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Case: 16-3502

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Filed: 05/05/2017

Pages: 70

No. 16-3502

____________________________________________________________________________________

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

____________________________________________________________________________________

NEAL R. VERFUERTH,

Plaintiff-Appellant,

ORION ENERGY SYSTEMS, INC.,

Defendant-Appellee.

____________________________________________________________________________________

On Appeal from the United States District Court

for the Eastern District of Wisconsin

____________________________________________________________________________________

BRIEF OF THE SECURITIES AND EXCHANGE COMMISSION,

AMICUS CURIAE IN SUPPORT OF THE APPELLANT

AND REVERSAL OF THE DISTRICT COURT

____________________________________________________________________________________

SANKET J. BULSARA

Acting General Counsel

MICHAEL A. CONLEY

Solicitor

THOMAS J. KARR

Assistant General Counsel

STEPHEN G. YODER

Senior Litigation Counsel

Counsel of Record

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

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

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

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

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............................................................................................... 16

ARGUMENT ....................................................................................................................... 17

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. ........................... 17

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II.

In light of the ambiguity here, the Commission adopted a

reasonable interpretation in Rule 21F-2(b)(1) that warrants judicial

deference. ................................................................................................................... 26

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 self-regulatory organizations such

as FINRA................................................................................................................... 30

CONCLUSION ................................................................................................................... 36

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

STATUTORY AND REGULATORY ADDENDUM

iii

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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) ......21, 22, 23, passim

Auer v. Robbins, 519 U.S. 452 (1997)................................................................................... 28

Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015) ................................................ 26

Bussing v. COR Clearing, LLC, 20 F. Supp. 3d 719 (D. Neb. 2014)........................... 26, 34

Career College Ass’n v. Riley, 74 F.3d 1265 (D.C. Cir. 1996)............................................... 17

Castro v. Chicago Hous. Auth., 360 F.3d 721 (7th Cir. 2004).............................................. 17

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,

467 U.S. 837 (1984).........................................................................................1, 16, 17

Deykes v. Cooper-Standard Auto., Inc., No. 2:16-cv-11828,

2016 WL 6873395 (E.D. Mich. Nov. 22, 2016) .................................................... 26

Dressler v. Lime Energy, No. 3:14-cv-07060, 2015 WL 4773326

(D.N.J. Aug. 13, 2015).............................................................................................. 26

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)................................................................. 27

Englehart v. Career Educ. Corp., No. 8:14-cv-444, 2014 WL 2619501

(M.D. Fla. May 12, 2014) ........................................................................................ 27

Free Enter. Fund v. Pub. Co. Accounting Oversight Bd.,

561 U.S. 477 (2010)..................................................................................................... 6

Gates v. Caterpillar, Inc., 513 F.3d 680 (7th Cir. 2008)........................................................ 23

Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254 (5th Cir. 2014)

(per curiam), reh’g en banc denied, 596 F. App’x 340

(5th Cir. 2015)............................................................................................................ 25

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CASES (continued)

Pages: 70

Page

Jones v. SouthPeak Interactive Corp., 777 F.3d 658 (4th Cir. 2015) ...................................... 25

Lamb v. Rockwell Automation Inc., No. 15-cv-1415,

2016 WL 4273210 (E.D. Wis. Aug. 12, 2016)..................................................26-27

Lawson v. Suwannee Fruit & S.S. Co., 336 U.S. 198 (1949) .......................................... 20, 27

Leitgen v. Franciscan Skemp Healthcare, Inc.,

630 F.3d 668 (7th Cir. 2011).................................................................................... 23

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)................................................... 22

Lutzeier v. Citigroup, Inc., No. 4:14-cv-00183, 2015 WL 7306443

(E.D. Mo. Nov. 19, 2015)........................................................................................ 26

Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91 (2011) ........................................................... 26

Moultrie v. Penn Aluminum Int’l, LLC, 766 F.3d 747 (7th Cir. 2014)...........................22-23

Nat’l Ass’n of Home Builders v. Defenders of Wildlife,

551 U.S. 644 (2007)..............................................................................................16-17

Nw. Austin Mun. Util. Dist. No. One v. Holder,

557 U.S. 193 (2009)................................................................................................... 27

N.Y. Pub. Interest Research Group v. Whitman,

321 F.3d 316 (2d Cir. 2003) ..................................................................................... 17

Olekanma v. Wolfe, No. 15-cv-0984, 2017 WL 784121

(D. Md. Mar. 1, 2017)............................................................................................... 26

Owner-Operator Indep. Drivers Ass’n v. U.S. Dep’t of Transp.,

840 F.3d 879 (7th Cir. 2016), petition for cert. filed,

No. 16-1228 (U.S. Apr. 11, 2017) ........................................................................... 27

Philko Aviation, Inc. v. Shacket, 462 U.S. 406 (1983)........................................................... 27

Puffenbarger v. Engility Corp., 151 F. Supp. 3d 651 (E.D. Va. 2015).................................. 27

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CASES (continued)

Pages: 70

Page

Shea v. Kohl’s Dep’t Stores, Inc., No. 7:16-cv-01155, slip op.

(N.D. Ala. Mar. 2, 2017) .......................................................................................... 26

Somers v. Dig. Realty Trust, Inc., 850 F.3d 1045 (9th Cir. 2017),

petition for cert. filed, No. 16-1276 (U.S. Apr. 25, 2017)......................................26-27

Sullivan v. Everhart, 494 U.S. 83 (1990) ............................................................................... 17

United States v. Mead Corp., 533 U.S. 218 (2001) ................................................................ 16

United States v. Wilson, 503 U.S. 329 (1992)........................................................................ 34

United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632

(7th Cir. 2016), cert. denied, 137 S. Ct. 627 (2017)................................................... 20

Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427 (2014)................................................... 20

Verble v. Morgan Stanley Smith Barney LLC, 148 F. Supp. 3d 644

(E.D. Tenn. 2015), aff’d on other grounds, No. 15-6397,

__ F. App’x __, 2017 WL 129040 (6th Cir. Jan. 13, 2017),

cert. denied, No. 16-946, 2017 WL 434012

(U.S. Mar. 20, 2017).................................................................................................. 27

Wadler v. Bio-Rad Labs., Inc., No. 15-cv-02356, 2015 WL 6438670

(N.D. Cal. Oct. 23, 2015)......................................................................................... 26

White v. Scibana, 390 F.3d 997 (7th Cir. 2004) ............................................................. 16, 20

Yi Di Wang v. Holder, 759 F.3d 670 (7th Cir. 2014) .................................................... 16, 17

