employment retaliation protections afforded by Dodd-Frank to
individuals who, before coming to the Commission, first report potential
securities law violations to the U.S. Department of Justice or SelfRegulatory Organizations such as FINRA.
Important law enforcement interests beyond the considerations connected to
internal company reporting counsel in favor of deference to the interpretation in
Rule 21F-2(b)(1). Congress in Section 21F sought to encourage individuals to
make reports of misconduct not just to the Commission, but also to certain other
law enforcement and regulatory authorities. As demonstrated below, this
congressional purpose is revealed through both the award program and the
employment retaliation protections.
Section 21F directs that, for any individual who is a meritorious
whistleblower in a Commission enforcement action, the Commission shall pay a
monetary award of 10 percent to 30 percent of the monetary sanctions collected in
any “related action” if the same information that led to the successful prosecution
of the Commission action also led to the successful prosecution of the related
action. See Exchange Act §21F(b) & (c). A related action is “any judicial or
administrative action brought by,” among other entities, the U.S. Department of
25
The Commission lacks such authority under Sarbanes-Oxley Section 806.
31
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Justice (“DOJ”), the federal banking regulators (including the Board of Governors
of the Federal Reserve System and the Comptroller of the Currency), and the
various self-regulatory organizations (“SROs”) that are subject to the jurisdiction
and oversight of the Commission (such as FINRA and NYSE). Significantly,
nothing in the provisions that establish the award program requires that an
individual report to the Commission before or at the same time as reporting to any
of these other authorities. So, for example, an individual who provides the FBI
with original information about a potential securities law violation before reporting
that same information to the Commission can recover a monetary award based on
resulting successful Commission and related actions no differently than if he or she
had reported the information to the Commission before going to the FBI. 26
The employment retaliation protections afforded by clause (iii) of Section
21F(h)(1)(A), in turn, complement the related action component of the award
program. Clause (iii) does this by prohibiting employment retaliation against
individuals who make various types of disclosure to either the DOJ or the other
26
Under the 120-day look-back established by Exchange Act Rule 21F4(b)(7), an individual who first makes the disclosure to the FBI or any of the other
law enforcement or regulatory authorities that can pursue a related action, and
within 120 days submits the same information to the Commission, will be treated
for purposes of an award determination as if the submission to the Commission had
been made on the date of the submission to the other authority.
32
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federal government agencies that can bring related actions, as well as the SROs. 27
In this way, the employment retaliation protections of Section 21F(h)(1)(A) are
generally co-extensive with the award program: clauses (i) and (ii) provide
employment retaliation protection for providing information to the Commission,
which may lead to a successful Commission action for which an award may be
paid, while clause (iii) affords employment retaliation protection for providing
information to a law enforcement or regulatory authority other than the
Commission, which may lead to a successful related action for which an award
may be paid. 28
Significantly, under the interpretation provided by the Commission’s rule,
individuals who report first to one of these other authorities before coming to the
Commission are protected from employment retaliation under Section
21F(h)(1)(A) to the same degree as an individual who reports first to the
27
Clause (iii) provides employment retaliation protection based on disclosures
to DOJ and the other federal agencies by expressly incorporating the “disclosures
that are required or protected under the Sarbanes-Oxley Act,” which includes
Sarbanes-Oxley Section 806. Section 806, in turn, prohibits employment
retaliation based on certain disclosures of securities law violations to a “Federal
regulatory or law enforcement agency.” 18 U.S.C. §1514A(a)(1)(A).
28
We note that there is one exception to the general symmetry that exists
within Section 21F between the related-action award provisions and the
employment retaliation protections afforded by clause (iii). While the Commission
may make an award for a related action that is a criminal matter brought by a state
attorney general, clause (iii) does not cover disclosures made directly to state
attorneys general.
33
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Commission. In other words, Rule 21F-2(b)(1) represents a policy judgment that
is fully consistent with the policy judgment that Congress established in writing the
statutory award provisions. The award provisions express no preference in how
individuals sequence their reporting as between the Commission and the other
authorities. So too Rule 21F-2(b)(1) ensures that individuals receive the same
employment retaliation protections regardless of whether they report to the
Commission before or after reporting to the other authorities.
But were this Court to reject the Commission’s interpretation and instead
follow the Fifth Circuit’s Asadi decision, an individual who decides to report first
to one of the other authorities could be significantly more exposed to the risks of
employment retaliation. For example, if an individual makes a report of securities
fraud first to the FBI and is promptly fired before making a similar report to the
Commission, he will be unable to invoke the enhanced employment retaliation
protections of Section 21F and will have only the protections afforded by
Sarbanes-Oxley Section 806 (assuming the individual is within the categories of
employees covered by that provision). 29 Yet had this individual reported to the
Commission first, he would have the protections of both Section 21F and
29
As noted in footnote 27, supra, Sarbanes-Oxley Section 806—in addition to
protecting individuals against employment retaliation when they make internal
reports of securities fraud and certain other violations—protects against
employment retaliation when an individual makes a report to “a Federal regulatory
or law enforcement agency.” 18 U.S.C. §1514A(a)(1)(A).
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Sarbanes-Oxley Section 806. There is no basis to believe that Congress would
have intended this disparate treatment based purely on the happenstance of which
agency the individual reported to first given the dual responsibility that the
Commission and DOJ have for the enforcement of the securities laws.30 See
generally United States v. Wilson, 503 U.S. 329, 334 (1992) (an interpretation that
produces an “arbitrary” or “absurd” result should be avoided).
And the consequences of the Asadi decision are potentially even more severe
for an individual who first reports to an SRO and is fired before being able to make
a similar report to the Commission. Reports to SROs fall within the scope of
clause (iii) of Section 21F(h)(1)(A) to the extent that such disclosures are “required
or protected” by a Commission or SRO rule (“covered disclosure”). 31 See Bussing,
20 F. Supp. 3d at 734-35 (disclosures required or protected by SRO rules are
covered by clause (iii)). But Sarbanes-Oxley Section 806, by contrast, does not
30
Generally speaking, the Commission has responsibility for pursuing civil
actions for violations of the federal securities laws while DOJ possesses criminal
enforcement authority.
31
Section 21F(h)(1)(A)(iii) provides protection for any disclosure “required or
protected” by a “rule or regulation subject to the jurisdiction of the Commission.”
Exchange Act §21F(h)(1)(A)(iii) (emphasis added). As explained in Bussing, 20
F. Supp. 3d at 732, 734-35, SRO rules are “subject to the jurisdiction of the
Commission” for purposes of the employment retaliation protections of Section
21F(h)(1) because the Commission has statutory authority to approve or
disapprove such rules. The Commission also possesses jurisdiction to review SRO
disciplinary proceedings in which such rules are enforced.
35
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provide any employment retaliation protection for any disclosures made to SROs.
Thus, if an individual makes a covered disclosure to an SRO and is fired before
making the same disclosure to the Commission, that individual will not only have
no legal recourse under Section 21F, but he will also have no recourse under
Sarbanes-Oxley Section 806 (unlike the individual who first reports to DOJ). This
result is deeply problematic because SROs by congressional design have long been
“a vital element in the regulation of the securities industry,” helping “enforce
compliance by its members, and persons associated with its members, with the
federal securities laws.” Request for Comment on NASDAQ Petition, 68 Fed.
Reg. 27,722, 27,722 (May 20, 2003). Given this vital SRO role, individuals
frequently report violations of the securities laws to them in the first instance rather
than coming directly to the Commission; so were this Court to adopt the Asadi
approach, there is a real risk that individuals could expose themselves to retaliation
without the benefit of the protections of Section 21F(h)(1)(A).
The interpretation that the Commission has advanced in Rule 21F-2(b)(1)
prevents the arbitrary and irrational results identified above by ensuring that
individuals experience no diminution in the employment retaliation protections
afforded to them as a result of the sequence of their reporting. Accordingly,
deference to the Commission’s interpretation is warranted for this additional
reason.
36
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CONCLUSION
For the foregoing reasons, this Court should defer to the Commission’s rule
and hold that individuals are entitled to employment anti-retaliation protection if
they make any of the disclosures identified in Section 21F(h)(1)(A)(iii) of the
Exchange Act, irrespective of whether they separately report the information to the
Commission.
Respectfully submitted,
SANKET J. BULSARA
Deputy General Counsel
MICHAEL A. CONLEY
Solicitor
THOMAS J. KARR
Assistant General Counsel
s/ Stephen G. Yoder
STEPHEN G. YODER
Senior Litigation Counsel
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-9040
Telephone: (202) 551-4532 (Yoder)
October 26, 2016
37
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COMBINED CERTIFICATIONS
I hereby certify that:
1.
