Whistleblower Program Rules

FederalRegulations

Ask Donna

How this section applies to your facts.

Federal Register › Vol. 83 › 83 FR 34702

This text was captured on Aug 14, 2026. It is a snapshot, not a live feed, so check the official code before relying on it.

Text

SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240 and 249 [Release No. 34-83557; File No. S7-16-18] RIN 3235-AM11 Whistleblower Program Rules AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rule.

SUMMARY:

The Securities and Exchange Commission (“Commission”) is proposing for public comment several amendments to the Commission's rules implementing its whistleblower program. Section 21F of the Securities Exchange Act of 1934 (“Exchange Act”) provides, among other things, that the Commission shall pay an award—under regulations prescribed by the Commission and subject to certain limitations—to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action. On May 25, 2011, the Commission adopted a comprehensive set of rules to implement the whistleblower program. The proposed rules would make certain changes and clarifications to the existing rules, as well as several technical amendments. The Commission is also including interpretive guidance concerning the terms “unreasonable delay” and “independent analysis.”

DATES:

Comments should be received on or before September 18, 2018.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form ( http://www.sec.gov/rules/proposed.shtml ); or

• Send an email to rule-comments@sec.gov . Please include File Number S7-16-18 on the subject line.

Paper Comments

• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

the subject line.

Paper Comments

• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-16-18. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission's internet website ( http://www.sec/gov/rules/proposed.shtml ). Comments are also available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT:

Emily Pasquinelli, Office of the Whistleblower, Division of Enforcement, at (202) 551-5973; Brian A. Ochs, Office of the General Counsel, at (202) 551-5067, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

The Commission is proposing to amend 17 CFR 240.21F-3 (“Rule 21F-3”), 240.21F-4 (“Rule 21F-4”), 240.21F-6 (“Rule 21F-6”), 240.21F-8 (“Rule 21F-8”) through 240.21F-13 (“Rule 21F-13”). The Commission is also proposing to add a new rule that would be codified as 17 CFR 240.21F-18 (“Rule 21F-18”).

Table of Contents

I. Background A

Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background A. The Whistleblower Award Program B. Overview of the Proposed Rule Changes and Other Items II. Discussion of Proposed Amendments A. Proposed Amendment to Exchange Act Rule 21F-4(d) Defining an “action” B. Proposed Amendment to Exchange Act Rule 21F-4(e) Defining “monetary sanctions” C. Proposed Amendment to Exchange Act Rule 21F-3(b)(1) Defining “related action” D. Proposed Amendment to Exchange Act Rule 21F-6 Regarding Awards to a Single Whistleblower Below $2 Million or in Cases Yielding at Least $100 Million in Collected Monetary Sanctions and Guidance on the Meaning of “unreasonable delay” Under Rule 21F-6 E. Proposed Amendment to Exchange Act Rule 21F-2 Addressing Whistleblower Status and Certain Threshold Criteria Related to Award Eligibility, Heightened Confidentiality From Identity Disclosure, and Employment Anti-Retaliation Protection F. Proposed Amendment to Rule 21F-8 To Add New Paragraph (d) To Provide the Commission With Additional Flexibility Regarding the Forms Used in Connection With the Whistleblower Program (and Corresponding Amendments to Rule 21F-10, Rule 21F-11, and Rule 21F-12) G. Proposed Amendment to Rule 21F-8 To Add New Paragraph (e) To Clarify and Enhance the Commission's Authority To Address Claimants Who Submit False Information to the Commission or Who Abuse the Award Application Process H. Proposed Amendments to Rule 21F-9 To Provide Additional Flexibility and Clarity Regarding Form TCR (and Corresponding Technical Amendments to Rule 21F-10, Rule 21F-11, and Rule 21F-12) I

Amendment to Rule 21F-8 To Add New Paragraph (e) To Clarify and Enhance the Commission's Authority To Address Claimants Who Submit False Information to the Commission or Who Abuse the Award Application Process H. Proposed Amendments to Rule 21F-9 To Provide Additional Flexibility and Clarity Regarding Form TCR (and Corresponding Technical Amendments to Rule 21F-10, Rule 21F-11, and Rule 21F-12) I. Proposed Amendment to Rule 21F-12 Regarding the Materials That May Form the Basis of the Commission's Award Determination J. Proposed Amendment to Rule 21F-13 Regarding the Administrative Record on Appeal K. Proposed Rule 21F-18 Establishing a Summary Disposition Process L. Technical Amendment to Rule 21F-4(c)(2) III. Proposed Interpretive Guidance Regarding the Meaning and Application of “independent analysis” as Defined in Exchange Act Rule 21F-4(b)(3) A. Background: “Original Information” and Publicly Available Information B. “Independent Analysis” C. Leads to Successful Enforcement IV. Request for Comment Regarding a Potential Discretionary Award Mechanism for Commission Actions That Do Not Qualify as Covered Actions, Involve Only a De Minimis Collection of Monetary Sanctions, or Are Based on Publicly Available Information V. General Request for Public Comment VI. Paperwork Reduction Act A. Background B. Summary of the Proposed Amendments C. Burden and Cost Estimates Related to the Proposed Amendments D. Mandatory Collection of Information E. Confidentiality F. Request for Comment VII. Economic Analysis A. Economic Baseline 1. Whistleblower Programs 2. Supreme Court Decision in Digital Realty Trust, Inc. v. Somers 3. IPF and Awards Issued by the SEC Whistleblower Program 4. Estimates of Current Annual Wages B. Analysis of Benefits, Costs, and Economic Effects of the Proposed Rules 1. Proposed Amendments to Rule 21F-2 2. Proposed Rule 21F-3(b)(4) 3. Proposed Rule 21F-4(d)(3) 4. Proposed Rule 21F-6(c) 5. Proposed Rule 21F-6(d) 6. Proposed Rule 21F-8(e) 7. Proposed Rule 21F-18 8

al Realty Trust, Inc. v. Somers 3. IPF and Awards Issued by the SEC Whistleblower Program 4. Estimates of Current Annual Wages B. Analysis of Benefits, Costs, and Economic Effects of the Proposed Rules 1. Proposed Amendments to Rule 21F-2 2. Proposed Rule 21F-3(b)(4) 3. Proposed Rule 21F-4(d)(3) 4. Proposed Rule 21F-6(c) 5. Proposed Rule 21F-6(d) 6. Proposed Rule 21F-8(e) 7. Proposed Rule 21F-18 8. Proposed Interpretive Guidance Regarding the Meaning and Application of “independent analysis” as Defined in Exchange Act Rule 21F-4(b)(3) C. Effects of the Proposed Rules on Efficiency, Competition, and Capital Formation IX. Small Business Regulatory Enforcement Fairness Act X. Regulatory Flexibility Act Certification XI. Statutory Basis List of Subjects in 17 CFR Parts 240 and 249 Text of the Proposed Amendments I. Background

A. The Whistleblower Award Program

In July 2010, Congress amended the Exchange Act to add new Section 21F. 1 That provision, entitled “Securities Whistleblower Incentives and Protection,” established the Commission's whistleblower program. Among other things, Section 21F directs that the Commission pay awards, subject to certain limitations and conditions, to whistleblowers 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 that results in a covered judicial or administrative action 2 and certain related actions. 3

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

2 15 U.S.C. 78u-6(a)(1).

3 15 U.S.C. 78u-6(a)(5).

In May 2011, the Commission adopted a comprehensive set of rules to implement the whistleblower program. Those rules, which are codified at 17 CFR 240.21F-1 through 240.21F-17, provide the operative definitions, requirements, and processes related to the whistleblower program

rative action 2 and certain related actions. 3

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

2 15 U.S.C. 78u-6(a)(1).

3 15 U.S.C. 78u-6(a)(5).

• Define key terms and phrases in Section 21F that determine whether an individual's information qualifies for an award—terms such as “original information,” “voluntary,” and “leads to successful enforcement”;

• specify the form and manner in which an individual must submit information to qualify as a whistleblower eligible for an award;

• establish the procedures for anonymous submissions;

• exclude certain individuals from eligibility, such as individuals who are, or were at the time that they acquired the original information provided to the Commission, a member, officer, or employee of a foreign government;

• explain which law-enforcement proceedings undertaken by other authorities may qualify for a related action award from the Commission;

• establish the procedures for determining awards both in Commission actions and related actions; and

• identify the criteria that the Commission will consider in setting the percentage amount of an award.

The Commission's whistleblower program has made significant contributions to the effectiveness of the Commission's enforcement of the federal securities laws. The Commission has received over 22,000 whistleblower tips since the inception of the program through the end of Fiscal Year 2017. Original information provided by whistleblowers has led to enforcement actions in which the Commission has obtained over $1.4 billion in financial remedies, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been or is scheduled to be returned to harmed investors

r tips since the inception of the program through the end of Fiscal Year 2017. Original information provided by whistleblowers has led to enforcement actions in which the Commission has obtained over $1.4 billion in financial remedies, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been or is scheduled to be returned to harmed investors. The Commission has ordered over $266 million in whistleblower awards to 55 individuals whose information and cooperation assisted the Commission in bringing successful enforcement actions and, in some instances, other enforcement authorities in bringing related actions against wrongdoers. That said, approximately $112 million of that amount was paid to just four individuals in connection with two Commission enforcement actions and a related action. 4

4 The average (mean) of these awards was approximately $38 million and the median award was approximately $33 million.

We recognize that individuals who step forward to provide information to the Commission may do so at great personal peril and professional sacrifice. We view the three key tenets of the program—monetary awards, confidentiality, and retaliation protections—as complementary and critical to the success of the program.

B. Overview of the Proposed Rule Changes and Other Items

After nearly seven years of experience administering the whistleblower program, we have identified various ways in which the program might benefit from additional rulemaking. We believe that the changes that we are proposing will build on the program's success by continuing to encourage individuals to come forward and by permitting us to more efficiently process award applications, among other potential benefits.