STATUTES

Dodd-Frank Wall Street Reform and Consumer Protection Act,

Pub. L. No. 111-203, 124 Stat. 1376 (2010) (“Dodd-Frank”)

Dodd-Frank .............................................................................................2, 7, 8, passim

Dodd-Frank §748, 124 Stat. at 1743-44 ................................................................. 19

Dodd-Frank §922, 124 Stat. at 1841-49 ................................................................... 2

Dodd-Frank §924(a), 124 Stat. at 1850 .................................................................... 2

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STATUTES (continued)

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Page

Sarbanes-Oxley Act of 2002, Pub. L. No. 107, 116 Stat. 745

(“Sarbanes-Oxley”)

Sarbanes-Oxley....................................................................................6, 13, 15, passim

Sarbanes-Oxley §301, 116 Stat. at 775-77 ................................................................ 7

Sarbanes-Oxley §307, 15 U.S.C. §7245 ............................................6, 15, 19, passim

Sarbanes-Oxley §404, 15 U.S.C. §7262 .................................................................... 6

Sarbanes-Oxley §806, 18 U.S.C. §1514A .........................................7, 15, 16, passim

Securities Exchange Act of 1934, 15 U.S.C. 78a, et seq.

Section 10A, 15 U.S.C. §78j-1 ................................................................................... 5

Section 10A(b), 15 U.S.C. §78j-1(b).......................................................................... 5

Section 10A(m), 15 U.S.C. §78j-1(m) ............................................................... 13, 15

Section 10A(m)(4), 15 U.S.C. §78j-1(m)(4)...................................................7, 18-19

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, 3, 8, passim

Section 21F(a), 15 U.S.C. §78u-6(a).......................................................................... 9

Section 21F(a)(6), 15 U.S.C. §78u-6(a)(6) ......................................18, 19, 25, passim

Section 21F(b), 15 U.S.C. §78u-6(b).............................................................9, 29, 30

Section 21F(c), 15 U.S.C. §78u-6(c)..............................................................9, 29, 30

Section 21F(d)(2)(A), 15 U.S.C. §78u-6(d)(2)(A) .................................................. 23

Section 21F(h)(1), 15 U.S.C. §78u-6(h)(1) .......................................1, 13, 14, passim

Section 21F(h)(1)(A), 15 U.S.C. §78u-6(h)(1)(A) ............................1, 13, 14, passim

Section 21F(h)(1)(A)(i), 15 U.S.C. §78u-6(h)(1)(A)(i)...................13, 14, 18, passim

Section 21F(h)(1)(A)(ii), 15 U.S.C. §78u-6(h)(1)(A)(ii).................13, 14, 18, passim

Section 21F(h)(1)(A)(iii), 15 U.S.C. §78u-6(h)(1)(A)(iii)...............13, 14, 15, passim

Section 21F(h)(1)(B), 15 U.S.C. §78u-6(h)(1)(B)............................................. 14, 22

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) ............................................................. 23

Section 21F(j), 15 U.S.C. §78u-6(j) ..................................................................... 8, 14

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)...................................................................................................... 19

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STATUTES (continued)

Page

18 U.S.C. §1341....................................................................................................................... 7

18 U.S.C. §1343....................................................................................................................... 7

18 U.S.C. §1344....................................................................................................................... 7

18 U.S.C. §1348....................................................................................................................... 7

18 U.S.C. §1513(e) .......................................................................................................... 13, 18

18 U.S.C. §1514A(a) ............................................................................................................... 7

18 U.S.C. §1514A(a)(1)(A)............................................................................................. 32, 33

18 U.S.C. §1514A(a)(1)(C).................................................................................................. 7-8

18 U.S.C. §1514A(c)(1) ........................................................................................................ 25

18 U.S.C. §1514A(c)(2)(C)................................................................................................... 25

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, 15, passim

Rule 21F-2(b)(1)(ii), 17 C.F.R. §240.21F-2(b)(1)(ii).............................................. 14

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) ....................................................... 12

Rule 21F-4(b)(7), 17 C.F.R. §240.21F-4(b)(7) ...........................................11, 29, 31

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) ........................................................ 11

Rule 21F-6(b)(3), 17 C.F.R. §240.21F-6(b)(3) ..................................................11-12

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

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

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RULES (continued)

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Page

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......................................................................................................... 25

29 C.F.R. §1980.105.................................................................................................. 25

29 C.F.R. §1980.106-110 .......................................................................................... 25

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) ........................... 19

H.R. 4173, 111th Cong. §922(a) (conference base text) .................................................. 19

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. 47829 (Aug. 10, 2015)................................ 28

Proposed Rules for Implementing the Whistleblower Provisions

of Section 21F of the Securities Exchange Act of 1934,

75 Fed. Reg. 70488 (Nov. 17, 2010) .....................................................3, 4, 9, passim

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. 27722

(May 20, 2003) ........................................................................................................... 35

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ADMINISTRATIVE MATERIALS (continued)

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Page

Securities Whistleblower Incentives and Protections,

76 Fed. Reg. 34300 (June 13, 2011) .................................................. 2-3, 4, 5, passim

MISCELLANEOUS

Orly Lobel, Lawyering Loyalties: Speech Rights and Duties Within TwentyFirst-Century New Governance, 77 Fordham L. Rev. 1245 (2009) ........................... 16

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No. 16-3502

____________________________________________________________________________________

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

____________________________________________________________________________________

NEAL R. VERFUERTH,

Plaintiff-Appellant,

ORION ENERGY SYSTEMS, INC.,

Defendant-Appellee.

____________________________________________________________________________________

On Appeal from the United States District Court

for the Eastern District of Wisconsin

____________________________________________________________________________________

BRIEF OF THE SECURITIES AND EXCHANGE COMMISSION,

AMICUS CURIAE IN SUPPORT OF THE APPELLANT

AND REVERSAL OF THE DISTRICT COURT

____________________________________________________________________________________

STATEMENT OF THE ISSUE

The Securities and Exchange Commission (“Commission”), after notice-andcomment 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

undermine the willingness of individuals to make whistleblower reports internally at

their companies before they make reports to the Commission. Securities

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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

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

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.

Each rule designated in this brief as Exchange Act Rule 21F-___ is codified at

17 C.F.R. §240.21F-___.

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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

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 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

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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) 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

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).

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.

An early version of the legislative proposal that became Section 10A would

have required auditors to report immediately to the Commission. SEC Chairman

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In 2002, Congress enacted the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”),

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 SarbanesOxley, 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 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

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?”).

Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 484 (2010).

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).