I am an attorney representing a federal administrative agency. See 3d
Cir. L.A.R. 28.3(d) & Committee Comments.
2.
This brief contains 8,735 words, excluding the parts exempted by Fed.
R. App. P. 32(a)(7)(B)(iii), as counted using Microsoft Office Word 2010, and it
therefore complies with the 9,000-word limit requested in the Commission’s
unopposed motion filed with this Court on this same date.
3.
This brief complies with the typeface requirements of Fed. R. App. P.
32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because it has
been prepared in a proportionally spaced typeface using Microsoft Office Word
2010 in 14-Point Times New Roman font.
4.
The electronic version of this brief is identical to the text version in
the paper copies filed with the Clerk of Court. 3d Cir. L.A.R. 31.1(b), (c).
5.
The electronic version of this brief was scanned for viruses and was
found to contain none using McAfee VirusScan Enterprise and AntiSpyware
Enterprise Version 8.8. See 3d Cir. L.A.R. 31.1(c).
s/ Stephen G. Yoder
Stephen G. Yoder
Senior Litigation Counsel
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-9040
October 26, 2016
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CERTIFICATE OF SERVICE
I hereby certify that on October 26, 2016, I electronically filed the foregoing
brief with the Clerk of Court for the United States Court of Appeals for the Third
Circuit by using the appellate CM/ECF system. I certify that all participants in the
case are registered CM/ECF users and that service will be accomplished by the
appellate CM/ECF system.
I further certify that, within five (5) days of electronic filing, I will cause
seven (7) identical paper copies of the foregoing brief to be filed with the Clerk of
Court and one (1) identical paper copy to be served on counsel for each party
separately represented. 3d Cir. L.A.R. 31.1(a), 113.1(b); Order: Reduced Number
of Copies of Briefs Required (3d Cir. Apr. 29, 2013).
s/ Stephen G. Yoder
Stephen G. Yoder
Senior Litigation Counsel
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-9040
October 26, 2016
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STATUTORY, REGULATORY, AND DECISIONAL ADDENDUM
TABLE OF CONTENTS
15 U.S.C. § 78u-6.............................................................................................. Add. 1
17 C.F.R. § 240.21F .......................................................................................... Add. 6
Feltoon v. MG2 Corp., No. 2:15-cv-02032, Dkt.22,
(W.D. Wash. Sept. 30, 2016)................................................................ Add. 22
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§ 78u–6
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TITLE 15—COMMERCE AND TRADE
sion to exercise similar authority or to adopt
similar rules and regulations with respect to
forward-looking statements under any other
statute under which the Commission exercises
rulemaking authority.
(i) Definitions
For purposes of this section, the following
definitions shall apply:
(1) Forward-looking statement
The term ‘‘forward-looking statement’’
means—
(A) a statement containing a projection of
revenues, income (including income loss),
earnings (including earnings loss) per share,
capital expenditures, dividends, capital
structure, or other financial items;
(B) a statement of the plans and objectives
of management for future operations, including plans or objectives relating to the
products or services of the issuer;
(C) a statement of future economic performance, including any such statement
contained in a discussion and analysis of financial condition by the management or in
the results of operations included pursuant
to the rules and regulations of the Commission;
(D) any statement of the assumptions underlying or relating to any statement described in subparagraph (A), (B), or (C);
(E) any report issued by an outside reviewer retained by an issuer, to the extent
that the report assesses a forward-looking
statement made by the issuer; or
(F) a statement containing a projection or
estimate of such other items as may be specified by rule or regulation of the Commission.
(2) Investment company
The term ‘‘investment company’’ has the
same meaning as in section 80a–3(a) of this
title.
(3) Going private transaction
The term ‘‘going private transaction’’ has
the meaning given that term under the rules
or regulations of the Commission issued pursuant to section 78m(e) of this title.
(4) Person acting on behalf of an issuer
The term ‘‘person acting on behalf of an issuer’’ means any officer, director, or employee
of such issuer.
(5) Other terms
The terms ‘‘blank check company’’, ‘‘rollup
transaction’’, ‘‘partnership’’, ‘‘limited liability
company’’, ‘‘executive officer of an entity’’
and ‘‘direct participation investment program’’, have the meanings given those terms
by rule or regulation of the Commission.
(June 6, 1934, ch. 404, title I, § 21E, as added Pub.
L. 104–67, title I, § 102(b), Dec. 22, 1995, 109 Stat.
753.)
REFERENCES IN TEXT
This chapter, referred to in subsecs. (c)(1), (f), and (g),
was in the original ‘‘this title’’. See References in Text
note set out under section 78a of this title.
EFFECTIVE DATE
This section not to affect or apply to any private action arising under this chapter or title I of the Securi-
Page 402
ties Act of 1933 (15 U.S.C. 77a et seq.), commenced before and pending on Dec. 22, 1995, see section 108 of Pub.
L. 104–67, set out as an Effective Date of 1995 Amendment note under section 77l of this title.
CONSTRUCTION
Nothing in section to be deemed to create or ratify
any implied right of action, or to prevent Commission,
by rule or regulation, from restricting or otherwise regulating private actions under this chapter, see section
203 of Pub. L. 104–67, set out as a note under section
78j–1 of this title.
§ 78u–6. Securities whistleblower incentives and
protection
(a) Definitions
In this section the following definitions shall
apply:
(1) Covered judicial or administrative action
The term ‘‘covered judicial or administrative action’’ means any judicial or administrative action brought by the Commission under
the securities laws that results in monetary
sanctions exceeding $1,000,000.
(2) Fund
The term ‘‘Fund’’ means the Securities and
Exchange Commission Investor Protection
Fund.
(3) Original information
The term ‘‘original information’’ means information that—
(A) is derived from the independent knowledge or analysis of a whistleblower;
(B) is not known to the Commission from
any other source, unless the whistleblower is
the original source of the information; and
(C) is not exclusively derived from an allegation made in a judicial or administrative
hearing, in a governmental report, hearing,
audit, or investigation, or from the news
media, unless the whistleblower is a source
of the information.
(4) Monetary sanctions
The term ‘‘monetary sanctions’’, when used
with respect to any judicial or administrative
action, means—
(A) any monies, including penalties, disgorgement, and interest, ordered to be paid;
and
(B) any monies deposited into a disgorgement fund or other fund pursuant to
section 308(b) of the Sarbanes-Oxley Act of
2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action.
(5) Related action
The term ‘‘related action’’, when used with
respect to any judicial or administrative action brought by the Commission under the securities laws, means any judicial or administrative action brought by an entity described
in subclauses (I) through (IV) of subsection
(h)(2)(D)(i) that is based upon the original information provided by a whistleblower pursuant to subsection (a) that led to the successful
enforcement of the Commission action.
(6) Whistleblower
The term ‘‘whistleblower’’ means any individual who provides, or 2 or more individuals
Add. 1
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TITLE 15—COMMERCE AND TRADE
acting jointly who provide, information relating to a violation of the securities laws to the
Commission, in a manner established, by rule
or regulation, by the Commission.
(b) Awards
(1) In general
In any covered judicial or administrative action, or related action, the Commission, under
regulations prescribed by the Commission and
subject to subsection (c), shall pay an award or
awards to 1 or more whistleblowers who voluntarily provided original information to the
Commission that led to the successful enforcement of the covered judicial or administrative
action, or related action, in an aggregate
amount equal to—
(A) not less than 10 percent, in total, of
what has been collected of the monetary
sanctions imposed in the action or related
actions; and
(B) not more than 30 percent, in total, of
what has been collected of the monetary
sanctions imposed in the action or related
actions.
(2) Payment of awards
Any amount paid under paragraph (1) shall
be paid from the Fund.
(c) Determination of amount of award; denial of
award
(1) Determination of amount of award
(A) Discretion
The determination of the amount of an
award made under subsection (b) shall be in
the discretion of the Commission.
(B) Criteria
In determining the amount of an award
made under subsection (b), the Commission—
(i) shall take into consideration—
(I) the significance of the information
provided by the whistleblower to the success of the covered judicial or administrative action;
(II) the degree of assistance provided
by the whistleblower and any legal representative of the whistleblower in a
covered judicial or administrative action;
(III) the programmatic interest of the
Commission in deterring violations of
the securities laws by making awards to
whistleblowers who provide information
that lead to the successful enforcement
of such laws; and
(IV) such additional relevant factors as
the Commission may establish by rule or
regulation; and
(ii) shall not take into consideration the
balance of the Fund.