Based on our experience to date, we propose the following substantive amendments to our rules:

• Allowing awards based on deferred prosecution agreements (“DPAs”) and non-prosecution agreements (“NPAs”) entered into by the U.S

ram's success by continuing to encourage individuals to come forward and by permitting us to more efficiently process award applications, among other potential benefits.

Based on our experience to date, we propose the following substantive amendments to our rules:

• Allowing awards based on deferred prosecution agreements (“DPAs”) and non-prosecution agreements (“NPAs”) entered into by the U.S. Department of Justice (“DOJ”) or a state attorney general in a criminal case, or a settlement agreement entered into by the Commission outside of the context of a judicial or administrative proceeding to address violations of the securities laws: We propose an amendment that would expressly allow for the payment of awards based on money collected under these types of arrangements. Currently, our whistleblower rules do not address whether the Commission may pay an award when an eligible whistleblower voluntarily provides original information that leads to a DPA or NPA entered into by DOJ or a state attorney general in a criminal proceeding. Nor do our rules currently address whether the Commission may pay an award to an eligible whistleblower who voluntarily provides information that leads to a settlement agreement entered into by the Commission outside of the context of a judicial or administrative proceeding to address violations of the securities laws. We are proposing to amend the definition of an “action” in Rule 21F-4(d) 5 to include, as administrative actions, these arrangements, with the money paid under such arrangements deemed to be “monetary sanctions” under Rule 21F-4(e), 6 and, thus to expressly permit us to pay awards thereon.

5 17 CFR 240.21F-4(d).

t us to pay awards thereon.

5 17 CFR 240.21F-4(d).

• Elimination of potential double recovery under the current definition of related action: We propose an amendment to our rules to clarify that a law-enforcement action would not qualify as a related action if the Commission determines that there is a separate whistleblower award scheme that more appropriately applies to the enforcement action. Although neither Section 21F of the Exchange Act (nor the whistleblower program rules thereunder) expressly addresses this situation, the Commission and the Claims Review Staff in the context of processing award applications have interpreted the term “related action” under Section 21F to exclude those matters brought by one of the entities listed in Rule 21F-3(b)(1) 7 for which there is a more directly applicable award program. The proposed rule would codify this interpretation.

7 17 CFR 240.21F-3(b)(1).

• Additional considerations for small and exceedingly large awards: In the context of potential awards that could yield a payout of $2 million or less to a whistleblower, the proposed rules would authorize the Commission to adjust the award percentage upward under certain circumstances (subject to the 30% statutory maximum) to an 8 Currently, the whistleblower rules do not expressly permit the Commission to consider whether a relatively small or exceedingly large potential payout is appropriate to advance the program's goals of rewarding whistleblowers and incentivizing future whistleblowers. We are proposing to amend the whistleblower program rules to include these considerations as additional award criteria.

8 In determining whether a large award would provide a payout that goes beyond what would be necessary to achieve the program's goals, we anticipate that the Commission would consider, among other factors, the value of the whistleblower's information and the personal and professional sacrifices made in reporting the information

rules to include these considerations as additional award criteria.

The three proposed rule changes described above are intended to serve two important and related objectives. First, the amendments are designed to help ensure that an eligible, meritorious whistleblower is appropriately rewarded for his or her efforts when the Commission or a related-action authority recovers monetary sanctions from wrongdoing that violates the securities laws. Second, the amendments would help ensure that the Investor Protection Fund (IPF) that Congress has established to pay meritorious whistleblowers is used in a manner that effectively and appropriately leverages the IPF to further the Commission's law-enforcement objectives. 9

9 By statute, the IPF “is established in the Treasury of the United States” and “is available to the Commission, without further appropriation or fiscal year limitation,” to pay “awards to whistleblowers” under Section 21F(b). Exchange Act § 21F(g)(1), 15 U.S.C. 78-6(g)(1). The IPF may also be used to fund certain limited activities of the Inspector General and the Office of the Whistleblower. As of the end May 2018, the balance of the IPF for the first time fell below the $300 million threshold that triggers the statutory replenishment mechanism; this occurred when the Commission paid $83 million—its largest payout to date on an enforcement action—to three individuals. For a complete description of the mechanisms that Congress established to replenish the IPF, see Section 21F(g)(3) of the Exchange Act, 15 U.S.C. 78-6(g)(3)

the IPF for the first time fell below the $300 million threshold that triggers the statutory replenishment mechanism; this occurred when the Commission paid $83 million—its largest payout to date on an enforcement action—to three individuals. For a complete description of the mechanisms that Congress established to replenish the IPF, see Section 21F(g)(3) of the Exchange Act, 15 U.S.C. 78-6(g)(3). Generally speaking, the IPF is funded in the following way: (i) Deposits of any monetary sanction collected by the Commission in any judicial or administrative action brought by the Commission under the securities laws that is not added to a disgorgement fund or other fund under section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) or otherwise distributed to victims of a violation of the securities laws, unless the balance of the IPF at the time the monetary sanction is collected exceeds $300,000,000; (ii) deposits of any monetary sanction added to a disgorgement fund or other fund under section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) that is not distributed to the victims for whom the fund was established, unless the balance of the disgorgement fund at the time the determination is made not to distribute the monetary sanction to such victims exceeds $200,000,000; and (iii) if the amounts deposited in the IPF under item (i) and (ii) above are not sufficient to satisfy a whistleblower award, the Commission must deposit money into the fund from the monetary sanctions collected in the covered action that the whistleblower's information led to (even if the money could have been directed to victims of the violation) in an amount equal to the unsatisfied portion of the award

the amounts deposited in the IPF under item (i) and (ii) above are not sufficient to satisfy a whistleblower award, the Commission must deposit money into the fund from the monetary sanctions collected in the covered action that the whistleblower's information led to (even if the money could have been directed to victims of the violation) in an amount equal to the unsatisfied portion of the award.

We believe that using the IPF to compensate whistleblowers who come forward with original information that leads to a DPA or NPA entered into by DOJ or a state attorney general, or a settlement agreement entered into by the Commission outside of the context of a judicial or administrative proceeding (provided the total money required to be paid in the action, including any other proceedings that arise out of the same nucleus of operative facts, exceeds $1,000,000) achieves both of these objectives. We similarly believe that these objectives are furthered by providing the Commission with additional discretion to determine that an action does not qualify as a related action if Congress or another authority has established a more directly applicable or relevant award program. Additionally, we believe that these two objectives are furthered by authorizing the Commission to adjust upward the award percentage in certain cases where the award would otherwise yield a payout of $2 million or less to a whistleblower, as well as to consider whether, in the context of an award issued in connection with certain large Commission or related actions, any whistleblower award exceeds an amount that is reasonably necessary to advance the program's goals. Absent this last amendment, the Commission may find itself faced with the possibility of paying out significantly large awards that are in excess of the amounts appropriate to advance the goals of the whistleblower program

ard issued in connection with certain large Commission or related actions, any whistleblower award exceeds an amount that is reasonably necessary to advance the program's goals. Absent this last amendment, the Commission may find itself faced with the possibility of paying out significantly large awards that are in excess of the amounts appropriate to advance the goals of the whistleblower program. These awards could substantially diminish the IPF, requiring the Commission to direct more funds to replenish the IPF rather than making that money available to the United States Treasury, where they could be used for other important public purposes. 10

10 Any funds used to replenish the IPF otherwise would be directed to the Treasury for use in funding other public programs.

Beyond the amendments discussed above, we are proposing to modify Exchange Act Rule 21F-2. 11 The amendments that we are proposing to this rule are in response to the Supreme Court's recent decision in Digital Realty Trust, Inc. v. Somers . 12 In that decision, the Court held that Section 21F(a)(6) of the Exchange Act unambiguously requires that an individual report a possible securities law violation to the Commission in order to qualify for employment retaliation protection, and that the Commission's rule interpreting the anti-retaliation protections in Section 21F(h)(1) more broadly was therefore not entitled to deference. 13 We are proposing to modify Rule 21F-2 so that it comports with the Court's holding by, among other things, promulgating a uniform definition of “whistleblower” that would apply to all aspects of Exchange Act Section 21F. We are also proposing to provide certain related clarifications to Rule 21F-2 and to address certain other interpretive questions that have arisen in connection with the Court's holding.

11 17 CFR 240.21F-2.

12 138 S. Ct. 767 (2018).

13 138 S. Ct. at 781-82

y, among other things, promulgating a uniform definition of “whistleblower” that would apply to all aspects of Exchange Act Section 21F. We are also proposing to provide certain related clarifications to Rule 21F-2 and to address certain other interpretive questions that have arisen in connection with the Court's holding.

11 17 CFR 240.21F-2.

12 138 S. Ct. 767 (2018).

13 138 S. Ct. at 781-82.

In addition to the foregoing amendments, we are proposing several other amendments that are intended to clarify and enhance certain policies, practices, and procedures in implementing the program. We are proposing to revise Exchange Act Rule 21F-4(e) 14 to clarify the definition of “monetary sanctions” so that it codifies the agency's current understanding and application of that term. We are also proposing to revise Exchange Act Rule 21F-9 15 to provide the Commission with additional flexibility to modify the manner in which individuals may submit Form TCR (Tip, Complaint or Referral). We are similarly proposing to revise Exchange Act Rule 21F-8 16 to provide the Commission with additional flexibility regarding the forms used in connection with the whistleblower program. 17 Further, we are proposing an amendment to Exchange Act Rule 21F-12 18 to clarify the list of materials that the Commission may rely upon in 19 to clarify the materials that may comprise the administrative record for purposes of judicial review.

14 17 CFR 240.21F-4(e).

15 17 CFR 240.21F-9.

16 17 CFR 240.21F-8.

17 17 CFR 249.1800 and 249.1801.

18 17 CFR 240.21F-12.

19 17 CFR 240.21F-13.