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

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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

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

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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misconduct),” or to Congress or certain governmental agencies (including the

Commission). Id. §1514A(a)(1)(C).9

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 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.

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 broker-dealer 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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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.

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

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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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 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

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”).

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”).

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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 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 21F-6(a)(4)). 14

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).

Relatedly, the Commission’s rules also provide that “a whistleblower’s

interference with internal compliance and reporting is a factor that can decrease the

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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 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.

amount of an award.” Adopting Release at 34301, 34331 (discussing Exchange Act

Rule 21F-6(b)(3)).

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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

(iii)

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

As discussed infra 15-16, the disclosures listed in clause (iii) include the internal

company reporting disclosures described above in Part A.

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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 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).

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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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

 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 21F2(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

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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 TwentyFirst-Century 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.”).

STANDARD OF REVIEW

As the Supreme Court emphasized in Chevron, “considerable weight should be

accorded to an executive department’s construction of a statutory scheme it is

entrusted to administer.” White v. Scibana, 390 F.3d 997, 1000 (7th Cir. 2004) (quoting

Chevron, 467 U.S. at 844); 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.’”

Yi Di Wang v. Holder, 759 F.3d 670, 673 (7th Cir. 2014) (quoting Chevron, 467 U.S. at

842-43 & n.9). A “fundamental ambiguity” arises where two statutory provisions

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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

N.Y. Pub. Interest Research Grp. v. Whitman, 321 F.3d 316, 327-29 (2d Cir. 2003); Career

College Ass’n v. Riley, 74 F.3d 1265, 1271-72 (D.C. Cir. 1996).

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); Yi Di Wang, 759 F.3d at 674. To find an agency’s

interpretation rational, this Court “need not conclude that the agency construction

was the only one it permissibly could have adopted … , or even the reading [this

Court] would have reached if the question initially had arisen in a judicial proceeding.”

Castro v. Chicago Hous. Auth., 360 F.3d 721, 729 (7th Cir. 2004) (quoting Chevron, 467

U.S. at 843 n.11).

ARGUMENT

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

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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 quoted in full

supra 13, 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

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Exchange Act, or an in-house counsel’s disclosure under Section 307 of SarbanesOxley about a potential breach of the CEO’s fiduciary duty.17

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:

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 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 DoddFrank 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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(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

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.’”) (citation omitted); 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); accord United States ex

rel. Garbe v. Kmart Corp., 824 F.3d 632, 640-41 (7th Cir. 2016), cert. denied, 137 S. Ct. 627

(2017); see also White, 390 F.3d at 1002-03 (interpreting recurring statutory phrase to

reflect variations in context).

That Congress did not unambiguously intend such a result becomes apparent

by considering the bizarre consequences that such a narrow reading produces. With

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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 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

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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) 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. Moultrie v. Penn

Aluminum Int’l, LLC, 766 F.3d 747, 754 (7th Cir. 2014) (providing that “the direct

method [for establishing a retaliation claim] … requires the plaintiff to show: (1) that

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 anti-retaliation

provision as a strict liability scheme.

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he engaged in activity protected by the statute; (2) that his employer took an adverse

employment action against him; and (3) that there is a causal connection between the

plaintiff’s protected activity and the adverse employment action.”); Leitgen v. Franciscan

Skemp Healthcare, Inc., 630 F.3d 668, 675 (7th Cir. 2011) (to establish a causal

connection, the plaintiff must show that the protected conduct was “a substantial or

motivating factor” in the employer’s decision (quoting Gates v. Caterpillar, Inc., 513

F.3d 680, 686 (7th Cir. 2008)). 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 antiretaliation 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

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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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 broader framework, construing the

statute to afford the same employment anti-retaliation 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 whistleblower-protection 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 whistleblowerprotection claims.” Id. at 628-29.

But the Fifth Circuit ignored at least two countervailing advantages of a

Sarbanes-Oxley Section 806 claim over a Dodd-Frank Section 21F claim:

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 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 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

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.

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 F. App’x 340

(5th Cir. 2015).

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reference in clause (ii) superfluous. That either of two competing interpretations

yields superfluous statutory language confirms that Congress did not speak

unambiguously on the issue. See Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 106

(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 More recently, the Ninth Circuit held that “subdivision (iii) of section 21F

See also, e.g., Shea v. Kohl’s Dep’t Stores, Inc., No. 7:16-cv-01155, slip op. 12-15

(N.D. Ala. Mar. 2, 2017) (following Berman); Lutzeier v. Citigroup Inc., No. 4:14-cv00183, 2015 WL 7306443, at *2 (E.D. Mo. Nov. 19, 2015); Dressler v. Lime Energy, No.

3:14-cv-07060, 2015 WL 4773326, at *4-16 (D.N.J. Aug. 13, 2015); Bussing v. COR

Clearing, LLC, 20 F. Supp. 3d 719, 727-35 (D. Neb. 2014). But see also Olekanma v.

Wolfe, No. 15-cv-0984, 2017 WL 784121, at *3 (D. Md. Mar. 1, 2017) (following

Asadi); Deykes v. Cooper-Standard Auto., Inc., No. 2:16-cv-11828, 2016 WL 6873395, at

*2-4 (E.D. Mich. Nov. 22, 2016), appeal docketed, No. 16-2740 (6th Cir. Dec. 16, 2016);

Lamb v. Rockwell Automation Inc., No. 15-cv-1415, 2016 WL 4273210, at *3-4 (E.D.

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should be read to provide protections to those who report internally as well as to

those who report to the SEC,” and that even if the “whistleblower” definition created

uncertainty, “the agency responsible for enforcing the securities laws has resolved any

ambiguity and its regulation is entitled to deference.” Somers v. Dig. Realty Trust, Inc.,

850 F.3d 1045, 1050-51 (9th Cir. 2017), petition for cert. filed, No. 16-1276 (U.S. Apr. 25,

2017). See generally Nw. Austin Mun. Util. Dist. No. One v. 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). See also Owner-Operator

Indep. Drivers Ass’n v. U.S. Dep’t of Transp., 840 F.3d 879, 888 (7th Cir. 2016) (“We

interpret statutes ‘as a symmetrical and coherent regulatory scheme,’ and ‘fit, if

possible, all parts into an harmonious whole.’”) (citations omitted), petition for cert. filed,

No. 16-1228 (U.S. Apr. 11, 2017).

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

Wis. Aug. 12, 2016); 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), aff’d on other grounds, No. 15-6397, __ F. App’x __, 2017 WL

129040 (6th Cir. Jan. 13, 2017), cert. denied, No. 16-946, 2017 WL 434012 (U.S. Mar.