(2) Denial of award
No award under subsection (b) shall be
made—
(A) to any whistleblower who is, or was at
the time the whistleblower acquired the
original information submitted to the Commission, a member, officer, or employee of—
Date Filed: 10/26/2016
§ 78u–6
(i) an appropriate regulatory agency;
(ii) the Department of Justice;
(iii) a self-regulatory organization;
(iv) the Public Company Accounting
Oversight Board; or
(v) a law enforcement organization;
(B) to any whistleblower who is convicted
of a criminal violation related to the judicial or administrative action for which the
whistleblower otherwise could receive an
award under this section;
(C) to any whistleblower who gains the information through the performance of an
audit of financial statements required under
the securities laws and for whom such submission would be contrary to the requirements of section 78j–1 of this title; or
(D) to any whistleblower who fails to submit information to the Commission in such
form as the Commission may, by rule, require.
(d) Representation
(1) Permitted representation
Any whistleblower who makes a claim for an
award under subsection (b) may be represented
by counsel.
(2) Required representation
(A) In general
Any whistleblower who anonymously
makes a claim for an award under subsection (b) shall be represented by counsel if
the whistleblower anonymously submits the
information upon which the claim is based.
(B) Disclosure of identity
Prior to the payment of an award, a
whistleblower shall disclose the identity of
the whistleblower and provide such other information as the Commission may require,
directly or through counsel for the whistleblower.
(e) No contract necessary
No contract with the Commission is necessary
for any whistleblower to receive an award under
subsection (b), unless otherwise required by the
Commission by rule or regulation.
(f) Appeals
Any determination made under this section,
including whether, to whom, or in what amount
to make awards, shall be in the discretion of the
Commission. Any such determination, except
the determination of the amount of an award if
the award was made in accordance with subsection (b), may be appealed to the appropriate
court of appeals of the United States not more
than 30 days after the determination is issued by
the Commission. The court shall review the determination made by the Commission in accordance with section 706 of title 5.
(g) Investor Protection Fund
(1) Fund established
There is established in the Treasury of the
United States a fund to be known as the ‘‘Securities and Exchange Commission Investor
Protection Fund’’.
(2) Use of Fund
The Fund shall be available to the Commission, without further appropriation or fiscal
year limitation, for—
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TITLE 15—COMMERCE AND TRADE
(A) paying awards to whistleblowers as
provided in subsection (b); and
(B) funding the activities of the Inspector
General of the Commission under section
78d(i) of this title.
(3) Deposits and credits
(A) In general
There shall be deposited into or credited to
the Fund an amount equal to—
(i) any monetary sanction collected by
the Commission in any judicial or administrative action brought by the Commission under the securities laws that is not
added to a disgorgement fund or other fund
under section 308 of the Sarbanes-Oxley
Act of 2002 (15 U.S.C. 7246) or otherwise distributed to victims of a violation of the securities laws, or the rules and regulations
thereunder, underlying such action, unless
the balance of the Fund at the time the
monetary sanction is collected exceeds
$300,000,000;
(ii) any monetary sanction added to a
disgorgement fund or other fund under section 308 of the Sarbanes-Oxley Act of 2002
(15 U.S.C. 7246) that is not distributed to
the victims for whom the Fund was established, unless the balance of the disgorgement fund at the time the determination is made not to distribute the monetary sanction to such victims exceeds
$200,000,000; and
(iii) all income from investments made
under paragraph (4).
(B) Additional amounts
If the amounts deposited into or credited
to the Fund under subparagraph (A) are not
sufficient to satisfy an award made under
subsection (b), there shall be deposited into
or credited to the Fund an amount equal to
the unsatisfied portion of the award from
any monetary sanction collected by the
Commission in the covered judicial or administrative action on which the award is
based.
(4) Investments
(A) Amounts in Fund may be invested
The Commission may request the Secretary of the Treasury to invest the portion
of the Fund that is not, in the discretion of
the Commission, required to meet the current needs of the Fund.
(B) Eligible investments
Investments shall be made by the Secretary of the Treasury in obligations of the
United States or obligations that are guaranteed as to principal and interest by the
United States, with maturities suitable to
the needs of the Fund as determined by the
Commission on the record.
(C) Interest and proceeds credited
The interest on, and the proceeds from the
sale or redemption of, any obligations held
in the Fund shall be credited to the Fund.
(5) Reports to Congress
Not later than October 30 of each fiscal year
beginning after July 21, 2010, the Commission
Date Filed: 10/26/2016
Page 404
shall submit to the Committee on Banking,
Housing, and Urban Affairs of the Senate, and
the Committee on Financial Services of the
House of Representatives a report on—
(A) the whistleblower award program, established under this section, including—
(i) a description of the number of awards
granted; and
(ii) the types of cases in which awards
were granted during the preceding fiscal
year;
(B) the balance of the Fund at the beginning of the preceding fiscal year;
(C) the amounts deposited into or credited
to the Fund during the preceding fiscal year;
(D) the amount of earnings on investments
made under paragraph (4) during the preceding fiscal year;
(E) the amount paid from the Fund during
the preceding fiscal year to whistleblowers
pursuant to subsection (b);
(F) the balance of the Fund at the end of
the preceding fiscal year; and
(G) a complete set of audited financial
statements, including—
(i) a balance sheet;
(ii) income statement; and
(iii) cash flow analysis.
(h) Protection of whistleblowers
(1) Prohibition against retaliation
(A) In general
No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate
against, a whistleblower in the terms and
conditions of employment because of any
lawful act done by the whistleblower—
(i) in providing information to the Commission in accordance with this section;
(ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission
based upon or related to such information;
or
(iii) in making disclosures that are required or protected under the SarbanesOxley Act of 2002 (15 U.S.C. 7201 et seq.),
this chapter, including section 78j–1(m) of
this title, section 1513(e) of title 18, and
any other law, rule, or regulation subject
to the jurisdiction of the Commission.
(B) Enforcement
(i) Cause of action
An individual who alleges discharge or
other discrimination in violation of subparagraph (A) may bring an action under
this subsection in the appropriate district
court of the United States for the relief
provided in subparagraph (C).
(ii) Subpoenas
A subpoena requiring the attendance of a
witness at a trial or hearing conducted
under this section may be served at any
place in the United States.
(iii) Statute of limitations
(I) In general
An action under this subsection may
not be brought—
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(aa) more than 6 years after the date
on which the violation of subparagraph
(A) occurred; or
(bb) more than 3 years after the date
when facts material to the right of action are known or reasonably should
have been known by the employee alleging a violation of subparagraph (A).
(II) Required action within 10 years
Notwithstanding subclause (I), an action under this subsection may not in
any circumstance be brought more than
10 years after the date on which the violation occurs.
(C) Relief
Relief for an individual prevailing in an
action brought under subparagraph (B) shall
include—
(i) reinstatement with the same seniority status that the individual would have
had, but for the discrimination;
(ii) 2 times the amount of back pay
otherwise owed to the individual, with interest; and
(iii) compensation for litigation costs,
expert witness fees, and reasonable attorneys’ fees.
(2) Confidentiality
(A) In general
Except as provided in subparagraphs (B)
and (C), the Commission and any officer or
employee of the Commission shall not disclose any information, including information provided by a whistleblower to the
Commission, which could reasonably be expected to reveal the identity of a whistleblower, except in accordance with the provisions of section 552a of title 5, unless and
until required to be disclosed to a defendant
or respondent in connection with a public
proceeding instituted by the Commission or
any entity described in subparagraph (C).
For purposes of section 552 of title 5, this
paragraph shall be considered a statute described in subsection (b)(3)(B) of such section.
(B) Exempted statute
For purposes of section 552 of title 5, this
paragraph shall be considered a statute described in subsection (b)(3)(B) of such section
552.
(C) Rule of construction
Nothing in this section is intended to
limit, or shall be construed to limit, the
ability of the Attorney General to present
such evidence to a grand jury or to share
such evidence with potential witnesses or
defendants in the course of an ongoing
criminal investigation.
(D) Availability to government agencies
(i) In general
Without the loss of its status as confidential in the hands of the Commission,
all information referred to in subparagraph (A) may, in the discretion of the
Commission, when determined by the
§ 78u–6
Commission to be necessary to accomplish
the purposes of this chapter and to protect
investors, be made available to—
(I) the Attorney General of the United
States;
(II) an appropriate regulatory authority;
(III) a self-regulatory organization;
(IV) a State attorney general in connection with any criminal investigation;
(V) any appropriate State regulatory
authority;
(VI) the Public Company Accounting
Oversight Board;
(VII) a foreign securities authority;
and
(VIII) a foreign law enforcement authority.
(ii) Confidentiality
(I) In general
Each of the entities described in subclauses (I) through (VI) of clause (i) shall
maintain such information as confidential in accordance with the requirements
established under subparagraph (A).