Two further changes are designed to help increase the Commission's efficiency in processing whistleblower award applications

rely upon in 19 to clarify the materials that may comprise the administrative record for purposes of judicial review.

14 17 CFR 240.21F-4(e).

15 17 CFR 240.21F-9.

16 17 CFR 240.21F-8.

17 17 CFR 249.1800 and 249.1801.

18 17 CFR 240.21F-12.

19 17 CFR 240.21F-13.

Two further changes are designed to help increase the Commission's efficiency in processing whistleblower award applications. We are proposing to add paragraph (e) to Exchange Act Rule 21F-8 20 to clarify the Commission's ability to bar individuals from submitting whistleblower award applications where they are found to have submitted false information in violation of Exchange Act Section 21F(i) 21 and Rule 8(c)(7) 22 thereunder, as well as to afford the Commission the ability to bar individuals who repeatedly make frivolous award claims in Commission actions. We are also proposing to add new Exchange Act Rule 21F-18 to afford the Commission with a summary disposition procedure for certain types of likely denials, such as untimely award applications and those applications that involve a tip that was not provided to the Commission in the form and manner that the Commission's rules require.

20 17 CFR 240.21F-8.

21 15 U.S.C. 78u-6(i).

22 17 CFR 240.21F-8(c)(7).

We are also proposing a technical correction to Exchange Act Rule 21F-4(c)(2) 23 to modify an erroneous internal cross-reference, as well as several technical modifications to Exchange Act Rules 21F-9, 10, 11, and 12 24 to accommodate certain of the substantive and procedural changes described above.

23 17 CFR 240.21F-4(c)(2).

24 17 CFR 240.21F-9 through 240.21F-12.

We have included two additional items beyond the proposed amendments to our rules

Act Rule 21F-4(c)(2) 23 to modify an erroneous internal cross-reference, as well as several technical modifications to Exchange Act Rules 21F-9, 10, 11, and 12 24 to accommodate certain of the substantive and procedural changes described above.

23 17 CFR 240.21F-4(c)(2).

24 17 CFR 240.21F-9 through 240.21F-12.

We have included two additional items beyond the proposed amendments to our rules. First, we are including proposed interpretive guidance to help clarify the meaning of “independent analysis” as that term is defined in Exchange Act Rule 21F-4 and utilized in the definition of “original information.” Second, we are including a general inquiry for public comment regarding whether the Commission in a future rulemaking could establish a potential discretionary award mechanism for Commission enforcement actions that either do not qualify as covered actions, are based on publicly available information (and not “original information” as that term is defined in Exchange Act Rule 21F-4(b)(1)(i) 25 ), or where the monetary sanctions collected are de minimis. 26

25 17 CFR 240-21F-4(b)(1)(i).

26 In July 2014, the Commission received two petitions for rulemaking relating to the whistleblower program. The petitions for rulemaking can be found on the Commission's website at this location: https://www.sec.gov/rules/petitions.shtml . Both petitions sought the same or similar amendments to the whistleblower program rules in two respects. In connection with issuing this proposing release, we have considered the two petitions and determined to proceed as follows. First, to the extent that the petitions requested clarification through rulemaking in connection with employment anti-retaliation protections for internal reporting, we believe that the amendments we are proposing to Exchange Act Rule 21F-2 (discussed above) appropriately address this issue following the Supreme Court's recent decision in Digital Realty

itions and determined to proceed as follows. First, to the extent that the petitions requested clarification through rulemaking in connection with employment anti-retaliation protections for internal reporting, we believe that the amendments we are proposing to Exchange Act Rule 21F-2 (discussed above) appropriately address this issue following the Supreme Court's recent decision in Digital Realty. Second, to the extent the rulemaking petitions request that we add clarifying language to Exchange Act Rule 21F-17(a), 17 CFR 240.21F-17(a), we find the amendments unnecessary at this juncture because, as noted by the petitioners, “the plain language of Rule 21F-17 and existing case law compel the conclusion” that the contracts the petitioners are concerned with are already “unenforceable[.]” See Exchange Act Rule 21F-17(a), 17 CFR 240.21F-17(a) (providing that no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) and (ii) of the chapter related to the legal representation of a client) with respect to such communications.). In fact, the Commission has successfully brought nine enforcement actions for violations of Rule 21F-17. See generally SEC National Exam Program Risk Alert: Examining Whistleblower Rule Compliance at 1-2 & n. 3 (October 24, 2016), available at https://www.sec.gov/ocie/announcement/ocie-2016-risk-alert-examining-whistleblower-rule-compliance.pdf (summarizing Commission enforcement actions). Finally, in accordance with Rule 192 of the Commission's Rules of Practice, see 17 CFR 201.192, the Secretary of the Commission shall notify the petitioners of the action taken by the Commission following the publication of this proposing release in the Federal Register .

II. Discussion of Proposed Amendments

The proposed amendments are set forth below.

ing Commission enforcement actions). Finally, in accordance with Rule 192 of the Commission's Rules of Practice, see 17 CFR 201.192, the Secretary of the Commission shall notify the petitioners of the action taken by the Commission following the publication of this proposing release in the Federal Register .

II. Discussion of Proposed Amendments

The proposed amendments are set forth below.

A. Proposed Amendment to Exchange Act Rule 21F-4(d) 27 Defining an “action” 28

27 17 CFR 240.21F-4(d).

28 The Commission anticipates that this proposed rule change, if adopted, would apply to all new DPAs, NPAs, and Commission settlement agreements covered by the proposed rule that are entered into after the effective date of the rules. The proposed rule would not apply to any such agreements entered on or before the effective date of the rules.

Section 21F of the Exchange Act authorizes us to pay whistleblower awards in relation to the “successful enforcement” of “covered judicial or administrative actions” brought by the Commission and certain “related actions” of other authorities, most notably DOJ. 29 Awards range between 10 percent and 30 percent “of what has been collected of the monetary sanctions imposed” in the action. 30 Proposed Rule 21F-4(d)(3) would provide that, for purposes of making a whistleblower award, a DPA or NPA entered into by DOJ or a state attorney general in a criminal case would be deemed to be an “administrative action” and any money required to be paid thereunder would be deemed a “monetary sanction.” The same result would follow for a settlement agreement entered into by the Commission outside of the context of a judicial or administrative proceeding to address violations of the securities laws

PA entered into by DOJ or a state attorney general in a criminal case would be deemed to be an “administrative action” and any money required to be paid thereunder would be deemed a “monetary sanction.” The same result would follow for a settlement agreement entered into by the Commission outside of the context of a judicial or administrative proceeding to address violations of the securities laws. The premise of proposed Rule 21F-4(d)(3) is the same as that underlying current Rule 21F-4(d)(1) 31 : Our view that Congress did not intend for meritorious whistleblowers to be denied awards simply because of the procedural vehicle that the Commission (or the other authority) has selected to pursue an enforcement matter. 32

29 15 U.S.C. 78u-6(b)(1). A “covered judicial or administrative action” is any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1 million. Id. 6(a)(1). A “related action” is a judicial or administrative action brought by any of several authorities designated in the statute that is based upon the original information provided by a whistleblower that led to successful enforcement of a Commission covered action. Id. 6(a)(5).

30 Id. 6(b)(1)(A)-(B).

31 17 CFR 240.21F-4(d)(1).

32 See Securities Whistleblower Incentives and Protections, Exchange Act Release No. 64545, 76 FR 34300, 34327 (June 13, 2011). Recognizing that an “action” is generally considered to be a single captioned case or matter, the Commission adopted Rule 21F-4(d)(1) to clarify that it would treat two or more separate cases that arise out of the same nucleus of operative facts as a single “action” for purposes of making an award. In this way, the sanctions ordered in closely connected proceedings, even if individually under $1 million, are aggregated for purposes of assessing whether the actions reach the $1 million “covered action” threshold that is necessary to permit consideration of whistleblower award claims

ses that arise out of the same nucleus of operative facts as a single “action” for purposes of making an award. In this way, the sanctions ordered in closely connected proceedings, even if individually under $1 million, are aggregated for purposes of assessing whether the actions reach the $1 million “covered action” threshold that is necessary to permit consideration of whistleblower award claims. The critical principle behind this rule is that a whistleblower should not be denied an award for his or her contributions to the closely connected cases or matters merely because the Commission (or other authority) determined not to bring these cases as one captioned law-enforcement case.

Moreover, we also believe that the statutory term “administrative action” is sufficiently ambiguous and broad enough to permit us to interpret the term to include DPAs and NPAs when these instruments are employed by DOJ or a state attorney general, or settlement agreements entered into by the Commission outside of the context of judicial or administrative proceedings, as an appropriate resolution to a law-enforcement investigation. 33 We find it 34 Therefore, the use of the term “administrative action” in describing actions that can give rise to whistleblower awards suggests that Congress did not clearly intend to limit the scope of the Commission's authority under Section 21F (outside of judicial actions) to only the Commission's formal adjudicatory proceedings specified in the securities laws (or adjudicatory proceedings of designated related action authorities).

33 In DOJ's practice, DPAs and NPAs occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation in circumstances where the collateral consequences of a corporate conviction for innocent third parties would be significant. See United States Attorneys' Manual 9-28.200, 9-28.1100, available at https://www.justice.gov/usam/united-states-attorneys-manual

In DOJ's practice, DPAs and NPAs occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation in circumstances where the collateral consequences of a corporate conviction for innocent third parties would be significant. See United States Attorneys' Manual 9-28.200, 9-28.1100, available at https://www.justice.gov/usam/united-states-attorneys-manual . As one example, DPAs and NPAs et seq., an area that overlaps with our own enforcement jurisdiction. In 2017, DOJ entered into six DPAs or NPAs to resolve FCPA investigations of corporate entities, securing over $1.4 billion in monetary recoveries. See FCPA Related Enforcement Actions: 2017, available at https://www.justice.gov/criminal-fraud/case/related-enforcement-actions/2017 .