20, 2017); 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. 16-15426 (11th Cir. Aug. 11, 2016);

Englehart v. Career Educ. Corp., No. 8:14-cv-444, 2014 WL 2619501, at *3-9 (M.D. Fla.

May 12, 2014).

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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 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 anti-retaliation

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 anti-retaliation protection under

Section 21F, it better supports a core overall objective of the whistleblower

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. 47829, 47829-30 (Aug. 10,

2015). That interpretation is “controlling.” Auer v. Robbins, 519 U.S. 452, 461 (1997).

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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 in appropriate circumstances and,

thus, jeopardize the benefits that can result from internal reporting, supra 4-5, 15-16.

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

Rule 21F-2(b)(1) also supports the whistleblower program by extending antiretaliation 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.

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those situations where the employee has separately reported to the 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

The Commission lacks such authority under Sarbanes-Oxley Section 806.

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other entities, the U.S. Department of 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

Under the 120-day look-back established by Exchange Act Rule 21F-4(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.

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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 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.

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 SarbanesOxley 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).

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.

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The award provisions express no preference in how individuals sequence their

reporting as between the Commission and the other authorities. So too Rule 21F2(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 SarbanesOxley 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 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

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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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 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

Generally speaking, the Commission has responsibility for pursuing civil

actions for violations of the federal securities laws while DOJ possesses criminal

enforcement authority.

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.

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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. 27722, 27722 (May 20, 2003).

Given this vital SRO role, individuals frequently report violations of the securities

laws to SROs 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 such 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.

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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

Acting General Counsel

MICHAEL A. CONLEY

Solicitor

THOMAS J. KARR

Assistant General Counsel

/s/ Stephen G. Yoder

STEPHEN G. YODER

Senior Litigation Counsel

Counsel of Record

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-9040

Telephone: (202) 551-4532 (Yoder)

April 2017

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CERTIFICATE OF COMPLIANCE

I hereby certify as follows:

This document complies with the 9,000-word limit requested in the

Commission’s motion filed with this Court on this same date because, excluding the

parts of the document exempted by Fed. R. App. P. 32(f), this document contains

8,943 words as counted using Microsoft Office Word 2010.

This document 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 this

document has been prepared in a proportionally spaced typeface using Microsoft

Office Word 2010 in 14-Point Garamond.

/s/ Stephen G. Yoder

Stephen G. Yoder

Senior Litigation Counsel

April 26, 2017

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CERTIFICATE OF SERVICE

I hereby certify that on April 26, 2017, I electronically filed the foregoing

document with the Clerk of Court for the United States Court of Appeals for the

Seventh Circuit by using the appellate CM/ECF system. I further 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 I will generate

and send paper copies of the foregoing document to the Clerk of Court and to

counsel for all parties upon the granting of Commission’s motion filed on this same

date seeking permission to file an amicus curiae brief of no more than 9,000 words, or

as otherwise directed by the Court.

/s/ Stephen G. Yoder

Stephen G. Yoder

Senior Litigation Counsel

April 26, 2017

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STATUTORY AND REGULATORY ADDENDUM

TABLE OF CONTENTS

15 U.S.C. §78u-6 ............................................................................................................Add. 1

17 C.F.R. §240.21F........................................................................................................Add. 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, in

cluding plans or objectives relating to the

products or services of the issuer;

formance, including any such statement

contained in a discussion and analysis of fi

nancial condition by the management or in

the results of operations included pursuant

to the rules and regulations of the Commis

sion;

(D) any statement of the assumptions un

derlying or relating to any statement de

scribed in subparagraph (A), (B), or (C);

(E) any report issued by an outside re

viewer 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 spec

ified by rule or regulation of the Commis

sion.

(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 pur

suant to section 78m(e) of this title.

(4) Person acting on behalf of an issuer

The term ‘‘person acting on behalf of an is

suer’’ 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 pro

gram’’, 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 ac

tion arising under this chapter or title I of the Securi

Pages: Page

70 402

ties Act of 1933 (15 U.S.C. 77a et seq.), commenced be

fore and pending on Dec. 22, 1995, see section 108 of Pub.

L. 104–67, set out as an Effective Date of 1995 Amend

ment 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 reg

ulating 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 administra

tive action’’ means any judicial or administra

tive 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 in

formation that—

(A) is derived from the independent knowl

edge 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

gation 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, dis

gorgement, and interest, ordered to be paid;

and

(B) any monies deposited into a dis

gorgement 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 ac

tion or any settlement of such action.

(5) Related action

The term ‘‘related action’’, when used with

respect to any judicial or administrative ac

tion brought by the Commission under the se

curities laws, means any judicial or adminis

trative action brought by an entity described

in subclauses (I) through (IV) of subsection

(h)(2)(D)(i) that is based upon the original in

formation provided by a whistleblower pursu

ant to subsection (a) that led to the successful

enforcement of the Commission action.

(6) Whistleblower

The term ‘‘whistleblower’’ means any indi

vidual who provides, or 2 or more individuals

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TITLE 15—COMMERCE

AND TRADE

acting jointly who provide, information relat

ing 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 ac

tion, 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 volun

tarily provided original information to the

Commission that led to the successful enforce

ment 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.

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 Commis

sion—

(i) shall take into consideration—

(I) the significance of the information

provided by the whistleblower to the suc

cess of the covered judicial or adminis

trative action;

(II) the degree of assistance provided

by the whistleblower and any legal rep

resentative of the whistleblower in a

covered judicial or administrative ac

tion;

(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 Com

mission, a member, officer, or employee of—

Pages: 70§ 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 judi

cial or administrative action for which the

whistleblower otherwise could receive an

award under this section;

formation through the performance of an

audit of financial statements required under

the securities laws and for whom such sub

mission would be contrary to the require

ments of section 78j–1 of this title; or

(D) to any whistleblower who fails to sub

mit information to the Commission in such

form as the Commission may, by rule, re

quire.

(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 sub

section (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 in

formation 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 sub

section (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 de

termination made by the Commission in accord

ance 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 ‘‘Se

curities and Exchange Commission Investor

Protection Fund’’.

(2) Use of Fund

The Fund shall be available to the Commis

sion, without further appropriation or fiscal

year limitation, for—

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(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 admin

istrative action brought by the Commis

sion 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 dis

tributed to victims of a violation of the se

curities 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 sec

tion 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 estab

lished, unless the balance of the dis

gorgement fund at the time the determina

tion is made not to distribute the mone

tary 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 ad

ministrative action on which the award is

based.

(4) Investments

(A) Amounts in Fund may be invested

The Commission may request the Sec

retary of the Treasury to invest the portion

of the Fund that is not, in the discretion of

the Commission, required to meet the cur

rent needs of the Fund.