(II) Foreign authorities
Each of the entities described in subclauses (VII) and (VIII) of clause (i) shall
maintain such information in accordance with such assurances of confidentiality as the Commission determines
appropriate.
(3) Rights retained
Nothing in this section shall be deemed to
diminish the rights, privileges, or remedies of
any whistleblower under any Federal or State
law, or under any collective bargaining agreement.
(i) Provision of false information
A whistleblower shall not be entitled to an
award under this section if the whistleblower—
(1) knowingly and willfully makes any false,
fictitious, or fraudulent statement or representation; or
(2) uses any false writing or document knowing the writing or document contains any
false, fictitious, or fraudulent statement or
entry.
(j) Rulemaking authority
The Commission shall have the authority to
issue such rules and regulations as may be necessary or appropriate to implement the provisions of this section consistent with the purposes of this section.
(June 6, 1934, ch. 404, title I, § 21F, as added Pub.
L. 111–203, title IX, § 922(a), July 21, 2010, 124
Stat. 1841.)
REFERENCES IN TEXT
The Sarbanes-Oxley Act of 2002, referred to in subsec.
(h)(1)(A)(iii), is Pub. L. 107–204, July 30, 2002, 116 Stat.
745. For complete classification of this Act to the Code,
see Short Title note set out under section 7201 of this
title and Tables.
This chapter, referred to in subsec. (h)(1)(A)(iii), was
in the original ‘‘the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.)’’. This chapter, referred to in subsec.
(h)(2)(D)(i), was in the original ‘‘this Act’’. See Ref-
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erences in Text note set out under section 78a of this
title.
EFFECTIVE DATE
Section effective 1 day after July 21, 2010, except as
otherwise provided, see section 4 of Pub. L. 111–203, set
out as a note under section 5301 of Title 12, Banks and
Banking.
§ 78u–7. Implementation and transition provisions for whistleblower protection
(a) Implementing rules
The Commission shall issue final regulations
implementing the provisions of section 78u–6 of
this title, as added by this subtitle, not later
than 270 days after July 21, 2010.
(b) Original information
Information provided to the Commission in
writing by a whistleblower shall not lose the
status of original information (as defined in section 78u–6(a)(3) of this title, as added by this
subtitle) solely because the whistleblower provided the information prior to the effective date
of the regulations, if the information is provided
by the whistleblower after July 21, 2010.
(c) Awards
A whistleblower may receive an award pursuant to section 78u–6 of this title, as added by
this subtitle, regardless of whether any violation of a provision of the securities laws, or a
rule or regulation thereunder, underlying the judicial or administrative action upon which the
award is based, occurred prior to July 21, 2010.
(d) Administration and enforcement
The Securities and Exchange Commission
shall establish a separate office within the Commission to administer and enforce the provisions
of section 78u–6 of this title (as add 1 by section
922(a)).2 Such office shall report annually to the
Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives on
its activities, whistleblower complaints, and the
response of the Commission to such complaints.
(Pub. L. 111–203, title IX, § 924, July 21, 2010, 124
Stat. 1850.)
REFERENCES IN TEXT
This subtitle, referred to in subsecs. (a) to (c), means
subtitle B (§§ 921–929Z) of title IX of Pub. L. 111–203.
Section 922(a), referred to in subsec. (d), means section 922(a) of Pub. L. 111–203.
CODIFICATION
Section was enacted as part of the Investor Protection and Securities Reform Act of 2010, and also as part
of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, and not as part of the Securities Exchange Act of 1934 which comprises this chapter.
EFFECTIVE DATE
Section effective 1 day after July 21, 2010, except as
otherwise provided, see section 4 of Pub. L. 111–203, set
out as a note under section 5301 of Title 12, Banks and
Banking.
DEFINITIONS
For definitions of ‘‘Commission’’ and ‘‘securities
laws’’ as used in this section, see section 5301 of Title
12, Banks and Banking.
1 So in original. Probably should be ‘‘added’’.
2 See References in Text note below.
Page 406
§ 78v. Hearings by Commission
Hearings may be public and may be held before the Commission, any member or members
thereof, or any officer or officers of the Commission designated by it, and appropriate records
thereof shall be kept.
(June 6, 1934, ch. 404, title I, § 22, 48 Stat. 901.)
TRANSFER OF FUNCTIONS
For transfer of functions of Securities and Exchange
Commission, with certain exceptions, to Chairman of
such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2,
eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under
section 78d of this title.
§ 78w. Rules, regulations, and orders; annual reports
(a) Power to make rules and regulations; considerations; public disclosure
(1) The Commission, the Board of Governors of
the Federal Reserve System, and the other agencies enumerated in section 78c(a)(34) of this title
shall each have power to make such rules and
regulations as may be necessary or appropriate
to implement the provisions of this chapter for
which they are responsible or for the execution
of the functions vested in them by this chapter,
and may for such purposes classify persons, securities, transactions, statements, applications,
reports, and other matters within their respective jurisdictions, and prescribe greater, lesser,
or different requirements for different classes
thereof. No provision of this chapter imposing
any liability shall apply to any act done or
omitted in good faith in conformity with a rule,
regulation, or order of the Commission, the
Board of Governors of the Federal Reserve System, other agency enumerated in section
78c(a)(34) of this title, or any self-regulatory organization, notwithstanding that such rule, regulation, or order may thereafter be amended or
rescinded or determined by judicial or other authority to be invalid for any reason.
(2) The Commission and the Secretary of the
Treasury, in making rules and regulations pursuant to any provisions of this chapter, shall
consider among other matters the impact any
such rule or regulation would have on competition. The Commission and the Secretary of the
Treasury shall not adopt any such rule or regulation which would impose a burden on competition not necessary or appropriate in furtherance
of the purposes of this chapter. The Commission
and the Secretary of the Treasury shall include
in the statement of basis and purpose incorporated in any rule or regulation adopted under
this chapter, the reasons for the Commission’s
or the Secretary’s determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of this chapter.
(3) The Commission and the Secretary, in
making rules and regulations pursuant to any
provision of this chapter, considering any application for registration in accordance with section 78s(a) of this title, or reviewing any proposed rule change of a self-regulatory organization in accordance with section 78s(b) of this
title, shall keep in a public file and make available for copying all written statements filed
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Securities and Exchange Commission
§ 240.21F–1
(A) Revoking, suspending or placing
limitations on the registration, activities, functions, or operations of a
broker or dealer;
(B) Suspending, barring, or placing
limitations on the association, activities, or functions of an associated person of a broker or dealer;
(C) Suspending or expelling any person from membership or participation
in a self-regulatory organization; or
(D) Suspending or barring any person
from being associated with a member
of a national securities exchange or
registered securities association;
(ii) Any conviction of injunction of a
type described in section 15(b)(4) (B) or
(C) of the Act; or
(iii) A failure under the provisions of
Rule G–4 of the Municipal Securities
Rulemaking Board under the Act, to
meet qualifications standards, and
such failure may be remedied by a finding or determination by the Commission pursuant to such rule(s) that the
person affected nevertheless meets
such standards.
(2) The term control shall mean the
power to direct or cause the direction
of the management or policies of a
company whether through ownership of
securities, by contract or otherwise;
Provided, however, That
(i) Any person who, directly or indirectly, (A) has the right to vote 10 percent or more of the voting securities,
(B) is entitled to receive 10 percent or
more of the net profits, or (C) is a director (or person occupying a similar
status or performing similar functions)
of a company shall be presumed to be a
person who controls such company;
(ii) Any person not covered by paragraph (i) shall be presumed not to be a
person who controls such company; and
(iii) Any presumption may be rebutted on an appropriate showing.
(g) Where it deems appropriate to do
so, the Commission may determine
whether to (1) direct, pursuant to section 6(c)(2), 15A(g)(2) or 17A(b)(4)(A) of
the Act, that a proposed admission covered by a notice filed pursuant to paragraph (a) of this section shall be denied
or an order barring a proposed association issued or (2) grant or deny an application filed pursuant to paragraph
(d) of this section on the basis of the
notice or application filed by the self-
regulatory organization, the person
subject to the disqualification, or other
applicant (such as the proposed employer) on behalf of such person, without oral hearing. Any request for oral
hearing or argument should be submitted with the notice or application.
(h) The Rules of Practice (17 CFR
part 201) shall apply to proceedings
under this rule to the extent that they
are not inconsistent with this rule.
(15 U.S.C. 78a et seq., as amended by Pub. L.