34 See, e.g., Exchange Act Sections 21F(h)(2)(A), 15 U.S.C. 78u-6(h)(2)(A) (disclosure of whistleblower identities to a “respondent in connection with a public proceeding instituted by the Commission”), 21B, 15 U.S.C. 78u-2 (“Civil Remedies in Administrative Proceedings”), 21C, 15 U.S.C. 78u-3 (“Cease-and-Desist Proceedings”); Securities Act of 1933 Section 8A, 15 U.S.C. 77h-1 (“Cease-and-Desist Proceedings”); Investment Advisers Act Section 203(i), 15 U.S.C. 80b-3(i) (“Money Penalties in Administrative Proceedings”); Investment Company Act Section 9(d), 15 U.S.C. 80a-9(d) (“Money Penalties in Administrative Proceedings”); see also SEC Rule of Practice 101(4), 17 CFR 201.101(4) (defining “enforcement proceeding”).

The Commission has previously exercised its interpretive authority to pay a whistleblower award with respect to a DPA entered into by DOJ on the basis that such agreements are filed in a federal court action that charges the defendant with violations of law. 35 However, as is further discussed below, DOJ's practice with respect to NPAs has been not to commence an accompanying proceeding in either a judicial or administrative tribunal

ed its interpretive authority to pay a whistleblower award with respect to a DPA entered into by DOJ on the basis that such agreements are filed in a federal court action that charges the defendant with violations of law. 35 However, as is further discussed below, DOJ's practice with respect to NPAs has been not to commence an accompanying proceeding in either a judicial or administrative tribunal. Moreover, we have entered into settlement agreements outside of judicial or administrative proceedings. Notwithstanding this distinction in form ( i.e., whether an accompanying judicial or administrative proceeding was undertaken), these agreements are all similar in important respects: Typically, they reward meaningful cooperation, are premised on significant remedial and compliance commitments, and obtain monetary remedies for past violations. Based on our experience with the whistleblower program, we are of the view that the entry of each of these types of agreements should be considered the successful enforcement of an administrative action within the meaning of Section 21F, and that whistleblowers who voluntarily provide original information that leads to such enforcement should not be disadvantaged because DOJ, a state attorney general in a criminal case, or the Commission, in the exercise of enforcement discretion, may elect to proceed in a form that does not include the filing of a complaint or indictment in federal (or state) court, or the institution of an administrative proceeding. 36 For this reason, we are proposing Rule 21F-4(d)(3) to clarify that these agreements would be treated as “administrative actions” upon which whistleblower awards may be based (provided the total money required to be paid in the Commission action, including any other proceedings that arise out of the same nucleus of operative facts, exceed $1,000,000)

institution of an administrative proceeding. 36 For this reason, we are proposing Rule 21F-4(d)(3) to clarify that these agreements would be treated as “administrative actions” upon which whistleblower awards may be based (provided the total money required to be paid in the Commission action, including any other proceedings that arise out of the same nucleus of operative facts, exceed $1,000,000).

35 See generally DOJ Criminal Division and SEC Enforcement Division, A Resource Guide to the Foreign Corrupt Practices Act at 74 (2012), available at https://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf (“FCPA Resource Guide”) (describing function and operation of DPAs).

36 See United States v. Fokker, 818 F.3d 733, 737 (D.C. Cir. 2016) (“In certain situations, rather than choose between the opposing poles of pursuing a criminal conviction or forgoing any criminal charges altogether, the Executive may conclude that the public interest warrants the intermediate option of a deferred prosecution agreement.”).

In arriving at this preliminary interpretation, we have found several considerations to be persuasive. First, we believe that our rulemaking authority under the Exchange Act and our authority to define Exchange Act terms is best read as permitting us to incorporate such agreements within the definition of an “action.” 37 Second, as discussed above, we do not believe that Congress's use of the phrase “administrative action” in Section 21F limits us to considering whistleblower awards only when investigations are resolved through formal adjudicatory administrative proceedings. This is especially so given that such an approach would appear to draw arbitrary distinctions among otherwise meritorious whistleblowers based solely on the vehicle that we, DOJ, or a state criminal law authority, in the exercise of enforcement discretion, may view as the most appropriate in a particular case. Third, we are cognizant of the context in which Section 21F was enacted

ive proceedings. This is especially so given that such an approach would appear to draw arbitrary distinctions among otherwise meritorious whistleblowers based solely on the vehicle that we, DOJ, or a state criminal law authority, in the exercise of enforcement discretion, may view as the most appropriate in a particular case. Third, we are cognizant of the context in which Section 21F was enacted. Congress enacted the Commission's whistleblower program in 2010, which is the same year that the Commission initiated, as part of its enforcement cooperation program, forms of settlement agreements outside of the context of a judicial or administrative proceeding as an alternative mechanism to resolve securities law violations. 38 Given that Commission actions are the primary focus of the whistleblower program, it is reasonable to understand that Congress may not have focused on the implications of such agreements when enacting Section 21F of the Exchange Act.

37 Section 21F(j) of the Exchange Act, 15 U.S.C. 78u-6(j), grants us “the authority to issue such rules and regulations as may be necessary or appropriate to implement” the whistleblower award program. Similarly, Section 23(a)(1) of the Exchange Act, 15 U.S.C. 78w(a)(1), expressly provides the Commission the “power to make such rules and regulations as may be necessary or appropriate to implement the provisions” of the Exchange Act. In addition, we have broad definitional authority pursuant to Section 3(b) of the Exchange Act, 15 U.S.C. 78c(b), which provides us with the “power by rules and regulations to define . . . terms used in [the Exchange Act].”

38 SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist Investigations, SEC Press Release 2010-6 (Jan. 13, 2010). To date, we have entered into 17 settlements outside of judicial or administrate proceedings requiring payment of disgorgement, prejudgment interest, and penalties totaling more than $53 million

ons to define . . . terms used in [the Exchange Act].”

For similar reasons, we believe that the payments required of a company under the terms of the agreements that would be covered by the proposed rule should be deemed to be “monetary sanctions” within the meaning of Section 21F of the Exchange Act. 39 Section 21F(b)(1) authorizes us to pay meritorious whistleblowers between 10 percent and 30 percent “of what has been collected of the monetary sanctions imposed in the action or related actions.” 40 “Monetary sanctions” are defined, in pertinent part, as money that are “ordered to be paid” as a result of a judicial or administrative action. 41 Although the actions that would be covered by the proposed rule take the form of an agreement between a company and the Government, payment of disgorgement or other amounts is required of the company in order to resolve a Commission enforcement investigation or a DOJ criminal investigation without formal action by a court or agency. 42 43

39 Our view on this issue would not be impacted by the revisions that we are proposing in the next section to the definition of “monetary sanctions.”

40 15 U.S.C. 78u-6(b)(1).

41 Id. (a)(4); 17 CFR 240.21F-4(e).

42 We believe that the agreements covered by this proposed rule impose monetary sanctions for purposes of Section 21F of the Exchange Act because they effectively compel or require monetary payments. For example, when the Commission has utilized certain agreements entered outside of Enforcement Manual 6.2.2 (Nov. 28, 2017), available at https://www.sec.gov/divisions/enforce/enforcementmanual.pdf . When the Commission has utilized certain other settlement forms entered outside of judicial or administrative proceedings, the staff has to date retained its ability to recommend an enforcement action to the Commission against the individual or company. Id. at 6.2.3. DOJ DPAs and NPAs have similar mechanisms available to effectively require an individual or company to comply with the monetary obligations specified therein or face prosecution for the violations that are the subject of the agreement. See U.S. Gov't Accountability Off., GAO-10-110, DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness at 11 (2009) (“As part of DPAs and NPAs, companies are generally required to comply with a set of terms for a specified duration in exchange for prosecutors deferring the decision to prosecute or deciding not to prosecute,” including “monetary payments—such as restitution to victims of crime, forfeiture of the proceeds of the crime, and monetary penalties imposed by DOJ . . . .”) (emphasis added).

43 We believe the statute and our current rules already authorize payment of a related action award in connection with a settlement reached pursuant to the Financial Industry Regulatory Authority's Acceptance, Waiver, and Consent (“AWC”) process. An AWC is a form of FINRA disciplinary proceeding in which sanctions, including fines can be imposed on a member firm or associated person. See FINRA Rule 9216, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3926

connection with a settlement reached pursuant to the Financial Industry Regulatory Authority's Acceptance, Waiver, and Consent (“AWC”) process. An AWC is a form of FINRA disciplinary proceeding in which sanctions, including fines can be imposed on a member firm or associated person. See FINRA Rule 9216, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3926 .

Finally, we are proposing conforming amendments to Rule 21F-11(b) 44 to make clear that the time period for filing a claim for an agreement covered by this proposed rule would run from earliest public availability of the instrument reflecting the arrangement if evidenced by a press release or similar dated publication notice, or, absent such publication notice, the date of the last signature necessary for the agreement. 45

44 17 CFR 240.21F-11(b).

45 In a rare case where a claimant could demonstrate that compliance with this proposed rule was impracticable because an agreement covered by it was not made available to the public before the passage of the claim deadline calculated under the rule, the Commission could consider exercising its authority to waive compliance with the rule. See Section 36(a) of the Exchange Act, 15 U.S.C. 78mm(a), and Exchange Act Rule 21F-8(a), 17 CFR 240.21F-8(a).

Request for Comment

1. Should DPAs and NPAs entered by DOJ or a state attorney general in a criminal case be treated as administrative actions, and the monetary payments obtained through these DPAs and NPAs treated as monetary sanctions, for purposes of making whistleblower awards? Should the same result follow for settlement agreements entered by the Commission to resolve securities law violations? Why or why not?

Should DPAs and NPAs entered by DOJ or a state attorney general in a criminal case be treated as administrative actions, and the monetary payments obtained through these DPAs and NPAs treated as monetary sanctions, for purposes of making whistleblower awards? Should the same result follow for settlement agreements entered by the Commission to resolve securities law violations? Why or why not?