(B) Eligible investments

Investments shall be made by the Sec

retary of the Treasury in obligations of the

United States or obligations that are guar

anteed 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.

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

Pages: Page

70 404

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, es

tablished 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 begin

ning of the preceding fiscal year;

to the Fund during the preceding fiscal year;

(D) the amount of earnings on investments

made under paragraph (4) during the preced

ing 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, sus

pend, threaten, harass, directly or indi

rectly, 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 Com

mission in accordance with this section;

(ii) in initiating, testifying in, or assist

ing in any investigation or judicial or ad

ministrative action of the Commission

based upon or related to such information;

(iii) in making disclosures that are re

quired 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 sub

paragraph (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 ac

tion are known or reasonably should

have been known by the employee al

leging a violation of subparagraph (A).

(II) Required action within 10 years

Notwithstanding subclause (I), an ac

tion under this subsection may not in

any circumstance be brought more than

10 years after the date on which the vio

lation occurs.

Relief for an individual prevailing in an

action brought under subparagraph (B) shall

include—

(i) reinstatement with the same senior

ity 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 in

terest; and

(iii) compensation for litigation costs,

expert witness fees, and reasonable attor

neys’ 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 dis

close any information, including informa

tion provided by a whistleblower to the

Commission, which could reasonably be ex

pected to reveal the identity of a whistleblower, except in accordance with the provi

sions 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 de

scribed in subsection (b)(3)(B) of such sec

tion.

(B) Exempted statute

For purposes of section 552 of title 5, this

paragraph shall be considered a statute de

scribed in subsection (b)(3)(B) of such section

552.

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 con

fidential in the hands of the Commission,

all information referred to in subpara

graph (A) may, in the discretion of the

Commission, when determined by the

Pages: 70§ 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 author

ity;

(III) a self-regulatory organization;

(IV) a State attorney general in con

nection 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 au

thority.

(ii) Confidentiality

(I) In general

Each of the entities described in sub

clauses (I) through (VI) of clause (i) shall

maintain such information as confiden

tial in accordance with the requirements

established under subparagraph (A).

(II) Foreign authorities

Each of the entities described in sub

clauses (VII) and (VIII) of clause (i) shall

maintain such information in accord

ance with such assurances of confiden

tiality 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 agree

ment.

(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 rep

resentation; or

(2) uses any false writing or document know

ing 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 nec

essary or appropriate to implement the provi

sions of this section consistent with the pur

poses 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 provi

sions 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 sec

tion 78u–6(a)(3) of this title, as added by this

subtitle) solely because the whistleblower pro

vided the information prior to the effective date

of the regulations, if the information is provided

by the whistleblower after July 21, 2010.

A whistleblower may receive an award pursu

ant to section 78u–6 of this title, as added by

this subtitle, regardless of whether any viola

tion of a provision of the securities laws, or a

rule or regulation thereunder, underlying the ju

dicial 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 Com

mission 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 Af

fairs of the Senate and the Committee on Finan

cial 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 sec

tion 922(a) of Pub. L. 111–203.

CODIFICATION

Section was enacted as part of the Investor Protec

tion 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 Ex

change 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.

Pages: Page

70 406

§ 78v. Hearings by Commission

Hearings may be public and may be held be

fore the Commission, any member or members

thereof, or any officer or officers of the Commis

sion 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 re

ports

(a) Power to make rules and regulations; consid

erations; public disclosure

(1) The Commission, the Board of Governors of

the Federal Reserve System, and the other agen

cies 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, se

curities, transactions, statements, applications,

reports, and other matters within their respec

tive 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 Sys

tem, other agency enumerated in section

78c(a)(34) of this title, or any self-regulatory or

ganization, notwithstanding that such rule, reg

ulation, or order may thereafter be amended or

rescinded or determined by judicial or other au

thority to be invalid for any reason.

(2) The Commission and the Secretary of the

Treasury, in making rules and regulations pur

suant to any provisions of this chapter, shall

consider among other matters the impact any

such rule or regulation would have on competi

tion. The Commission and the Secretary of the

Treasury shall not adopt any such rule or regu

lation which would impose a burden on competi

tion 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 incor

porated in any rule or regulation adopted under

this chapter, the reasons for the Commission’s

or the Secretary’s determination that any bur

den on competition imposed by such rule or reg

ulation is necessary or appropriate in further

ance 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 appli

cation for registration in accordance with sec

tion 78s(a) of this title, or reviewing any pro

posed rule change of a self-regulatory organiza

tion in accordance with section 78s(b) of this

title, shall keep in a public file and make avail

able 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, activi

ties, functions, or operations of a

broker or dealer;

(B) Suspending, barring, or placing

limitations on the association, activi

ties, or functions of an associated per

son of a broker or dealer;

son 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

(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 find

ing or determination by the Commis

sion 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 indi

rectly, (A) has the right to vote 10 per

cent or more of the voting securities,

(B) is entitled to receive 10 percent or

more of the net profits, or (C) is a di

rector (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 para

graph (i) shall be presumed not to be a

person who controls such company; and

(iii) Any presumption may be rebut

ted on an appropriate showing.

(g) Where it deems appropriate to do

so, the Commission may determine

whether to (1) direct, pursuant to sec

tion 6(c)(2), 15A(g)(2) or 17A(b)(4)(A) of

the Act, that a proposed admission cov

ered by a notice filed pursuant to para

graph (a) of this section shall be denied

or an order barring a proposed associa

tion issued or (2) grant or deny an ap

plication 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 em

ployer) on behalf of such person, with

out oral hearing. Any request for oral

hearing or argument should be sub

mitted 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 Ex

change Act of 1934 (‘‘Exchange Act’’)

(15 U.S.C. 78u-6), entitled ‘‘Securities

Whistleblower Incentives and Protec

tion,’’ requires the Securities and Ex

change Commission (‘‘Commission’’) to

pay awards, subject to certain limita

tions and conditions, to whistleblowers

who provide the Commission with

original information about violations

of the Federal securities laws. These

rules describe the whistleblower pro

gram that the Commission has estab

lished 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 re

ceiving an award for which you other

wise may be eligible. Unless expressly

provided for in these rules, no person is

authorized to make any offer or prom

ise, or otherwise to bind the Commis

sion 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.

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§ 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 informa

tion 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

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 vio

lation (or, where applicable, to a pos

sible violation of the provisions set

forth in 18 U.S.C. 1514A(a)) that has oc

curred, is ongoing, or is about to occur,

and;

(ii) You provide that information in a

manner

described

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 condi

tions 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.