94–29 (June 4, 1975) and by Pub. L. 98–38 (June
6, 1983), particularly secs. 11A, 15, 19 and 23
thereof (15 U.S.C. 78k–1, 78o, 78s and 78w))
[46 FR 58661, Dec. 3, 1981, as amended at 48
FR 53691, Nov. 29, 1983]
SECURITIES WHISTLEBLOWER INCENTIVES
AND PROTECTIONS
SOURCE:
Sections
240.21F–1
through
240.21F–17 appear at 76 FR 34363, June 13,
2011.
§ 240.21F–1 General.
Section 21F of the Securities Exchange Act of 1934 (‘‘Exchange Act’’)
(15 U.S.C. 78u-6), entitled ‘‘Securities
Whistleblower Incentives and Protection,’’ requires the Securities and Exchange Commission (‘‘Commission’’) to
pay awards, subject to certain limitations and conditions, to whistleblowers
who provide the Commission with
original information about violations
of the Federal securities laws. These
rules describe the whistleblower program that the Commission has established to implement the provisions of
Section 21F, and explain the procedures
you will need to follow in order to be
eligible for an award. You should read
these procedures carefully because the
failure to take certain required steps
within the time frames described in
these rules may disqualify you from receiving an award for which you otherwise may be eligible. Unless expressly
provided for in these rules, no person is
authorized to make any offer or promise, or otherwise to bind the Commission with respect to the payment of
any award or the amount thereof. The
Securities and Exchange Commission’s
Office of the Whistleblower administers
our whistleblower program. Questions
about the program or these rules
should be directed to the SEC Office of
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17 CFR Ch. II (4–1–16 Edition)
the Whistleblower, 100 F Street, NE.,
Washington, DC 20549–5631.
§ 240.21F–2 Whistleblower status and
retaliation protection.
(a) Definition of a whistleblower. (1)
You are a whistleblower if, alone or
jointly with others, you provide the
Commission with information pursuant
to the procedures set forth in § 240.21F–
9(a) of this chapter, and the information relates to a possible violation of
the Federal securities laws (including
any rules or regulations thereunder)
that has occurred, is ongoing, or is
about to occur. A whistleblower must
be an individual. A company or another
entity is not eligible to be a whistleblower.
(2) To be eligible for an award, you
must submit original information to
the Commission in accordance with the
procedures and conditions described in
§§ 240.21F–4, 240.21F–8, and 240.21F–9 of
this chapter.
(b) Prohibition against retaliation. (1)
For purposes of the anti-retaliation
protections
afforded
by
Section
21F(h)(1) of the Exchange Act (15 U.S.C.
78u-6(h)(1)), you are a whistleblower if:
(i) You possess a reasonable belief
that the information you are providing
relates to a possible securities law violation (or, where applicable, to a possible violation of the provisions set
forth in 18 U.S.C. 1514A(a)) that has occurred, is ongoing, or is about to occur,
and;
(ii) You provide that information in a
manner
described
in
Section
21F(h)(1)(A) of the Exchange Act (15
U.S.C. 78u-6(h)(1)(A)).
(iii) The anti-retaliation protections
apply whether or not you satisfy the
requirements, procedures and conditions to qualify for an award.
(2) Section 21F(h)(1) of the Exchange
Act (15 U.S.C. 78u-6(h)(1)), including
any rules promulgated thereunder,
shall be enforceable in an action or
proceeding brought by the Commission.
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§ 240.21F–3 Payment of awards.
(a) Commission actions: Subject to the
eligibility requirements described in
§§ 240.21F–2, 240.21F–8, and 240.21F–16 of
this chapter, the Commission will pay
an award or awards to one or more
whistleblowers who:
(1) Voluntarily provide the Commission
(2) With original information
(3) That leads to the successful enforcement by the Commission of a Federal court or administrative action
(4) In which the Commission obtains
monetary sanctions totaling more than
$1,000,000.
NOTE TO PARAGRAPH (a): The terms voluntarily, original information, leads to successful
enforcement, action, and monetary sanctions
are defined in § 240.21F–4 of this chapter.
(b) Related actions: The Commission
will also pay an award based on
amounts collected in certain related
actions.
(1) A related action is a judicial or administrative action that is brought by:
(i) The Attorney General of the
United States;
(ii) An appropriate regulatory authority;
(iii) A self-regulatory organization;
or
(iv) A state attorney general in a
criminal case, and is based on the same
original information that the whistleblower voluntarily provided to the
Commission, and that led the Commission to obtain monetary sanctions totaling more than $1,000,000.
NOTE TO PARAGRAPH (b)(1): The terms appropriate regulatory authority and self-regulatory organization are defined in § 240.21F–4 of
this chapter.
(2) In order for the Commission to
make an award in connection with a
related action, the Commission must
determine that the same original information that the whistleblower gave to
the Commission also led to the successful enforcement of the related action
under the same criteria described in
these rules for awards made in connection with Commission actions. The
Commission may seek assistance and
confirmation from the authority bringing the related action in making this
determination. The Commission will
deny an award in connection with the
related action if:
(i) The Commission determines that
the criteria for an award are not satisfied; or
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Securities and Exchange Commission
§ 240.21F–4
(ii) The Commission is unable to
make a determination because the Office of the Whistleblower could not obtain sufficient and reliable information
that could be used as the basis for an
award determination pursuant to
§ 240.21F–12(a) of this chapter. Additional procedures apply to the payment
of awards in related actions. These procedures are described in §§ 240.21F–11
and 240.21F–14 of this chapter.
(3) The Commission will not make an
award to you for a related action if you
have already been granted an award by
the Commodity Futures Trading Commission (‘‘CFTC’’) for that same action
pursuant to its whistleblower award
program under Section 23 of the Commodity Exchange Act (7 U.S.C. 26).
Similarly, if the CFTC has previously
denied an award to you in a related action, you will be precluded from relitigating any issues before the Commission that the CFTC resolved against
you as part of the award denial.
considered voluntary if you voluntarily
provided the same information to one
of the other authorities identified
above prior to receiving a request, inquiry, or demand from the Commission.
(3) In addition, your submission will
not be considered voluntary if you are
required to report your original information to the Commission as a result
of a pre-existing legal duty, a contractual duty that is owed to the Commission or to one of the other authorities
set forth in paragraph (a)(1) of this section, or a duty that arises out of a judicial or administrative order.
(b) Original information. (1) In order
for your whistleblower submission to
be considered original information, it
must be:
(i) Derived from your independent
knowledge or independent analysis;
(ii) Not already known to the Commission from any other source, unless
you are the original source of the information;
(iii) Not exclusively derived from an
allegation made in a judicial or administrative hearing, in a governmental
report, hearing, audit, or investigation,
or from the news media, unless you are
a source of the information; and
(iv) Provided to the Commission for
the first time after July 21, 2010 (the
date of enactment of the Dodd-Frank
Wall Street Reform and Consumer Protection Act).
(2) Independent knowledge means factual information in your possession
that is not derived from publicly available sources. You may gain independent knowledge from your experiences, communications and observations in your business or social interactions.
(3) Independent analysis means your
own analysis, whether done alone or in
combination with others. Analysis
means your examination and evaluation of information that may be publicly available, but which reveals information that is not generally known or
available to the public.
(4) The Commission will not consider
information to be derived from your
independent knowledge or independent
analysis in any of the following circumstances:
§ 240.21F–4 Other definitions.
(a) Voluntary submission of information. (1) Your submission of information is made voluntarily within the
meaning of §§ 240.21F–1 through 240.21F–
17 of this chapter if you provide your
submission before a request, inquiry, or
demand that relates to the subject
matter of your submission is directed
to you or anyone representing you
(such as an attorney):
(i) By the Commission;
(ii) In connection with an investigation, inspection, or examination by the
Public Company Accounting Oversight
Board, or any self-regulatory organization; or
(iii) In connection with an investigation by Congress, any other authority
of the Federal government, or a state
Attorney General or securities regulatory authority.