2. Are there other types of arrangements ( e.g., the use of declination letters in cases where the subject company pays all disgorgement, forfeiture amounts and/or restitution resulting from the misconduct at issue 46 ) that should be included in any rule the Commission adopts? How would any such arrangements satisfy the statutory requirements that they constitute a “judicial or administrative action brought by” the Commission or a related-action authority and that they include “monetary sanctions” ( i.e., “monies . . . ordered to be paid”) that are “imposed” in the action? 47

46 See United States Attorneys' Manual 9-47.120 available at https://www.justice.gov/usam/usam-9-47000-foreign-corrupt-practices-act-1977#9-47.120 .

47 See 15 U.S.C. 78u-6(a)(1), (4) and (5) and (b)(1)(A)-(B).

3. Are there specific standards that we should apply in determining whether other vehicles for resolving investigations should be deemed to be administrative actions upon which whistleblower awards can be based? Is it sufficient that a resolution results in a monetary payment?

4. As discussed above, we are proposing conforming amendments to Rule 21F-11(b) 48 to make clear that the time period for filing a claim for an agreement covered by this proposed rule would run from earliest public availability of the instrument reflecting the arrangement if evidenced by a press release or similar dated publication notice, or, absent such publication notice, the date of the last signature necessary for the agreement. Please comment on whether this conforming edit fully covers all potential agreements covered by proposed Rule 21F-4(d)(3)

ed by this proposed rule would run from earliest public availability of the instrument reflecting the arrangement if evidenced by a press release or similar dated publication notice, or, absent such publication notice, the date of the last signature necessary for the agreement. Please comment on whether this conforming edit fully covers all potential agreements covered by proposed Rule 21F-4(d)(3). If there are other types of arrangements that should be included, would any additional changes to this rule be necessary or appropriate?

48 17 CFR 240.21F-11(b).

B. Proposed Amendment to Exchange Act Rule 21F-4(e) 49 Defining “monetary sanctions” 50

49 17 CFR 240.21F-4(e).

50 The Commission anticipates that this proposed rule change, if adopted, would be utilized by the Commission after the effective date of the final rules in determining whether an action qualifies as a “covered action” and in calculating any outstanding payments to be made to meritorious whistleblowers.

We propose to amend the definition of “monetary sanctions” to provide additional clarity concerning the class of payments that fall within the term's scope. The proposed definition, which is based on the Commission's experiences to date in administering the program, codifies the understanding of the term “monetary sanctions” that is already employed by the agency.

Under Section 21F, the determination of what qualifies as a monetary sanction is important for two reasons. First, a Commission action qualifies as a “covered action” for which a whistleblower award might be made only if the action “results in monetary sanctions exceeding $1,000,000.” 51 Whether a payment obligation is a “monetary sanction” is thus a threshold question for the Commission in determining whether to post a Notice of Covered Action

lifies as a monetary sanction is important for two reasons. First, a Commission action qualifies as a “covered action” for which a whistleblower award might be made only if the action “results in monetary sanctions exceeding $1,000,000.” 51 Whether a payment obligation is a “monetary sanction” is thus a threshold question for the Commission in determining whether to post a Notice of Covered Action. 52 Second, to the extent that one or more whistleblowers receives an award, award payments are calculated based upon the amount that “has been collected of the monetary sanctions imposed in the action or related actions.” 53

51 15 U.S.C. 78u-6(a)(1).

52 See Exchange Act Rule 21F-10(a), 17 CFR 240.21F-10(a).

53 15 U.S.C. 78u-6(b)(1).

Section 21F(a)(4) of the Exchange Act defines the term “monetary sanctions,” when used with respect to any judicial or administrative action, to mean: (A) Any monies, including penalties, disgorgement, and interest, ordered to be paid; and (B) any monies deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action. 54

54 15 U.S.C. 78u-6(a)(4).

Exchange Act Rule 21F-4(e) is substantively identical. Based on our experience to date in administering the program, we believe that it would be beneficial to provide additional clarity regarding the scope of the potential payments that are encompassed within subparagraph (A) of the statutory definition. 55

55 We are not proposing to provide any additional clarification regarding subparagraph (B) as we believe that it does not create uncertainty as to the scope of the money that it covers.

The language used in subparagraph (A) of Section 21F(a)(4), when read in isolation, could potentially be understood to direct that the Commission treat any order to pay money that is entered in a judicial or administrative action as a monetary sanction for purposes of the whistleblower award program

B) as we believe that it does not create uncertainty as to the scope of the money that it covers.

56 See 5 U.S.C. 504; 28 U.S.C. 2412.

We believe, however, that other portions of Section 21F counsel in favor of a narrower understanding of which money “ordered to be paid” in an action should be treated as monetary sanctions for purposes of the whistleblower program. We find particularly relevant the definition of a “covered action” in Section 21F(a)(1), 57 which provides that the Commission action must “ result[ ] in monetary sanctions exceeding $1,000,000” in order for a whistleblower award to be considered. We believe that the phrase “results in” suggests that Congress was addressing those monetary obligations that the action secures “as relief” for the violations that are the subject of the Commission's enforcement action. 58 Similarly, we believe that the phrase “monetary sanctions imposed in the action” in Section 21F(b)(1) 59 indicates that the congressional focus was on monetary obligations that are in the nature of relief for the violations. So, for example, while in normal parlance a person might say that civil penalties were “imposed” as a result of a securities-law violation, we do not believe that one would say that a court order approving a court-appointed receiver's request for fees or costs “impos[ed]” a monetary sanction.

57 15 U.S.C. 78u-6(a)(1).

58 See generally Black's Law Dictionary 1541 (10th ed. 2014) (defining a “sanction” as “[a] penalty or coercive measure that results from a failure to comply with a law, rule, or order”) (emphasis added).

59 15 U.S.C. 78u-6(b)(1)(A) and (B)

would say that a court order approving a court-appointed receiver's request for fees or costs “impos[ed]” a monetary sanction.

57 15 U.S.C. 78u-6(a)(1).

59 15 U.S.C. 78u-6(b)(1)(A) and (B).

Finally, we find support for our proposed approach in the purpose of Section 21F to reward whistleblowers for their contributions to the “successful enforcement” of Commission actions and related actions, 60 and in the common-sense understanding that relief against wrongdoers is perhaps the essential measure of an action's success. Given this context, we believe that the term “monetary sanctions” is better understood to mean those requirements to pay money that the Commission or a related-action authority obtain “as relief” in the underlying action.

60 See 15 U.S.C. 78u-6(b)(1).

Based on the language within Section 21F, therefore, we believe that the language in subparagraph (A) of the statutory definition is better understood to encompass only those required payments in a Commission action or related action that are designed as relief for the violations successfully resolved in the action. Accordingly, we propose to amend Exchange Act Rule 21F-4(e) to provide that the term “monetary sanctions” means: (1) A required payment that results from a Commission action or related action and which is either (i) expressly designated as disgorgement, a penalty, or interest thereon, or (ii) otherwise required as relief for the violations that are the subject of the covered action or related action; or (2) any money deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action

(i) expressly designated as disgorgement, a penalty, or interest thereon, or (ii) otherwise required as relief for the violations that are the subject of the covered action or related action; or (2) any money deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action. 61

61 Our use of the phrase “required payment” rather than “ordered” is intended to be consistent with proposed Rule 21F-4(d)(3), and recognizes that whistleblower tips may be important to successful enforcement actions that the agreements described in that proposed rule in which the Commission, DOJ, or a state attorney general in a criminal case require substantial monetary relief that is not, however, contained in a Commission order a court order, or an order issued by an administrative-law judge. See discussion of proposed Rule 21F-4(d)(3), supra. In our view, a payment that is required as part of such a resolution is reasonably treated as “ordered” when the agency has some mechanism to compel the payment either directly or indirectly. This could include, but does not necessarily require, the ability to obtain a court order requiring the payment. In the context of the agreements described in proposed Rule 21F-4(d)(3), the mechanism to compel the payment could include the ability either to revive an action or to bring an action if the signatory does not make the payments provided for in the agreement.

We believe that paragraph (e)(1)(i) of the proposed definition should generally be straightforward to apply. This part of the rule encompasses any payment requirement that is expressly designated as disgorgement, a penalty, or interest thereon. That money paid by a wrongdoer in satisfaction of a disgorgement or penalty obligation may thereafter be used to pay costs of a receiver, trustee, or fund administrator would not change the analysis under this part of the proposed rule

be straightforward to apply. This part of the rule encompasses any payment requirement that is expressly designated as disgorgement, a penalty, or interest thereon. That money paid by a wrongdoer in satisfaction of a disgorgement or penalty obligation may thereafter be used to pay costs of a receiver, trustee, or fund administrator would not change the analysis under this part of the proposed rule. Because the wrongdoer was ordered to pay such money pursuant to a disgorgement or penalty obligation, paragraph (e)(1)(i) would be satisfied.

With respect to paragraph (e)(1)(ii), only requirements to pay money as relief for the underlying violations would qualify. Thus, for example, if a court orders an asset freeze and appoints a receiver in a Commission enforcement action, and, without separately entering a disgorgement order, the court subsequently issues an order approving the receiver's plan to distribute money to injured investors, we would treat that second order as a monetary sanction under paragraph (e)(1)(ii) of the proposed rule. 62 However, if the receiver requests approval to use frozen funds to pay creditors, taxes to a governmental authority, attorney's fees, or other costs of the receivership, such payments would not qualify “as relief” obtained because of the successful enforcement action and would not constitute monetary sanctions under paragraph (e)(1)(ii).