§ 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 Commis

sion

(2) With original information

(3) That leads to the successful en

forcement by the Commission of a Fed

eral court or administrative action

(4) In which the Commission obtains

monetary sanctions totaling more than

$1,000,000.

NOTE TO PARAGRAPH (a): The terms volun

tarily, 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 ad

ministrative action that is brought by:

(i) The Attorney General of the

United States;

(ii) An appropriate regulatory au

thority;

(iii) A self-regulatory organization;

(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 Commis

sion to obtain monetary sanctions to

taling more than $1,000,000.

NOTE TO PARAGRAPH (b)(1): The terms ap

propriate regulatory authority and self-regu

latory 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 infor

mation that the whistleblower gave to

the Commission also led to the success

ful enforcement of the related action

under the same criteria described in

these rules for awards made in connec

tion with Commission actions. The

Commission may seek assistance and

confirmation from the authority bring

ing 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 satis

fied; or

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Securities and Exchange Commission

§ 240.21F–4

(ii) The Commission is unable to

make a determination because the Of

fice of the Whistleblower could not ob

tain sufficient and reliable information

that could be used as the basis for an

award determination pursuant to

§ 240.21F–12(a) of this chapter. Addi

tional procedures apply to the payment

of awards in related actions. These pro

cedures 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 Com

mission (‘‘CFTC’’) for that same action

pursuant to its whistleblower award

program under Section 23 of the Com

modity Exchange Act (7 U.S.C. 26).

Similarly, if the CFTC has previously

denied an award to you in a related ac

tion, you will be precluded from reliti

gating any issues before the Commis

sion 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, in

quiry, or demand from the Commis

sion.

(3) In addition, your submission will

not be considered voluntary if you are

required to report your original infor

mation to the Commission as a result

of a pre-existing legal duty, a contrac

tual duty that is owed to the Commis

sion or to one of the other authorities

set forth in paragraph (a)(1) of this sec

tion, or a duty that arises out of a judi

cial 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 Com

mission from any other source, unless

you are the original source of the infor

mation;

(iii) Not exclusively derived from an

allegation made in a judicial or admin

istrative 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 Protec

tion Act).

(2) Independent knowledge means fac

tual information in your possession

that is not derived from publicly avail

able sources. You may gain inde

pendent knowledge from your experi

ences, communications and observa

tions in your business or social inter

actions.

(3) Independent analysis means your

own analysis, whether done alone or in

combination with others. Analysis

means your examination and evalua

tion of information that may be pub

licly available, but which reveals infor

mation 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 cir

cumstances:

§ 240.21F–4 Other definitions.

(a) Voluntary submission of informa

tion. (1) Your submission of informa

tion 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 investiga

tion, inspection, or examination by the

Public Company Accounting Oversight

Board, or any self-regulatory organiza

tion; or

(iii) In connection with an investiga

tion by Congress, any other authority

of the Federal government, or a state

Attorney General or securities regu

latory authority.

(2) If the Commission or any of these

other authorities direct a request, in

quiry, or demand as described in para

graph (a)(1) of this section to you or

your representative first, your submis

sion 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 appli

cable law. However, your submission of

information to the Commission will be

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§ 240.21F–4

17 CFR Ch. II (4–1–16 Edition)

(i) If you obtained the information

through a communication that was

subject to the attorney-client privi

lege, unless disclosure of that informa

tion would otherwise be permitted by

an attorney pursuant to § 205.3(d)(2) of

this chapter, the applicable state attor

ney conduct rules, or otherwise;

(ii) If you obtained the information

in connection with the legal represen

tation of a client on whose behalf you

or your employer or firm are providing

services, and you seek to use the infor

mation to make a whistleblower sub

mission for your own benefit, unless

disclosure would otherwise be per

mitted by an attorney pursuant to

§ 205.3(d)(2) of this chapter, the applica

ble 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 informa

tion because you were:

(A) An officer, director, trustee, or

partner of an entity and another per

son informed you of allegations of mis

conduct, or you learned the informa

tion in connection with the entity’s

processes for identifying, reporting,

and addressing possible violations of

law;

(B) An employee whose principal du

ties involve compliance or internal

audit responsibilities, or you were em

ployed by or otherwise associated with

a firm retained to perform compliance

or internal audit functions for an enti

ty;

ated 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 engage

ment required of an independent public

accountant under the Federal securi

ties 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 cli

ent’s directors, officers or other em

ployees.

(iv) If you obtained the information

by a means or in a manner that is de

termined 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 informa

tion to the Commission is necessary to

prevent the relevant entity from en

gaging in conduct that is likely to

cause substantial injury to the finan

cial interest or property of the entity

or investors;

(B) You have a reasonable basis to

believe that the relevant entity is en

gaging in conduct that will impede an

investigation of the misconduct; or

since you provided the information to

the relevant entity’s audit committee,

chief legal officer, chief compliance of

ficer (or their equivalents), or your su

pervisor, or since you received the in

formation, if you received it under cir

cumstances indicating that the enti

ty’s audit committee, chief legal offi

cer, chief compliance officer (or their

equivalents), or your supervisor was al

ready 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 pursu

ant to this section, or you are pro

viding the Commission with informa

tion about possible violations involv

ing that person.

(5) The Commission will consider you

to be an original source of the same in

formation that we obtain from another

source if the information satisfies the

definition of original information and

the other source obtained the informa

tion from you or your representative.

In order to be considered an original

source of information that the Com

mission receives from Congress, any

other authority of the Federal govern

ment, a state Attorney General or se

curities 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 es

tablish your status as the original

source of information to the Commis

sion’s satisfaction. In determining

whether you are the original source of

information, the Commission may seek

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Securities and Exchange Commission

§ 240.21F–4

assistance and confirmation from one

of the other authorities described

above, or from another entity (includ

ing your employer), in the event that

you claim to be the original source of

information that an authority or an

other entity provided to the Commis

sion.

(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 inde

pendent knowledge or analysis and

that materially adds to the informa

tion that the Commission already pos

sesses.

