# ____________________________________________________________________________________ > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Affe49a407426c6ec ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 No. 16-3502 ____________________________________________________________________________________ UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT ____________________________________________________________________________________ NEAL R. VERFUERTH, Plaintiff-Appellant, v. 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) Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................................................. iv STATEMENT OF THE ISSUE ......................................................................................... 1 INTEREST OF THE SECURITIES AND EXCHANGE COMMISSION AND SUMMARY OF ITS POSITION.................................... 2 STATEMENT OF THE CASE .......................................................................................... 4 A. The securities laws recognize that internal company reporting by employees and others is important for deterring, detecting, and stopping unlawful conduct that may harm investors. ............................................ 4 B. By providing new incentives and protections for individuals to engage in whistleblowing activity, the Dodd-Frank whistleblower program enhances the existing securities law enforcement scheme, including internal company reporting. ..................................................................... 8 1. The Commission carefully calibrated the rules implementing the monetary award component of the whistleblower program to ensure that individuals were not disincentivized from first reporting internally. ............................................ 9 2. Using its broad rulemaking authority, the Commission adopted a rule clarifying that employment retaliation is prohibited against individuals who engage in any of the whistleblowing activity described in Section 21F(h)(1)(A)(iii)—including making internal reports at public companies of securities fraud violations......................................... 13 STANDARD OF REVIEW............................................................................................... 16 ARGUMENT ....................................................................................................................... 17 I. Section 21F does not unambiguously demonstrate a Congressional intent to restrict employment anti-retaliation protection to only those individuals who provide the Commission with information relating to a violation of the securities laws. ........................... 17 ii Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 iv Case: 16-3502 Document: 25 Filed: 05/05/2017 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 v Case: 16-3502 Document: 25 Filed: 05/05/2017 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 vi Case: 16-3502 Document: 25 Filed: 05/05/2017 STATUTES (continued) Pages: 70 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 vii Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 viii Case: 16-3502 Document: 25 Filed: 05/05/2017 RULES (continued) Pages: 70 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 ix Case: 16-3502 Document: 25 Filed: 05/05/2017 ADMINISTRATIVE MATERIALS (continued) Pages: 70 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 x Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 No. 16-3502 ____________________________________________________________________________________ UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT ____________________________________________________________________________________ NEAL R. VERFUERTH, Plaintiff-Appellant, v. 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)? Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 2 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 1 The Commission recognized that internal reporting is not always appropriate, and the decision whether to do so (either prior to reporting to the Commission or at all) is best left for whistleblowers to determine based on the particular facts and circumstances. See Adopting Release at 34327. Among the considerations a whistleblower would likely consider are: (i) whether the employer has an anonymous reporting system; (ii) whether the potential misconduct involves upper-level management; (iii) whether the misconduct is still ongoing and poses a risk of sufficiently significant harm to investors that immediate reporting to the Commission is more appropriate; and (iv) whether the employer may be prone to bad faith conduct such as the destruction of evidence. Id. at 34326. 2 Each rule designated in this brief as Exchange Act Rule 21F-___ is codified at 17 C.F.R. §240.21F-___. 3 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 internally in the first instance (i.e., before reporting to the Commission), and thus is an important component of the overall design of the whistleblower program. Second, if the rule were invalidated, the Commission’s authority to pursue enforcement actions against employers that retaliate against individuals who report internally would be substantially weakened. STATEMENT OF THE CASE A. The securities laws recognize that internal company reporting by employees and others is important for deterring, detecting, and stopping unlawful conduct that may harm investors. Companies’ processes for the internal reporting of violations of law and other misconduct “play an important role in facilitating compliance with the securities laws.” Adopting Release at 34325; accord id. at 34324. Among other things, these internal reporting processes can help companies to promptly identify, correct, and self-report unlawful conduct by officers, employees, or others connected to the company. See generally Proposing Release at 70496. In this way, “reporting through internal compliance procedures can complement or otherwise appreciably enhance [the Commission’s] enforcement efforts … .” Adopting Release at 34359 n.450; see also Report of Investigation Pursuant to 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 4 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 3 To be clear, as the Commission has advised, “while internal compliance programs are valuable, they are not substitutes for strong law enforcement.” Adopting Release at 34326 (emphasis added). 4 This brief uses the term “public company” to refer to a company with a class of securities registered under Section 12 of the Exchange Act and those required to file reports under Section 15(d) of that Act. 5 An early version of the legislative proposal that became Section 10A would have required auditors to report immediately to the Commission. SEC Chairman 5 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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?”). 6 Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 484 (2010). 