62 Where a receiver is appointed to gather assets for potential distribution to harmed investors, an award payment to a meritorious whistleblower would not need to await actual distribution of the receivership assets to the harmed investors. In our view, the statutory requirements that the monetary sanctions be both “ordered” and “collected” before a payment to a whistleblower can be made would typically be satisfied at the time a court approves the distribution to the harmed investors of assets within the receiver's control. See Exchange Act section 21F(a)(4) (“ordered”) & 21F(b)(1) (“collected”), 15 U.S.C. 78u-6(a)(4), & 78u-6(b)(1)

In our view, the statutory requirements that the monetary sanctions be both “ordered” and “collected” before a payment to a whistleblower can be made would typically be satisfied at the time a court approves the distribution to the harmed investors of assets within the receiver's control. See Exchange Act section 21F(a)(4) (“ordered”) & 21F(b)(1) (“collected”), 15 U.S.C. 78u-6(a)(4), & 78u-6(b)(1).

In proposing the amended rule language, we have also considered the legislative purpose underlying whistleblower award provisions generally. In our view, these types of award programs are intended to allow a whistleblower to receive a percentage of the monetary relief that the government is able to obtain as remedies for the violations that are the subject of the action to which the whistleblower's information led. The approach outlined above would comport with this understanding of how whistleblower award programs generally operate. 63 We have also considered the fact that a broader approach could lead to potentially irrational results such as the Commission paying whistleblowers a share of any discovery sanctions or EAJA fees imposed on the government, even though such monetary sanctions would have no connection to the information the whistleblower provided that led to the enforcement action and that contributed to the success of that action.

63 Cf. S. Rep. 111-176 at 110 (2010) (“The Whistleblower Program aims to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated securities laws and recover money for victims of financial fraud.”).

Request for Comment

5. Should “monetary sanctions” be defined as those obligations to pay money that are obtained “as relief” for the violations that are charged in a Commission enforcement action or a related action? Why or why not?

ome forward and assist the Government to identify and prosecute persons who have violated securities laws and recover money for victims of financial fraud.”).

Request for Comment

6. Are there additional classes of monetary requirements or payment obligations (beyond those discussed above) that may be ordered in an action covered by the Commission's whistleblower award program that the

C. Proposed Amendment to Exchange Act Rule 21F-3(b)(1) 64 Defining “related action” 65

64 17 CFR 240.21F-3(b)(1).

65 The Commission anticipates this proposed rule change, if adopted, would apply only to covered-action and related action award applications that are connected to a Notice of Covered Action ( see Exchange Act Rule 21F-10(a), 17 CFR 240.21F-10(a)) posted on or after effective date of the final rules.

Under Exchange Act Section 21F(b) 66 and Rule 21F-11, 67 any whistleblower who obtains an award based on a Commission enforcement action may be eligible for an award based on monetary sanctions that are collected in a related action. Exchange Act Section 21F(a)(5) 68 and Rule 21F-3(b)(1) 69 provide that a related action is a judicial or administrative action that is both: (i) Brought by DOJ, an appropriate regulatory authority (as defined in Rule 21F-4(g)), 70 a self-regulatory organization (as defined in Rule 21F-4(h) 71 ), or a state attorney general in a criminal case; and (ii) based on the same original information that the whistleblower voluntarily provided to the Commission and that led to the successful enforcement of the Commission action.

66 15 U.S.C. 78u-6(b).

67 17 CFR 240.21F-11.

68 15 U.S.C. 78u-6(a)(5).

69 17 CFR 240.21F-3(b)(1).

70 17 CFR 240.21F-4(g).

71 17 CFR 240.21F-4(h)

e 21F-4(h) 71 ), or a state attorney general in a criminal case; and (ii) based on the same original information that the whistleblower voluntarily provided to the Commission and that led to the successful enforcement of the Commission action.

66 15 U.S.C. 78u-6(b).

67 17 CFR 240.21F-11.

68 15 U.S.C. 78u-6(a)(5).

69 17 CFR 240.21F-3(b)(1).

70 17 CFR 240.21F-4(g).

71 17 CFR 240.21F-4(h).

The proposed amendment adding paragraph (b)(4) to Rule 21F-3 would apply in situations where both the Commission's whistleblower program and a second, separate whistleblower award scheme have potential application to the same action. During the implementation and administration of our whistleblower program, it has become increasingly apparent to us that additional, separate whistleblower award schemes might apply to an action that could otherwise qualify as a related action. In this regard we note that, since the adoption of our whistleblower program rules, two states have adopted their own whistleblower award programs in connection with state securities-law enforcement actions. 72 We are also aware that DOJ might pursue law-enforcement actions that potentially implicate both the Commission's whistleblower program and the whistleblower award program that the Internal Revenue Service (“IRS”) administers. 73 Further, Congress in 2015 established a new motor-vehicle-safety whistleblower award program that allows employees or contractors of a motor-vehicle manufacturer, parts supplier, or dealership who report serious violations of federal vehicle-safety laws to obtain an award of 10 percent to 30 percent of any monetary sanction over $1 million that the Federal Government recovers based on that information. 74 To date, the Commission has never paid an award on a matter where a second whistleblower program also potentially applied to the same matter, nor has the Commission ever indicated that it would do so

ous violations of federal vehicle-safety laws to obtain an award of 10 percent to 30 percent of any monetary sanction over $1 million that the Federal Government recovers based on that information. 74 To date, the Commission has never paid an award on a matter where a second whistleblower program also potentially applied to the same matter, nor has the Commission ever indicated that it would do so.

72 In 2011, Utah established a whistleblower-award scheme to provide rewards of up to 30 percent of the money collected in state securities-law enforcement actions. Utah Code Annotated 61-1-101 et seq. The following year, Indiana enacted a whistleblower award scheme to provide rewards up to 10 percent of the monies collected in a state securities-law enforcement action. Indiana Code 23-19-7-1 et seq.

73 26 U.S.C. 7623.

74 49 U.S.C. 30172 (enacted by Section 24352 of the Fixing America's Surface Transportation Act of 2015 (FAST Act), Pub. L. 114-94).

Proposed paragraph (b)(4) would expressly authorize two mechanisms for the Commission to use in situations where at least one other award scheme might also apply. First, the first sentence of proposed paragraph (b)(4) would provide that, notwithstanding the definition of related action in Rule 21F-3(b)(1), if a judicial or administrative action is subject to a separate monetary award program established by the Federal Government, a state government, or a self-regulatory organization, the Commission will deem the action a related action only if the Commission finds (based on the unique facts and circumstances of the action) that its whistleblower program has the more direct or relevant connection to the action. 75 In analyzing this question, the Commission will consider whether Congress (or a state) has enacted a specific whistleblower program that appears to apply directly to the case at hand; if so, we will generally determine that Congress reasonably would not have intended our more general, secondary “related action” award mechanism to sweep in the case

re direct or relevant connection to the action. 75 In analyzing this question, the Commission will consider whether Congress (or a state) has enacted a specific whistleblower program that appears to apply directly to the case at hand; if so, we will generally determine that Congress reasonably would not have intended our more general, secondary “related action” award mechanism to sweep in the case. In reaching this determinination, we would look to the complaint in the action, the overall monetary sanctions recovered ( e.g., are they principally tied to a different whistleblower program for which Congress provided an award mechanism), and the court's final order to assess which award program has the closer relationship to the overall case. We might also consult the agency involved with that other case to obtain its overall assessment of whether the action is in fact one that is primarily tied to violations for which Congress (or the states) have established a more specifically applicable whistleblower program and for which our general, “related action” award mechanism should not apply. Critically, this standard would not yield a clear brightline but would turn on the particular facts and circumstances of the case at hand and the Commission would explain the grounds for its conclusion in any final order.

75 Notably, the Utah whistleblower-award program ( see note 72, supra ) provides that a person may not receive an award thereunder if he or she “qualifies for an award as described in Section 21F of the Securities Exchange Act, 15 U.S.C. Sec. 78u-6, and regulations issued under that section.” We assume that this provision is intended to prevent a double recovery on a Utah criminal-enforcement action brought by the State's Attorney General that could potentially be covered by both the Commission's whistleblower program and the Utah program

“qualifies for an award as described in Section 21F of the Securities Exchange Act, 15 U.S.C. Sec. 78u-6, and regulations issued under that section.” We assume that this provision is intended to prevent a double recovery on a Utah criminal-enforcement action brought by the State's Attorney General that could potentially be covered by both the Commission's whistleblower program and the Utah program.

Second, the second sentence of proposed paragraph (b)(4) provides that even if the Commission determines to deem the action a related action, the Commission will not make an award to you for the related action if you have already been granted an award by the authority responsible for administering the other whistleblower award program; further, if you were denied an award by the other award program, you will not be permitted to readjudicate any issues before the Commission that the authority responsible for administering the other whistleblower award program resolved against you as part of the award denial. 76 The proposed rule provides that, if the Commission makes an award before an award determination is finalized by the authority responsible for administering the other award scheme, the Commission would condition its award on the meritorious whistleblower making a prompt, irrevocable waiver of any claim to an award from the other award scheme.

76 This sentence of proposed paragraph (b)(4) is modeled after existing Rule 21F-3(b)(3), 17 CFR 240.21F-3(b)(3), which is discussed further below.

is discussed further below.

The proposed rule also provides that, in determining whether a potential related action has a more direct or relevant connection to the Commission's whistleblower program than another award program, the Commission would consider the nature, scope, and impact of the misconduct charged in the purported related action, and its relationship to the federal securities laws. This inquiry would include consideration of, among other things: (i) The relative extent to which the misconduct charged in the potential related action implicates the public policy interests underlying the federal securities laws ( e.g., investor protection) versus other law-enforcement or e.g., tax collection or fraud against the Federal Government); (ii) the degree to which the monetary sanctions imposed in the potential related action are attributable to conduct that also underlies the federal securities law violations that were the subject of the Commission's enforcement action; and (iii) whether the potential related action involves state-law claims and the extent to which the state may have a whistleblower award scheme that potentially applies to that type of law-enforcement action. 77 Thus, for example, if an action by DOJ charges a scheme to avoid tax obligations and imposes monetary sanctions, we would expect that such an action would lack a more direct or relevant connection to the Commission's whistleblower program relative to the IRS's award program. 78 As a second example, where a state whistleblower award program is available to award a whistleblower whose tip leads to state criminal charges in connection with a fraudulent securities offering, we anticipate that the Commission would not view such an action as a related action under the test in proposed paragraph (b)(4). In this circumstance, the state program would be the more direct or relevant program and the appropriate avenue for the whistleblower to seek an award

to award a whistleblower whose tip leads to state criminal charges in connection with a fraudulent securities offering, we anticipate that the Commission would not view such an action as a related action under the test in proposed paragraph (b)(4). In this circumstance, the state program would be the more direct or relevant program and the appropriate avenue for the whistleblower to seek an award.