(7) If you provide information to the

Congress, any other authority of the

Federal government, a state Attorney

General or securities regulatory au

thority, any self-regulatory organiza

tion, or the Public Company Account

ing Oversight Board, or to an entity’s

internal whistleblower, legal, or com

pliance procedures for reporting allega

tions of possible violations of law, and

you, within 120 days, submit the same

information to the Commission pursu

ant 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 Commis

sion will consider that you provided in

formation as of the date of your origi

nal disclosure, report or submission to

one of these other authorities or per

sons. You must establish the effective

date of any prior disclosure, report, or

submission, to the Commission’s satis

faction. The Commission may seek as

sistance and confirmation from the

other authority or person in making

this determination.

enforcement. The Commission will con

sider that you provided original infor

mation that led to the successful en

forcement of a judicial or administra

tive action in any of the following cir

cumstances:

(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 inves

tigation that the Commission had

closed, or to inquire concerning dif

ferent conduct as part of a current ex

amination or investigation, and the

Commission brought a successful judi

cial or administrative action based in

whole or in part on conduct that was

the subject of your original informa

tion; or

(2) You gave the Commission original

information about conduct that was al

ready under examination or investiga

tion by the Commission, the Congress,

any other authority of the Federal gov

ernment, 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 informa

tion as defined in paragraph (b)(4) of

this section), and your submission sig

nificantly 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 Com

mission; the entity later provided your

information to the Commission, or pro

vided results of an audit or investiga

tion initiated in whole or in part in re

sponse to information you reported to

the entity; and the information the en

tity provided to the Commission satis

fies 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 ac

cordance with the procedures set forth

in § 240.21F–9 within 120 days of pro

viding it to the entity.

(d) An action generally means a sin

gle captioned judicial or administra

tive proceeding brought by the Com

mission. Notwithstanding the fore

going:

(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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§ 240.21F–5

17 CFR Ch. II (4–1–16 Edition)

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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 mone

tary 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 pursu

ant 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 re

lated action.

(f) Appropriate regulatory agency

means the Commission, the Comp

troller of the Currency, the Board of

Governors of the Federal Reserve Sys

tem, the Federal Deposit Insurance

Corporation, the Office of Thrift Super

vision, and any other agencies that

may be defined as appropriate regu

latory 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 agen

cy other than the Commission.

(h) Self-regulatory organization means

any national securities exchange, reg

istered securities association, reg

istered clearing agency, the Municipal

Securities Rulemaking Board, and any

other organizations that may be de

fined as self-regulatory organizations

under Section 3(a)(26) of the Exchange

Act (15 U.S.C. 78c(a)(26)).

§ 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 de

cide 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 chap

ter. The amount will be at least 10 per

cent 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 award

ed in connection with a related action.

to more than one whistleblower in con

nection 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 per

cent of the amount the Commission or

the other authorities collect.

§ 240.21F–6 Criteria for

amount of award.

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determining

In exercising its discretion to deter

mine the appropriate award percent

age, 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 ac

tion, these factors will be used to de

termine the relative allocation of

awards among the whistleblowers.

(a) Factors that may increase the

amount of a whistleblower’s award. In de

termining whether to increase the

amount of an award, the Commission

will consider the following factors,

which are not listed in order of impor

tance.

(1) Significance of the information pro

vided by the whistleblower. The Commis

sion will assess the significance of the

information provided by a whistleblower to the success of the Commis

sion action or related action. In consid

ering this factor, the Commission may

take into account, among other things:

(i) The nature of the information pro

vided by the whistleblower and how it

related to the successful enforcement

action, including whether the reli

ability and completeness of the infor

mation provided to the Commission by

the whistleblower resulted in the con

servation of Commission resources;

(ii) The degree to which the informa

tion provided by the whistleblower sup

ported one or more successful claims

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Securities and Exchange Commission

§ 240.21F–6

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 represent

ative of the whistleblower in the Com

mission action or related action. In

considering this factor, the Commis

sion may take into account, among

other things:

(i) Whether the whistleblower pro

vided ongoing, extensive, and timely

cooperation and assistance by, for ex

ample, helping to explain complex

transactions, interpreting key evi

dence, or identifying new and produc

tive lines of inquiry;

(ii) The timeliness of the whistle

blower’s initial report to the Commis

sion or to an internal compliance or re

porting system of business organiza

tions committing, or impacted by, the

securities violations, where appro

priate;

(iii) The resources conserved as a re

sult of the whistleblower’s assistance;

(iv) Whether the whistleblower ap

propriately encouraged or authorized

others to assist the staff of the Com

mission who might otherwise not have

participated in the investigation or re

lated action;

(v) The efforts undertaken by the

whistleblower to remediate the harm

caused by the violations, including as

sisting the authorities in the recovery

of the fruits and instrumentalities of

the violations; and

(vi) Any unique hardships experi

enced by the whistleblower as a result

of his or her reporting and assisting in

the enforcement action.

(3) Law enforcement interest. The Com

mission will assess its programmatic

interest in deterring violations of the

securities laws by making awards to

whistleblowers who provide informa

tion that leads to the successful en

forcement of such laws. In considering

this factor, the Commission may take

into account, among other things:

(i) The degree to which an award en

hances the Commission’s ability to en

force the Federal securities laws and

protect investors; and

(ii) The degree to which an award en

courages the submission of high qual

ity information from whistleblowers by

appropriately

rewarding

whistleblowers’ submission of significant in

formation and assistance, even in cases

where the monetary sanctions avail

able for collection are limited or poten

tial monetary sanctions were reduced

or eliminated by the Commission be

cause an entity self-reported a securi

ties violation following the whistle

blower’s related internal disclosure, re

port, or submission.

(iii) Whether the subject matter of

the action is a Commission priority,

whether the reported misconduct in

volves 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 iso

lated, repetitive, or ongoing nature of

the violations; and

(iv) The dangers to investors or oth

ers presented by the underlying viola

tions involved in the enforcement ac

tion, including the amount of harm or

potential harm caused by the under

lying violations, the type of harm re

sulting from or threatened by the un

derlying 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 represent

ative of the whistleblower participated

in internal compliance systems. In con

sidering 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 pro

cedures 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 de

termining whether to decrease the

amount of an award, the Commission

will consider the following factors,

which are not listed in order of impor

tance.

(1) Culpability. The Commission will

assess the culpability or involvement

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§ 240.21F–7

17 CFR Ch. II (4–1–16 Edition)

of the whistleblower in matters associ

ated with the Commission’s action or

related actions. In considering this fac

tor, the Commission may take into ac

count, among other things:

(i) The whistleblower’s role in the se

curities violations;

(ii) The whistleblower’s education,

training, experience, and position of re

sponsibility at the time the violations

occurred;

(iii) Whether the whistleblower acted

with scienter, both generally and in re

lation to others who participated in

the violations;

(iv) Whether the whistleblower finan

cially benefitted from the violations;

(v) Whether the whistleblower is a re

cidivist;

(vi) The egregiousness of the under

lying fraud committed by the whistleblower; and

(vii) Whether the whistleblower

knowingly interfered with the Commis

sion’s investigation of the violations or

related enforcement actions.