7 A principal aim of Sarbanes-Oxley was to promote the establishment of robust internal corporate governance mechanisms and processes that could promptly identify and remedy violations. See, e.g., Sarbanes-Oxley §404, 15 U.S.C. §7262 (requiring internal compliance systems and an annual audit by outside auditors). 8 Only in limited situations—where an attorney reasonably believes it is “necessary” to report to the Commission to prevent a securities law violation that will cause substantial financial injury, or to correct past violations of similar severity where 6 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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. 7 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 misconduct),” or to Congress or certain governmental agencies (including the Commission). Id. §1514A(a)(1)(C).9 B. By providing new incentives and protections for individuals to engage in whistleblowing activity, the Dodd-Frank whistleblower program enhances the existing securities law enforcement scheme, including internal company reporting. As noted above, Dodd-Frank established the Commission’s new whistleblower program in 2010 by adding Section 21F to the Exchange Act. Section 21F expressly authorized the Commission “to issue such rules and 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. 9 The Commission has periodically adopted rules and regulations requiring internal reporting in certain circumstances either within or among regulated entities. See, e.g., 17 C.F.R. §270.38a-1(a)(4) (requiring the chief compliance officer of a mutual fund to report the details of any material compliance matters to the fund’s board); 17 C.F.R. §240.17a-5(h)(2) (requiring the auditor of a 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). 8 Case: 16-3502 1. Document: 25 Filed: 05/05/2017 Pages: 70 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). 10 9 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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”). 11 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”). 12 10 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 13 Many commenters during the rulemaking, particularly industry-affiliated commenters, urged the Commission to encourage or require individuals to report internally before reporting to the Commission. See, e.g., Adopting Release at 34326 n.230 (citing comment letters from, among others, the Business Roundtable and the U.S. Chamber of Commerce). 14 Relatedly, the Commission’s rules also provide that “a whistleblower’s interference with internal compliance and reporting is a factor that can decrease the 11 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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)). 12 Case: 16-3502 2. Document: 25 Filed: 05/05/2017 Pages: 70 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. 15 13 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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). 16 Subparagraph (B) provides a cause of action in federal district court for any “individual who alleges discharge or other discrimination in violation of subparagraph (A).” Exchange Act §21F(h)(1)(B)(i). Subparagraph (C) provides that relief in a successful action shall include reinstatement, two times back pay, compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees. Id. §21F(h)(1)(C). 14 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 15 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 16 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 I. Section 21F does not unambiguously demonstrate a Congressional intent to restrict employment anti-retaliation protection to only those individuals who provide the Commission with information relating to a violation of the securities laws. Congress did not unambiguously limit the employment anti-retaliation protections in Section 21F(h)(1) to only those individuals who provide the Commission with information relating to a securities law violation. Rather, there is 17 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 18 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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: 17 The legislative history adds no clarity concerning Congress’s intention in adding clause (iii) to Section 21F(h)(1)(A). Indeed, the provision was added relatively late in the Dodd-Frank legislative process; it was not included either in the original version of the bill that passed the House, see H.R. 4173, 111th Cong. §7203(a) (as passed Dec. 11, 2009), or in the version that initially passed the 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)). 19 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 (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 20 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 21 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 18 As at least one district court has recognized, the alternative would be to construe the anti-retaliation provision to impose strict liability on an employer (i.e., intent would not be an element of a retaliation claim). See Liu v. Siemens, A.G., 978 F. Supp. 2d 325, 332 (S.D.N.Y. 2013), aff’d on other grounds, 763 F.3d 175 (2d Cir. 2014). But we are aware of no precedent for treating an employment anti-retaliation provision as a strict liability scheme. 22 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 19 A further anomaly resulting from this interpretation is that the individual, in order to successfully maintain a retaliation claim, would be required to “out” himself as someone who reported information to the Commission. This conflicts with Congress’s strong desire to shield a whistleblower’s identity from public disclosure to the fullest extent possible. See Exchange Act §21F(h)(2) (confidentiality provisions); see also id. §21F(d)(2)(A) (permitting anonymous disclosures to the Commission). 23 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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: 24 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70  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 20 DOL has delegated to its sub-agency the Occupational Safety and Health Administration (“OSHA”) responsibility for receiving and investigating claims under Section 806. See generally 29 C.F.R. §1980. If OSHA finds the employee suffered retaliation, it may order immediate reinstatement. Id. §1980.105. OSHA’s findings are subject to a de novo hearing before an administrative law judge and review by DOL’s Administrative Review Board. Id. §§1980.106-110. 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). 21 25 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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. 26 22 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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). 27 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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). 23 28 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 24 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. 29 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 25 The Commission lacks such authority under Sarbanes-Oxley Section 806. 