(2) If the Commission or any of these
other authorities direct a request, inquiry, or demand as described in paragraph (a)(1) of this section to you or
your representative first, your submission will not be considered voluntary,
and you will not be eligible for an
award, even if your response is not
compelled by subpoena or other applicable law. However, your submission of
information to the Commission will be
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(i) If you obtained the information
through a communication that was
subject to the attorney-client privilege, unless disclosure of that information would otherwise be permitted by
an attorney pursuant to § 205.3(d)(2) of
this chapter, the applicable state attorney conduct rules, or otherwise;
(ii) If you obtained the information
in connection with the legal representation of a client on whose behalf you
or your employer or firm are providing
services, and you seek to use the information to make a whistleblower submission for your own benefit, unless
disclosure would otherwise be permitted by an attorney pursuant to
§ 205.3(d)(2) of this chapter, the applicable state attorney conduct rules, or
otherwise; or
(iii) In circumstances not covered by
paragraphs (b)(4)(i) or (b)(4)(ii) of this
section, if you obtained the information because you were:
(A) An officer, director, trustee, or
partner of an entity and another person informed you of allegations of misconduct, or you learned the information in connection with the entity’s
processes for identifying, reporting,
and addressing possible violations of
law;
(B) An employee whose principal duties involve compliance or internal
audit responsibilities, or you were employed by or otherwise associated with
a firm retained to perform compliance
or internal audit functions for an entity;
(C) Employed by or otherwise associated with a firm retained to conduct an
inquiry or investigation into possible
violations of law; or
(D) An employee of, or other person
associated with, a public accounting
firm, if you obtained the information
through the performance of an engagement required of an independent public
accountant under the Federal securities laws (other than an audit subject
to § 240.21F–8(c)(4) of this chapter), and
that information related to a violation
by the engagement client or the client’s directors, officers or other employees.
(iv) If you obtained the information
by a means or in a manner that is determined by a United States court to
violate applicable Federal or state
criminal law; or
(v) Exceptions. Paragraph (b)(4)(iii) of
this section shall not apply if:
(A) You have a reasonable basis to
believe that disclosure of the information to the Commission is necessary to
prevent the relevant entity from engaging in conduct that is likely to
cause substantial injury to the financial interest or property of the entity
or investors;
(B) You have a reasonable basis to
believe that the relevant entity is engaging in conduct that will impede an
investigation of the misconduct; or
(C) At least 120 days have elapsed
since you provided the information to
the relevant entity’s audit committee,
chief legal officer, chief compliance officer (or their equivalents), or your supervisor, or since you received the information, if you received it under circumstances indicating that the entity’s audit committee, chief legal officer, chief compliance officer (or their
equivalents), or your supervisor was already aware of the information.
(vi) If you obtained the information
from a person who is subject to this
section, unless the information is not
excluded from that person’s use pursuant to this section, or you are providing the Commission with information about possible violations involving that person.
(5) The Commission will consider you
to be an original source of the same information that we obtain from another
source if the information satisfies the
definition of original information and
the other source obtained the information from you or your representative.
In order to be considered an original
source of information that the Commission receives from Congress, any
other authority of the Federal government, a state Attorney General or securities regulatory authority, any selfregulatory organization, or the Public
Company Accounting Oversight Board,
you must have voluntarily given such
authorities the information within the
meaning of these rules. You must establish your status as the original
source of information to the Commission’s satisfaction. In determining
whether you are the original source of
information, the Commission may seek
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assistance and confirmation from one
of the other authorities described
above, or from another entity (including your employer), in the event that
you claim to be the original source of
information that an authority or another entity provided to the Commission.
(6) If the Commission already knows
some information about a matter from
other sources at the time you make
your submission, and you are not an
original source of that information
under paragraph (b)(5) of this section,
the Commission will consider you an
original source of any information you
provide that is derived from your independent knowledge or analysis and
that materially adds to the information that the Commission already possesses.
(7) If you provide information to the
Congress, any other authority of the
Federal government, a state Attorney
General or securities regulatory authority, any self-regulatory organization, or the Public Company Accounting Oversight Board, or to an entity’s
internal whistleblower, legal, or compliance procedures for reporting allegations of possible violations of law, and
you, within 120 days, submit the same
information to the Commission pursuant to § 240.21F–9 of this chapter, as you
must do in order for you to be eligible
to be considered for an award, then, for
purposes of evaluating your claim to
an award under §§ 240.21F–10 and
240.21F–11 of this chapter, the Commission will consider that you provided information as of the date of your original disclosure, report or submission to
one of these other authorities or persons. You must establish the effective
date of any prior disclosure, report, or
submission, to the Commission’s satisfaction. The Commission may seek assistance and confirmation from the
other authority or person in making
this determination.
(c) Information that leads to successful
enforcement. The Commission will consider that you provided original information that led to the successful enforcement of a judicial or administrative action in any of the following circumstances:
(1) You gave the Commission original
information that was sufficiently spe-
cific, credible, and timely to cause the
staff to commence an examination,
open an investigation, reopen an investigation that the Commission had
closed, or to inquire concerning different conduct as part of a current examination or investigation, and the
Commission brought a successful judicial or administrative action based in
whole or in part on conduct that was
the subject of your original information; or
(2) You gave the Commission original
information about conduct that was already under examination or investigation by the Commission, the Congress,
any other authority of the Federal government, a state Attorney General or
securities regulatory authority, any
self-regulatory organization, or the
PCAOB (except in cases where you
were an original source of this information as defined in paragraph (b)(4) of
this section), and your submission significantly contributed to the success of
the action.
(3) You reported original information
through an entity’s internal whistleblower, legal, or compliance procedures
for reporting allegations of possible
violations of law before or at the same
time you reported them to the Commission; the entity later provided your
information to the Commission, or provided results of an audit or investigation initiated in whole or in part in response to information you reported to
the entity; and the information the entity provided to the Commission satisfies either paragraph (c)(1) or (c)(2) of
this section. Under this paragraph
(c)(3), you must also submit the same
information to the Commission in accordance with the procedures set forth
in § 240.21F–9 within 120 days of providing it to the entity.
(d) An action generally means a single captioned judicial or administrative proceeding brought by the Commission. Notwithstanding the foregoing:
(1) For purposes of making an award
under § 240.21F–10 of this chapter, the
Commission will treat as a Commission
action two or more administrative or
judicial proceedings brought by the
Commission if these proceedings arise
out of the same nucleus of operative
facts; or
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(2) For purposes of determining the
payment on an award under § 240.21F–14
of this chapter, the Commission will
deem as part of the Commission action
upon which the award was based any
subsequent Commission proceeding
that, individually, results in a monetary sanction of $1,000,000 or less, and
that arises out of the same nucleus of
operative facts.
(e) Monetary sanctions means any
money,
including
penalties,
disgorgement, and interest, ordered to
be paid and any money deposited into a
disgorgement fund or other fund pursuant to Section 308(b) of the SarbanesOxley Act of 2002 (15 U.S.C. 7246(b)) as a
result of a Commission action or a related action.
(f) Appropriate regulatory agency
means the Commission, the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, and any other agencies that
may be defined as appropriate regulatory agencies under Section 3(a)(34)
of the Exchange Act (15 U.S.C.
78c(a)(34)).
(g) Appropriate regulatory authority
means an appropriate regulatory agency other than the Commission.
(h) Self-regulatory organization means
any national securities exchange, registered securities association, registered clearing agency, the Municipal
Securities Rulemaking Board, and any
other organizations that may be defined as self-regulatory organizations
under Section 3(a)(26) of the Exchange
Act (15 U.S.C. 78c(a)(26)).
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§ 240.21F–5 Amount of award.
(a) The determination of the amount
of an award is in the discretion of the
Commission.
(b) If all of the conditions are met for
a whistleblower award in connection
with a Commission action or a related
action, the Commission will then decide the percentage amount of the
award applying the criteria set forth in
§ 240.21F–6 of this chapter and pursuant
to the procedures set forth in
§§ 240.21F–10 and 240.21F–11 of this chapter. The amount will be at least 10 percent and no more than 30 percent of the
monetary sanctions that the Commis-
sion and the other authorities are able
to collect. The percentage awarded in
connection with a Commission action
may differ from the percentage awarded in connection with a related action.
(c) If the Commission makes awards
to more than one whistleblower in connection with the same action or related
action, the Commission will determine
an individual percentage award for
each whistleblower, but in no event
will the total amount awarded to all
whistleblowers in the aggregate be less
than 10 percent or greater than 30 percent of the amount the Commission or
the other authorities collect.
§ 240.21F–6 Criteria for
amount of award.
In exercising its discretion to determine the appropriate award percentage, the Commission may consider the
following factors in relation to the
unique facts and circumstances of each
case, and may increase or decrease the
award percentage based on its analysis
of these factors. In the event that
awards are determined for multiple
whistleblowers in connection an action, these factors will be used to determine the relative allocation of
awards among the whistleblowers.
(a) Factors that may increase the
amount of a whistleblower’s award. In determining whether to increase the
amount of an award, the Commission
will consider the following factors,
which are not listed in order of importance.
(1) Significance of the information provided by the whistleblower. The Commission will assess the significance of the
information provided by a whistleblower to the success of the Commission action or related action. In considering this factor, the Commission may
take into account, among other things:
(i) The nature of the information provided by the whistleblower and how it
related to the successful enforcement
action, including whether the reliability and completeness of the information provided to the Commission by
the whistleblower resulted in the conservation of Commission resources;
(ii) The degree to which the information provided by the whistleblower supported one or more successful claims
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brought in the Commission or related
action.