(2) Unreasonable reporting delay. The

Commission will assess whether the

whistleblower unreasonably delayed re

porting the securities violations. In

considering this factor, the Commis

sion 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 re

ported them after learning about a re

lated inquiry, investigation, or enforce

ment action; and

(iii) Whether there was a legitimate

reason for the whistleblower to delay

reporting the violations.

(3) Interference with internal compli

ance and reporting systems. The Com

mission will assess, in cases where the

whistleblower interacted with his or

her entity’s internal compliance or re

porting 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 estab

lished legal, compliance, or audit pro

cedures to prevent or delay detection

of the reported securities violation;

(ii) Made any material false, ficti

tious, or fraudulent statements or rep

resentations that hindered an entity’s

efforts to detect, investigate, or reme

diate the reported securities viola

tions; and

(iii) Provided any false writing or

document knowing the writing or docu

ment 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 informa

tion 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 de

scribed 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 De

partment of Justice, an appropriate

regulatory authority, a self regulatory

organization, a state attorney general

in connection with a criminal inves

tigation, any appropriate state regu

latory authority, the Public Company

Accounting Oversight Board, or foreign

securities and law enforcement au

thorities. Each of these entities other

than foreign securities and law enforce

ment authorities is subject to the con

fidentiality 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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Securities and Exchange Commission

§ 240.21F–8

determine what assurances of confiden

tiality it deems appropriate in pro

viding such information to foreign se

curities and law enforcement authori

ties.

(3) The Commission may make dis

closures in accordance with the Pri

vacy 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 rep

resent you in connection with both

your submission of information and

your claim for an award, and your at

torney’s name and contact information

must be provided to the Commission at

the time you submit your information;

(2) You and your attorney must fol

low the procedures set forth in

§ 240.21F–9 of this chapter for submit

ting

original

information

anony

mously; 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 evi

dence acceptable to the staff relating

to whether you are eligible, or other

wise satisfy any of the conditions, for

an award; and

(4) Enter into a confidentiality agree

ment in a form acceptable to the Office

of the Whistleblower, covering any

non-public information that the Com

mission provides to you, and including

a provision that a violation of the

agreement may lead to your ineligi

bility to receive an award.

ered 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 pro

vided to the Commission, a member,

officer, or employee of the Commis

sion, the Department of Justice, an ap

propriate regulatory agency, a self-reg

ulatory organization, the Public Com

pany Accounting Oversight Board, or

any law enforcement organization;

(2) You are, or were at the time you

acquired the original information pro

vided to the Commission, a member,

officer, or employee of a foreign gov

ernment, any political subdivision, de

partment, 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 Com

mission action or to a related action

(as defined in § 240.21F–4 of this chap

ter) for which you otherwise could re

ceive an award;

(4) You obtained the original infor

mation that you gave the Commission

through an audit of a company’s finan

cial 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 em

ployee 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 pro

cedures for submitting information and

making a claim for an award are de

scribed 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 eli

gible for an award, except that the

Commission may, in its sole discretion,

waive any of these procedures based

upon a showing of extraordinary cir

cumstances.

(b) In addition to any forms required

by these rules, the Commission may

also require that you provide certain

additional information. You may be re

quired 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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§ 240.21F–9

17 CFR Ch. II (4–1–16 Edition)

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(6) You acquired the original infor

mation 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 viola

tions involving that person; or

(ii) With the intent to evade any pro

vision of these rules; or

(7) In your whistleblower submission,

your other dealings with the Commis

sion, or your dealings with another au

thority in connection with a related

action, you knowingly and willfully

make any false, fictitious, or fraudu

lent statement or representation, or

use any false writing or document

knowing that it contains any false, fic

titious, or fraudulent statement or

entry with intent to mislead or other

wise hinder the Commission or another

authority.

§ 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 secu

rities law violation by either of these

methods:

(1) Online, through the Commission’s

Web site located at http://www.sec.gov;

(2) By mailing or faxing a Form TCR

(Tip, Complaint or Referral) (ref

erenced 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 in

formation is true and correct to the

best of your knowledge and belief.

and (b) of this section, if you are pro

viding your original information to the

Commission anonymously, then your

attorney must submit your informa

tion on your behalf pursuant to the

procedures specified in paragraph (a) of

this section. Prior to your attorney’s

submission, you must provide your at

torney 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 at

torney 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 complete

ness and accuracy and that the infor

mation contained therein is true, cor

rect and complete to the best of the at

torney’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 representa

tions, or used any false writing or doc

ument 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 (ref

erenced in § 249.1800 of this chapter)

within seven (7) calendar days of re

ceiving such request from the Commis

sion.

(d) If you submitted original infor

mation in writing to the Commission

after July 21, 2010 (the date of enact

ment 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 attor

ney with a completed and signed copy

of Form TCR (referenced in § 249.1800 of

this chapter) within 60 days of the ef

fective date of these rules, your attor

ney must retain the signed form in his

or her records, and you must provide of

copy of the signed form to the Commis

sion staff upon request by Commission

staff prior to any payment of an award

to you in connection with your submis

sion. Notwithstanding the foregoing,

you must follow the procedures and

conditions for making a claim for a

whistleblower award described in

648

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Securities and Exchange Commission

§ 240.21F–10

§§ 240.21F–10 and 240.21F–11 of this chap

ter.

rector of the Division of Enforcement

(‘‘Claims Review Staff’’) will evaluate

all timely whistleblower award claims

submitted on Form WB–APP (ref

erenced 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 addi

tional information relating to your eli

gibility for an award or satisfaction of

any of the conditions for an award, as

set forth in § 240.21F–(8)(b) of this chap

ter. Following that evaluation, the Of

fice 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 Re

view Staff by submitting a written re

sponse 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 ad

vanced 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, re

quest 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 Re

view Staff’s Preliminary Determina

tion.

(ii) Within thirty (30) calendar days

of the date of the Preliminary Deter

mination, 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 Pre

liminary Determination, you must sub

mit your written response and sup

porting materials within sixty (60) cal

endar days of the date of the Prelimi

nary Determination, or if a request to

review materials is made pursuant to

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§ 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.

(a) Whenever a Commission action

results in monetary sanctions totaling

more than $1,000,000, the Office of the

Whistleblower will cause to be pub

lished on the Commission’s Web site a

‘‘Notice of Covered Action.’’ Such No

tice will be published subsequent to the

entry of a final judgment or order that

alone, or collectively with other judg

ments 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 exceed

ing $1,000,000 into a disgorgement or

other fund pursuant to Section 308(b) of

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