30 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 26 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. 31 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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. 27 Clause (iii) provides employment retaliation protection based on disclosures to DOJ and the other federal agencies by expressly incorporating the “disclosures that are required or protected under the Sarbanes-Oxley Act,” which includes 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). 28 We note that there is one exception to the general symmetry that exists within Section 21F between the related-action award provisions and the employment retaliation protections afforded by clause (iii). While the Commission may make an award for a related action that is a criminal matter brought by a state attorney general, clause (iii) does not cover disclosures made directly to state attorneys general. 32 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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). 29 33 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 30 Generally speaking, the Commission has responsibility for pursuing civil actions for violations of the federal securities laws while DOJ possesses criminal enforcement authority. 31 Section 21F(h)(1)(A)(iii) provides protection for any disclosure “required or protected” by a “rule or regulation subject to the jurisdiction of the Commission.” Exchange Act §21F(h)(1)(A)(iii) (emphasis added). As explained in Bussing, 20 F. Supp. 3d at 732, 734-35, SRO rules are “subject to the jurisdiction of the Commission” for purposes of the employment retaliation protections of Section 21F(h)(1) because the Commission has statutory authority to approve or disapprove such rules. The Commission also possesses jurisdiction to review SRO disciplinary proceedings in which such rules are enforced. 34 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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. 35 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 36 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 CERTIFICATE OF COMPLIANCE I hereby certify as follows: 1. 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. 2. 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 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 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 Case: 16-3502 Document: 25 Filed: 05/05/2017 Pages: 70 STATUTORY AND REGULATORY ADDENDUM TABLE OF CONTENTS 15 U.S.C. §78u-6 ............................................................................................................Add. 1 17 C.F.R. §240.21F........................................................................................................Add. 6 Case: 16-3502 § 78u–6 Document: 25 Filed: 05/05/2017 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; (C) a statement of future economic per­ 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 (C) is not exclusively derived from an alle­ 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 Add. 1 16-3502 Page Case: 403 Document: 25 Filed: 05/05/2017 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. (c) Determination of amount of award; denial of award (1) Determination of amount of award (A) Discretion The determination of the amount of an award made under subsection (b) shall be in the discretion of the Commission. (B) Criteria In determining the amount of an award made under subsection (b), the 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; (C) to any whistleblower who gains the in­ 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— Add. 2 Case: 16-3502 § 78u–6 Document: 25 Filed: 05/05/2017 TITLE 15—COMMERCE AND TRADE (A) paying awards to whistleblowers as provided in subsection (b); and (B) funding the activities of the Inspector General of the Commission under section 78d(i) of this title. (3) Deposits and credits (A) In general There shall be deposited into or credited to the Fund an amount equal to— (i) any monetary sanction collected by the Commission in any judicial or 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. (C) Interest and proceeds credited The interest on, and the proceeds from the sale or redemption of, any obligations held in the Fund shall be credited to the Fund. (5) Reports to Congress Not later than October 30 of each fiscal year beginning after July 21, 2010, the Commission 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; (C) the amounts deposited into or credited to the Fund during the preceding fiscal year; (D) the amount of earnings on investments made under paragraph (4) during the 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; or (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— Add. 3 16-3502 Page Case: 405 Document: 25 Filed: 05/05/2017 TITLE 15—COMMERCE AND TRADE (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. (C) Relief 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. (C) Rule of construction Nothing in this section is intended to limit, or shall be construed to limit, the ability of the Attorney General to present such evidence to a grand jury or to share such evidence with potential witnesses or defendants in the course of an ongoing criminal investigation. (D) Availability to government agencies (i) In general Without the loss of its status as 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 Add. 4 Case: 16-3502 § 78u–7 Document: 25 Filed: 05/05/2017 TITLE 15—COMMERCE AND TRADE 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. (c) Awards 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 Add. 5 lpowell on DSK54DXVN1OFR with $$_JOB Case: 16-3502 Document: 25 Filed: 05/05/2017 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; (C) Suspending or expelling any per­ 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 (C) of the Act; or (iii) A failure under the provisions of Rule G–4 of the Municipal Securities Rulemaking Board under the Act, to meet qualifications standards, and such failure may be remedied by a 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 639 VerDate Sep<11>2014 Pages: 70 16:12 Jul 21, 2016 Jkt 238060 PO 00000 Frm 00649 Add.Sfmt68010 Q:\17\17V4.TXT 31 Fmt 8010 Case: 16-3502 Document: 25 Filed: 05/05/2017 § 240.21F–2 17 CFR Ch. II (4–1–16 Edition) the Whistleblower, 100 F Street, NE., Washington, DC 20549–5631. lpowell on DSK54DXVN1OFR with $$_JOB § 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 by Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), you are a whistleblower if: (i) You possess a reasonable belief that the information you are providing relates to a possible securities law 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 in Section 21F(h)(1)(A) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)). (iii) The anti-retaliation protections apply whether or not you satisfy the requirements, procedures and 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Affe49a407426c6ec. Public record. Not legal advice.