(2) Assistance provided by the whistleblower. The Commission will assess the
degree of assistance provided by the
whistleblower and any legal representative of the whistleblower in the Commission action or related action. In
considering this factor, the Commission may take into account, among
other things:
(i) Whether the whistleblower provided ongoing, extensive, and timely
cooperation and assistance by, for example, helping to explain complex
transactions, interpreting key evidence, or identifying new and productive lines of inquiry;
(ii) The timeliness of the whistleblower’s initial report to the Commission or to an internal compliance or reporting system of business organizations committing, or impacted by, the
securities violations, where appropriate;
(iii) The resources conserved as a result of the whistleblower’s assistance;
(iv) Whether the whistleblower appropriately encouraged or authorized
others to assist the staff of the Commission who might otherwise not have
participated in the investigation or related action;
(v) The efforts undertaken by the
whistleblower to remediate the harm
caused by the violations, including assisting the authorities in the recovery
of the fruits and instrumentalities of
the violations; and
(vi) Any unique hardships experienced by the whistleblower as a result
of his or her reporting and assisting in
the enforcement action.
(3) Law enforcement interest. The Commission will assess its programmatic
interest in deterring violations of the
securities laws by making awards to
whistleblowers who provide information that leads to the successful enforcement of such laws. In considering
this factor, the Commission may take
into account, among other things:
(i) The degree to which an award enhances the Commission’s ability to enforce the Federal securities laws and
protect investors; and
(ii) The degree to which an award encourages the submission of high quality information from whistleblowers by
appropriately
rewarding
whistleblowers’ submission of significant information and assistance, even in cases
where the monetary sanctions available for collection are limited or potential monetary sanctions were reduced
or eliminated by the Commission because an entity self-reported a securities violation following the whistleblower’s related internal disclosure, report, or submission.
(iii) Whether the subject matter of
the action is a Commission priority,
whether the reported misconduct involves regulated entities or fiduciaries,
whether the whistleblower exposed an
industry-wide practice, the type and
severity of the securities violations,
the age and duration of misconduct,
the number of violations, and the isolated, repetitive, or ongoing nature of
the violations; and
(iv) The dangers to investors or others presented by the underlying violations involved in the enforcement action, including the amount of harm or
potential harm caused by the underlying violations, the type of harm resulting from or threatened by the underlying violations, and the number of
individuals or entities harmed.
(4) Participation in internal compliance
systems. The Commission will assess
whether, and the extent to which, the
whistleblower and any legal representative of the whistleblower participated
in internal compliance systems. In considering this factor, the Commission
may take into account, among other
things:
(i) Whether, and the extent to which,
a whistleblower reported the possible
securities violations through internal
whistleblower, legal or compliance procedures before, or at the same time as,
reporting them to the Commission; and
(ii) Whether, and the extent to which,
a whistleblower assisted any internal
investigation or inquiry concerning the
reported securities violations.
(b) Factors that may decrease the
amount of a whistleblower’s award. In determining whether to decrease the
amount of an award, the Commission
will consider the following factors,
which are not listed in order of importance.
(1) Culpability. The Commission will
assess the culpability or involvement
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of the whistleblower in matters associated with the Commission’s action or
related actions. In considering this factor, the Commission may take into account, among other things:
(i) The whistleblower’s role in the securities violations;
(ii) The whistleblower’s education,
training, experience, and position of responsibility at the time the violations
occurred;
(iii) Whether the whistleblower acted
with scienter, both generally and in relation to others who participated in
the violations;
(iv) Whether the whistleblower financially benefitted from the violations;
(v) Whether the whistleblower is a recidivist;
(vi) The egregiousness of the underlying fraud committed by the whistleblower; and
(vii) Whether the whistleblower
knowingly interfered with the Commission’s investigation of the violations or
related enforcement actions.
(2) Unreasonable reporting delay. The
Commission will assess whether the
whistleblower unreasonably delayed reporting the securities violations. In
considering this factor, the Commission may take into account, among
other things:
(i) Whether the whistleblower was
aware of the relevant facts but failed
to take reasonable steps to report or
prevent the violations from occurring
or continuing;
(ii) Whether the whistleblower was
aware of the relevant facts but only reported them after learning about a related inquiry, investigation, or enforcement action; and
(iii) Whether there was a legitimate
reason for the whistleblower to delay
reporting the violations.
(3) Interference with internal compliance and reporting systems. The Commission will assess, in cases where the
whistleblower interacted with his or
her entity’s internal compliance or reporting system, whether the whistleblower undermined the integrity of
such system. In considering this factor,
the Commission will take into account
whether there is evidence provided to
the Commission that the whistleblower
knowingly:
(i) Interfered with an entity’s established legal, compliance, or audit procedures to prevent or delay detection
of the reported securities violation;
(ii) Made any material false, fictitious, or fraudulent statements or representations that hindered an entity’s
efforts to detect, investigate, or remediate the reported securities violations; and
(iii) Provided any false writing or
document knowing the writing or document contained any false, fictitious or
fraudulent statements or entries that
hindered an entity’s efforts to detect,
investigate, or remediate the reported
securities violations.
§ 240.21F–7
sions.
Confidentiality of submis-
(a) Section 21F(h)(2) of the Exchange
Act (15 U.S.C. 78u–6(h)(2)) requires that
the Commission not disclose information that could reasonably be expected
to reveal the identity of a whistleblower, except that the Commission
may disclose such information in the
following circumstances:
(1) When disclosure is required to a
defendant or respondent in connection
with a Federal court or administrative
action that the Commission files or in
another public action or proceeding
that is filed by an authority to which
we provide the information, as described below;
(2) When the Commission determines
that it is necessary to accomplish the
purposes of the Exchange Act (15 U.S.C.
78a) and to protect investors, it may
provide your information to the Department of Justice, an appropriate
regulatory authority, a self regulatory
organization, a state attorney general
in connection with a criminal investigation, any appropriate state regulatory authority, the Public Company
Accounting Oversight Board, or foreign
securities and law enforcement authorities. Each of these entities other
than foreign securities and law enforcement authorities is subject to the confidentiality requirements set forth in
Section 21F(h) of the Exchange Act (15
U.S.C. 78u–6(h)). The Commission will
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determine what assurances of confidentiality it deems appropriate in providing such information to foreign securities and law enforcement authorities.
(3) The Commission may make disclosures in accordance with the Privacy Act of 1974 (5 U.S.C. 552a).
(b) You may submit information to
the Commission anonymously. If you
do so, however, you must also do the
following:
(1) You must have an attorney represent you in connection with both
your submission of information and
your claim for an award, and your attorney’s name and contact information
must be provided to the Commission at
the time you submit your information;
(2) You and your attorney must follow the procedures set forth in
§ 240.21F–9 of this chapter for submitting
original
information
anonymously; and
(3) Before the Commission will pay
any award to you, you must disclose
your identity to the Commission and
your identity must be verified by the
Commission as set forth in § 240.21F–10
of this chapter.
in a complete and truthful manner,
through follow-up meetings, or in other
forms that our staff may agree to;
(3) Provide testimony or other evidence acceptable to the staff relating
to whether you are eligible, or otherwise satisfy any of the conditions, for
an award; and
(4) Enter into a confidentiality agreement in a form acceptable to the Office
of the Whistleblower, covering any
non-public information that the Commission provides to you, and including
a provision that a violation of the
agreement may lead to your ineligibility to receive an award.
(c) You are not eligible to be considered for an award if you do not satisfy
the requirements of paragraphs (a) and
(b) of this section. In addition, you are
not eligible if:
(1) You are, or were at the time you
acquired the original information provided to the Commission, a member,
officer, or employee of the Commission, the Department of Justice, an appropriate regulatory agency, a self-regulatory organization, the Public Company Accounting Oversight Board, or
any law enforcement organization;
(2) You are, or were at the time you
acquired the original information provided to the Commission, a member,
officer, or employee of a foreign government, any political subdivision, department, agency, or instrumentality
of a foreign government, or any other
foreign financial regulatory authority
as that term is defined in Section
3(a)(52) of the Exchange Act (15 U.S.C.
78c(a)(52));
(3) You are convicted of a criminal
violation that is related to the Commission action or to a related action
(as defined in § 240.21F–4 of this chapter) for which you otherwise could receive an award;
(4) You obtained the original information that you gave the Commission
through an audit of a company’s financial statements, and making a whistleblower submission would be contrary
to requirements of Section 10A of the
Exchange Act (15 U.S.C. 78j-a).