77 To the extent that a state adopts a whistleblower award program relating directly to securities law violations, we would generally anticipate the Commission would find that the state award scheme should apply over the Commission's award program. However, to the extent that the particular state criminal action may implicate an award scheme that is not directed at securities-law violations (such as a state-award scheme focused on consumer protection), the Commission might conclude that our whistleblower program should not apply based on an assessment of the particular facts and circumstances of the state action.

78 By contrast, to the extent that a DOJ enforcement action centers on insider-trading violations that are based on the same misconduct that was the subject of the Commission's covered action, and that most of the monetary sanctions arise from the insider-trading violations, the Commission would likely treat the matter as a related action notwithstanding any potential restitution ordered due to any tax violations included within the case.

In proposing paragraph (b)(4), we acknowledge that, on its face, Exchange Act Section 21F does not exclude from the definition of related actions those judicial or administrative actions that have a less direct or relevant connection to our whistleblower program than another whistleblower scheme. We nonetheless perceive ambiguity when considering this language in the context of the overall statutory scheme

ing paragraph (b)(4), we acknowledge that, on its face, Exchange Act Section 21F does not exclude from the definition of related actions those judicial or administrative actions that have a less direct or relevant connection to our whistleblower program than another whistleblower scheme. We nonetheless perceive ambiguity when considering this language in the context of the overall statutory scheme. We believe that an understanding focused exclusively on the statutory definition of related action would produce a result that Congress neither contemplated nor intended. We believe that our rulemaking authority under the Exchange Act and our authority to define Exchange Act terms permit us to reach this interpretation. 79 We base this determination on several considerations.

79 Section 23(a)(1) of the Exchange Act, 15 U.S.C. 78w(a)(1), expressly provides the Commission the “power to make such rules and regulations as may be necessary or appropriate to implement the provisions” of the Exchange Act, and has long been understood to provide the Commission with broad authority to issue rules and regulations carrying the force of law. Similarly, Section 21F(j), 15 U.S.C. 78u-6(j), grants us “the authority to issue such rules and regulations as may be necessary or appropriate to implement” the whistleblower award program. In addition, we have broad definitional authority pursuant to Section 3(b) of the Exchange Act, 15 U.S.C. 78c(b), which provides us with the “power by rules and regulations to define . . . terms used in [the Exchange Act].”

78c(b), which provides us with the “power by rules and regulations to define . . . terms used in [the Exchange Act].”

First, when Congress established the Commission's whistleblower program, it set a firm ceiling on the maximum amount that should be awarded for any particular action—“ not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed” in the action. 80 Indeed, it appears that in establishing federal whistleblower award programs in the modern era Congress has determined that an award of more than thirty percent on any particular action is not necessary or appropriate. 81 Yet if both the Commission's whistleblower program and another whistleblower award scheme were to apply to the same action, this would create the potential for a total award exceeding the 30-percent ceiling due to a dual recovery.

80 15 U.S.C. 78u-6(b)(1)(B).

81 See, e.g., 7 U.S.C. 26 (providing under the CFTC's whistleblower program for awards of “not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions”); 26 U.S.C. 7623(b)(1) (providing under the IRS administered whistleblower award program for “an award . . . not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts)”); 31 U.S.C. 3730 (providing in a False Claims Action that a qui tam plaintiff shall receive “not more than 30 percent of the proceeds of the action or settlement”). Our preliminary analysis indicates that Congress's determination not to go above a 30-percent ceiling for awards appears to comport with a similar determination by those states that have adopted their own false claims acts and securities-law whistleblower programs

n a False Claims Action that a qui tam plaintiff shall receive “not more than 30 percent of the proceeds of the action or settlement”). Our preliminary analysis indicates that Congress's determination not to go above a 30-percent ceiling for awards appears to comport with a similar determination by those states that have adopted their own false claims acts and securities-law whistleblower programs.

Second, the purpose of the related action award component of the Commission's whistleblower program was to allow meritorious whistleblowers the opportunity to obtain additional financial awards for the ancillary recoveries that may result from the same original information that the whistleblowers gave to the Commission. In this way, the potential for a related action recovery can further enhance the incentives for an individual to come forward to the Commission. But neither the text of Section 21F, nor the relevant legislative history 82 suggests that Congress considered the unusual situation in which there may be a separate whistleblower award scheme that has a more direct or relevant connection to the judicial or administrative action, 83 and that would therefore be providing a financial incentive to encourage individuals to report misconduct without the need for the incentive effect produced by the related-action component of the Commission's award program.

82 See generally S. Rep. No. 111-176 at 110-12 (2010).

t of the Commission's award program.

82 See generally S. Rep. No. 111-176 at 110-12 (2010).

83 See generally Radzanower v. Touche Ross & Co., 426 U.S. 148, 153 (1976) (“It is a basic principle of statutory construction that a statute dealing with a narrow, precise, and specific subject is not submerged by a later enacted statute covering a more generalized spectrum.”); Anthony Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts (2012) at 183 (noting that a specifically applicable statutory provision should govern a more general provision because “the specific provision comes closer to addressing the very problem posed by the case at hand and is thus more deserving of credence”); id. at 184 (explaining that “the general/specific canon [of statutory construction] does not meant that the existence of a contradictory specific provision voids the general provision[,]” but rather that “its application to cases covered by the specific provision is suspended”).

Third, we believe that permitting potential whistleblowers to recover under both our award program and a separate award scheme for the same action would produce the irrational result of encouraging multiple “bites at the apple” in adjudicating claims for the same action and potentially allowing multiple recoveries. 84 In the adopting release that accompanied the original whistleblower rules, the Commission recognized the irrational result that would flow from allowing a whistleblower to have multiple separate opportunities to adjudicate his or her contributions to a case and to potentially obtain multiple separate rewards on that same enforcement action. Further, the Commission barred this result from occurring in the specific contexts that the Commission considered at the time it adopted the whistleblower program rules

onal result that would flow from allowing a whistleblower to have multiple separate opportunities to adjudicate his or her contributions to a case and to potentially obtain multiple separate rewards on that same enforcement action. Further, the Commission barred this result from occurring in the specific contexts that the Commission considered at the time it adopted the whistleblower program rules. Specifically, the Commission adopted Rule 21F-3(b)(3), which provides that the Commission will not pay on a related action if the whistleblower program administered by the Commodity Futures Trading 85 Relatedly, the Commission explained in the adopting release that it would for similar reasons not make an award to a whistleblower who was also a qui tam plaintiff under the False Claims Act. 86 Although at the time of the original rulemaking for the whistleblower program the Commission did not expressly consider the potential for multiple separate awards due to the existence of any other award schemes (such as the whistleblower program administered by the IRS), the principles underlying Rule 21F-3(b)(3) appear similarly relevant to that circumstance.

84 Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1068 (D.C. Cir. 1998) (“If a literal construction of the words of a statute be absurd, the act must be so construed as to avoid the absurdity.”); see also United States v. X-Citement Video, Inc., 513 U.S. 64, 68-69 (1994) (rejecting the “most natural grammatical reading” of a statute to avoid “absurd” results).

85 76 FR 34300, 34305/3.

86 Id. n.52 (“[W]e do not believe Congress intended Section 21F of the Exchange Act to permit additional recovery for the same action above what it specified in the False Claims Act.”).

nge Act to permit additional recovery for the same action above what it specified in the False Claims Act.”).

To illustrate the significance of our existing rule and the rule that we are proposing, consider a future DOJ enforcement action involving predominately tax claims that results from the same original information that a Commission whistleblower shared with both the Commission and the CFTC. In this scenario, it is entirely possible based purely on the words of the relevant statutes that the SEC and the CFTC could each have to pay up to 30 percent on the DOJ action, and that the IRS could have to pay an additional 30 percent; the Commission whistleblower could thus take home an amount that is equal to as much as 90 percent of the money collected for the violations in the DOJ action. In our view, this is an “obviously unintended” outcome that would “make[ ] no substantive sense,” 87 and the rule that we already have in place and the rule that we are proposing would prevent it and similar duplicative payments from multiple whistleblower programs.

87 Scalia & Garner, supra note 33, at 235, 239 (emphasis in original).

In addition to the foregoing, we are also proposing two amendments to the definition of “related action” in Rule 21F-3(b)(1). First, the proposed amendment would add clarity to the existing requirement that, to potentially obtain an award for a related action, a whistleblower must have provided to the other entity (or the Commission must have shared with the other entity) the same original information that the whistleblower provided to the Commission and that led to the successful enforcement of the Commission action. 88 We think that where the Commission staff determines to share the whistleblower's information with the other entity, it is consistent with the purposes of the program to allow an award even if the whistleblower did not directly step forward to that agency. 89

88 See Rules 21F-3(b)(2), 17 CFR 240.21F-3(b)(2), and 21F-4(c)(1)-(3), 17 CFR 240.21F-4(c)(1)-(3)

enforcement of the Commission action. 88 We think that where the Commission staff determines to share the whistleblower's information with the other entity, it is consistent with the purposes of the program to allow an award even if the whistleblower did not directly step forward to that agency. 89

88 See Rules 21F-3(b)(2), 17 CFR 240.21F-3(b)(2), and 21F-4(c)(1)-(3), 17 CFR 240.21F-4(c)(1)-(3).

89 Section 21F provides express authority for the Commission to share information that may identify a whistleblower with other authorities that may, in turn, bring related actions. See 15 U.S.C. 78u-6(a)(5) and (h)(2)(D)(i).