(5) You are the spouse, parent, child,
or sibling of a member or employee of
the Commission, or you reside in the
same household as a member or employee of the Commission;
§ 240.21F–8 Eligibility.
(a) To be eligible for a whistleblower
award, you must give the Commission
information in the form and manner
that the Commission requires. The procedures for submitting information and
making a claim for an award are described in § 240.21F–9 through § 240.21F–
11 of this chapter. You should read
these procedures carefully because you
need to follow them in order to be eligible for an award, except that the
Commission may, in its sole discretion,
waive any of these procedures based
upon a showing of extraordinary circumstances.
(b) In addition to any forms required
by these rules, the Commission may
also require that you provide certain
additional information. You may be required to:
(1) Provide explanations and other
assistance in order that the staff may
evaluate and use the information that
you submitted;
(2) Provide all additional information
in your possession that is related to
the subject matter of your submission
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(6) You acquired the original information you gave the Commission from
a person:
(i) Who is subject to paragraph (c)(4)
of this section, unless the information
is not excluded from that person’s use,
or you are providing the Commission
with information about possible violations involving that person; or
(ii) With the intent to evade any provision of these rules; or
(7) In your whistleblower submission,
your other dealings with the Commission, or your dealings with another authority in connection with a related
action, you knowingly and willfully
make any false, fictitious, or fraudulent statement or representation, or
use any false writing or document
knowing that it contains any false, fictitious, or fraudulent statement or
entry with intent to mislead or otherwise hinder the Commission or another
authority.
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§ 240.21F–9 Procedures for submitting
original information.
(a) To be considered a whistleblower
under Section 21F of the Exchange Act
(15 U.S.C. 78u–6(h)), you must submit
your information about a possible securities law violation by either of these
methods:
(1) Online, through the Commission’s
Web site located at http://www.sec.gov;
or
(2) By mailing or faxing a Form TCR
(Tip, Complaint or Referral) (referenced in § 249.1800 of this chapter) to
the SEC Office of the Whistleblower,
100 F Street NE., Washington, DC
20549–5631, Fax (703) 813–9322.
(b) Further, to be eligible for an
award, you must declare under penalty
of perjury at the time you submit your
information pursuant to paragraph
(a)(1) or (2) of this section that your information is true and correct to the
best of your knowledge and belief.
(c) Notwithstanding paragraphs (a)
and (b) of this section, if you are providing your original information to the
Commission anonymously, then your
attorney must submit your information on your behalf pursuant to the
procedures specified in paragraph (a) of
this section. Prior to your attorney’s
submission, you must provide your attorney with a completed Form TCR
(referenced in § 249.1800 of this chapter)
that you have signed under penalty of
perjury. When your attorney makes
her submission on your behalf, your attorney will be required to certify that
he or she:
(1) Has verified your identity;
(2) Has reviewed your completed and
signed Form TCR (referenced in
§ 249.1800 of this chapter) for completeness and accuracy and that the information contained therein is true, correct and complete to the best of the attorney’s knowledge, information and
belief;
(3) Has obtained your non-waivable
consent to provide the Commission
with your original completed and
signed Form TCR (referenced in
§ 249.1800 of this chapter) in the event
that the Commission requests it due to
concerns that you may have knowingly
and willfully made false, fictitious, or
fraudulent statements or representations, or used any false writing or document knowing that the writing or
document contains any false fictitious
or fraudulent statement or entry; and
(4) Consents to be legally obligated to
provide the signed Form TCR (referenced in § 249.1800 of this chapter)
within seven (7) calendar days of receiving such request from the Commission.
(d) If you submitted original information in writing to the Commission
after July 21, 2010 (the date of enactment of the Dodd-Frank Wall Street
Reform and Consumer Protection Act)
but before the effective date of these
rules, your submission will be deemed
to satisfy the requirements set forth in
paragraphs (a) and (b) of this section. If
you were an anonymous whistleblower,
however, you must provide your attorney with a completed and signed copy
of Form TCR (referenced in § 249.1800 of
this chapter) within 60 days of the effective date of these rules, your attorney must retain the signed form in his
or her records, and you must provide of
copy of the signed form to the Commission staff upon request by Commission
staff prior to any payment of an award
to you in connection with your submission. Notwithstanding the foregoing,
you must follow the procedures and
conditions for making a claim for a
whistleblower award described in
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§§ 240.21F–10 and 240.21F–11 of this chapter.
rector of the Division of Enforcement
(‘‘Claims Review Staff’’) will evaluate
all timely whistleblower award claims
submitted on Form WB–APP (referenced in § 249.1801 of this chapter) in
accordance with the criteria set forth
in these rules. In connection with this
process, the Office of the Whistleblower
may require that you provide additional information relating to your eligibility for an award or satisfaction of
any of the conditions for an award, as
set forth in § 240.21F–(8)(b) of this chapter. Following that evaluation, the Office of the Whistleblower will send you
a Preliminary Determination setting
forth a preliminary assessment as to
whether the claim should be allowed or
denied and, if allowed, setting forth the
proposed award percentage amount.
(e) You may contest the Preliminary
Determination made by the Claims Review Staff by submitting a written response to the Office of the Whistleblower setting forth the grounds for
your objection to either the denial of
an award or the proposed amount of an
award. The response must be in the
form and manner that the Office of the
Whistleblower shall require. You may
also include documentation or other
evidentiary support for the grounds advanced in your response.
(1) Before determining whether to
contest a Preliminary Determination,
you may:
(i) Within thirty (30) days of the date
of the Preliminary Determination, request that the Office of the Whistleblower make available for your review
the materials from among those set
forth in § 240.21F–12(a) of this chapter
that formed the basis of the Claims Review Staff’s Preliminary Determination.
(ii) Within thirty (30) calendar days
of the date of the Preliminary Determination, request a meeting with the
Office of the Whistleblower; however,
such meetings are not required and the
office may in its sole discretion decline
the request.
(2) If you decide to contest the Preliminary Determination, you must submit your written response and supporting materials within sixty (60) calendar days of the date of the Preliminary Determination, or if a request to
review materials is made pursuant to
§ 240.21F–10 Procedures for making a
claim for a whistleblower award in
SEC actions that result in monetary
sanctions in excess of $1,000,000.
lpowell on DSK54DXVN1OFR with $$_JOB
Page: 66
(a) Whenever a Commission action
results in monetary sanctions totaling
more than $1,000,000, the Office of the
Whistleblower will cause to be published on the Commission’s Web site a
‘‘Notice of Covered Action.’’ Such Notice will be published subsequent to the
entry of a final judgment or order that
alone, or collectively with other judgments or orders previously entered in
the
Commission
action,
exceeds
$1,000,000; or, in the absence of such
judgment or order subsequent to the
deposit of monetary sanctions exceeding $1,000,000 into a disgorgement or
other fund pursuant to Section 308(b) of
the Sarbanes-Oxley Act of 2002. A
claimant will have ninety (90) days
from the date of the Notice of Covered
Action to file a claim for an award
based on that action, or the claim will
be barred.
(b) To file a claim for a whistleblower
award, you must file Form WB–APP,
Application for Award for Original Information Provided Pursuant to Section 21F
of the Securities Exchange Act of 1934
(referenced in § 249.1801 of this chapter).
You must sign this form as the claimant and submit it to the Office of the
Whistleblower by mail or fax. All claim
forms, including any attachments,
must be received by the Office of the
Whistleblower within ninety (90) calendar days of the date of the Notice of
Covered Action in order to be considered for an award.
(c) If you provided your original information to the Commission anonymously, you must disclose your identity on the Form WB–APP (referenced
in § 249.1801 of this chapter), and your
identity must be verified in a form and
manner that is acceptable to the Office
of the Whistleblower prior to the payment of any award.
(d) Once the time for filing any appeals of the Commission’s judicial or
administrative action has expired, or
where an appeal has been filed, after all
appeals in the action have been concluded, the staff designated by the Di-
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§ 240.21F–11
Date Filed: 10/26/2016
17 CFR Ch. II (4–1–16 Edition)
paragraph (e)(1) of this section, then
within sixty (60) calendar days of the
Office of the Whistleblower making
those materials available for your review.
(f) If you fail to submit a timely response pursuant to paragraph (e) of
this section, then the Preliminary Determination will become the Final
Order of the Commission (except where
the Preliminary Determination recommended an award, in which case the
Preliminary Determination will be
deemed a Proposed Final Determination for purposes of paragraph (h) of
this section). Your failure to submit a
timely response contesting a Preliminary Determination will constitute a
failure to exhaust administrative remedies, and you will be prohibited from
pursuing an appeal pursuant to
§ 240.21F–13 of
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