This new language to the definition of “related action” merely clarifies what is already required by Exchange Act Rule 21F-11(c), 90 which provides in relevant part that a whistleblower must “demonstrate [that the whistleblower] directly (or through the Commission) voluntarily provided the governmental agency, regulatory authority or self-regulatory organization the same original information that led to the Commission's successful covered action[.]” Further, we believe that this interpretation is consistent with the requirement in Section 21F(a)(5) of the Exchange Act 91 that a related action must be “based upon the original information provided by a whistleblower.” To be “based upon” the whistleblower's original information, in our view, the same information that the whistleblower provided to the Commission must have been provided to the other authority and that information must have itself directly contributed to the other authority's investigative or litigation efforts leading to the success of that authority's enforcement action

s actual reliance on the whistleblower's original information by the other entity. 92 Indeed, in these circumstances any claim for an award would fail under Rule 21F-3(b)(2), which unambiguously requires that the success of a related action be based upon “the same original information that the whistleblower gave to the Commission” as a predicate to the Commission authorizing a related action award. 93

92 The “based upon” language in Exchange Act section 21F(a)(5), 15 U.S.C. 78u-6(a)(5) is separate and distinct from the requirement that the whistleblower's original information must have “led to” the success of the other entity's action, see Exchange Act section 21F(b)(1), 15 U.S.C. 78u-6(b)(1); see also Exchange Act Rule 21F-4(c), 17 CFR 240.21F-4(c). Even if a whistleblower satisfies the “based upon” standard because his information was directly provided to the other entity by the whistleblower or the Commission, and used in some fashion by that entity, this does not mean the whistleblower's information necessarily “led to” the success of that action.

93 17 CFR 240.21F-3(b)(2). Rule 21F-3(b)(2) contemplates that “the Commission may seek confirmation of the relevant facts regarding the whistleblower's assistance from the authority that brought the related action,” and we will deny a related action award where sufficient and reliable information cannot be obtained from the other authority. 76 FR 34300, 34305/1. These requirements would be rendered null if the “based upon” requirement could be satisfied without the other authority actually receiving and utilizing the whistleblower's original information

nce from the authority that brought the related action,” and we will deny a related action award where sufficient and reliable information cannot be obtained from the other authority. 76 FR 34300, 34305/1. These requirements would be rendered null if the “based upon” requirement could be satisfied without the other authority actually receiving and utilizing the whistleblower's original information.

Second, we are making a technical modification to the definition of “related action” in Rule 21F-3(b)(1) that would make clear that the existing clause “based on” the same original information that the whistleblower voluntarily provided to the Commission, and that “led the Commission to obtain monetary sanctions totaling more than $1,000,000,” applies to all related actions and not just criminal actions brought by a state attorney general. This technical modification would conform the definition in the rule to the substantive requirements of the statutory definition as set forth in Section 21F(a)(6) of the Exchange Act. 94

94 15 U.S.C. 78u-6(a)(6).

Request for Comment

7. Is the proposed “direct or relevant” standard appropriate for assessing whether an action should qualify as a

8. Instead of adopting the proposed rule, which would authorize the Commission on a case-by-case basis to consider whether an action should qualify as a related action, should the Commission adopt a categorical exclusion from the definition of related action for any judicial or administrative action that may have an alternative applicable award scheme?

ion of related action for any judicial or administrative action that may have an alternative applicable award scheme?

9. As part of this rulemaking, we are considering whether to repeal Exchange Act Rule 21F-3(b)(3), 17 CFR 240.21F-3(b)(3), 95 so that proposed Rule 21F-3(b)(4) would also apply to potential related actions that might produce a double recovery with the CFTC's whistleblower program. Existing Rule 21F-3(b)(3) applies somewhat differently than our proposed Rule 21F-3(b)(4), as it does not provide the Commission express authority to determine whether a potential related action is more closely connected with the SEC's whistleblower program or the CFTC's whistleblower program. Should we repeal existing Exchange Act Rule 21F-3(b)(3) so that proposed Rule 21F-3(b)(4) would apply instead to afford a uniform treatment for all potential related actions for which multiple whistleblower programs might apply? Please explain.

95 Exchange Act Rule 21F-3(b)(3) provides that the Commission will not make an award to an individual for a related action if the individual has already been granted an award by the CFTC for the same action pursuant to its whistleblower program under Section 23 of the Commodity Exchange Act (7 U.S.C. 26). Similarly, if the CFTC has previously denied an award to an individual in a related action, the individual will be precluded from relitigating any issues before the Commission that the CFTC resolved against the individual as part of an award.

D. Proposed Amendment to Exchange Act Rule 21F-6 Regarding Awards to a Single Whistleblower Below $2 Million or in Cases Yielding at Least $100 Million in Collected Monetary Sanctions 96 and Guidance on the Meaning of “Unreasonable Delay” Under Rule 21F-6

vidual will be precluded from relitigating any issues before the Commission that the CFTC resolved against the individual as part of an award.

96 The Commission anticipates this proposed rule change, if adopted, would apply only to covered-action and related-action award applications that are connected to a Notice of Covered Action ( see Exchange Act Rule 21F-10(a), 17 CFR 240.21F-10(a)) posted on or after effective date of the final rules.

Rule 21F-6 97 establishes the analytical framework that the Commission follows both in setting the appropriate percentage amount of an award in connection with a particular Commission or related action and in determining an individual percentage award for each whistleblower where the Commission makes awards to more than one whistleblower in connection with the same action. In the adopting release accompanying the promulgation of the whistleblower program rules, the Commission explained that Rule 21F-6 “provides general principles without mandating a particular result” and “the determination of the appropriate percentage of a whistleblower award will involve a highly individualized review of the facts and circumstances surrounding each award using the analytical framework set forth” in the rule. 98

97 17 CFR 240.21F-6.

98 76 FR 34300, 34331/2.

Rule 21F-6 identifies four criteria that may increase an award percentage and three criteria that may decrease a whistleblower's award percentage

ppropriate percentage of a whistleblower award will involve a highly individualized review of the facts and circumstances surrounding each award using the analytical framework set forth” in the rule. 98

97 17 CFR 240.21F-6.

98 76 FR 34300, 34331/2.

Rule 21F-6 identifies four criteria that may increase an award percentage and three criteria that may decrease a whistleblower's award percentage. As provided in Rule 21F-6(a), the criteria that may increase an award percentage are: (1) Significance of the information provided by the whistleblower; (2) assistance provided by the whistleblower; (3) law-enforcement interest in making a whistleblower award; and (4) participation by the whistleblower in internal compliance systems. As provided in Rule 21F-6(b), the criteria that may decrease an award percentage are: (1) Culpability of the whistleblower; (2) unreasonable reporting delay by the whistleblower; and (3) interference with internal compliance and reporting systems by the whistleblower.

Proposed paragraph (c) would add to Rule 21F-6's existing analytical framework by providing a mechanism for the Commission to adjust upwards any awards that would potentially be below $2 million to a single whistleblower. Specifically, proposed Rule 21F-6(c) would provide that, if the resulting award after applying the award factors specified in paragraphs (a) and (b) would yield a potential payout to a single whistleblower below $2 million (or any such greater amount that the Commission may periodically establish through publication of an order in the Federal Register ), the Commission may adjust the award upward so that the likely total award payout to the whistleblower reflects a dollar amount that the Commission determines is appropriate to achieve the program's objectives of rewarding meritorious whistleblowers and sufficiently incentivizing future whistleblowers who might otherwise be concerned about the low dollar amount of a potential award; provided that in no event shall this provision be utilized to raise a poten

y total award payout to the whistleblower reflects a dollar amount that the Commission determines is appropriate to achieve the program's objectives of rewarding meritorious whistleblowers and sufficiently incentivizing future whistleblowers who might otherwise be concerned about the low dollar amount of a potential award; provided that in no event shall this provision be utilized to raise a potential award payout (as assessed by the Commission at the time it makes the award determination) above $2 million (or by such other amount as the Commission may designate by order) or will the total amount awarded to all whistleblowers in the aggregate be greater than 30 percent.

We believe that proposed paragraph (c) could provide an important new tool for the Commission to ensure that even in cases where the collected monetary sanctions may be relatively small (and award amounts correspondingly modest), whistleblowers could receive an appropriate award for their efforts in coming forward to the Commission. We also anticipate that, where the proposed rule is triggered, there would be a presumption in favor of some award enhancement, though the precise amount of the enhancement may vary from case to case depending on the unique facts and circumstances at issue. In this way, we believe proposed paragraph (c) could provide an important additional incentive for potential whistleblowers to come forward. 99

99 We believe that proposed paragraph (c) would in many respects work similar to proposed paragraph (d), as discussed further below; this would include, for example, how we would determine whether the $2 million threshold is met in cases involving joint whistleblowers. To the extent that either proposed paragraph (c) or proposed paragraph (d) is triggered by a potential award, it would open up discretion for the Commission to assess the award factors in Exchange Act Rules 21F-6(a)-(b), 17 CFR 240.21F-6(a)-(b), in terms of dollar amounts, not merely in terms of award percentages

mine whether the $2 million threshold is met in cases involving joint whistleblowers. To the extent that either proposed paragraph (c) or proposed paragraph (d) is triggered by a potential award, it would open up discretion for the Commission to assess the award factors in Exchange Act Rules 21F-6(a)-(b), 17 CFR 240.21F-6(a)-(b), in terms of dollar amounts, not merely in terms of award percentages. This would give the Commission, for example, the authority to boost a 20 percent award upwards based on a reassessment of the positive factors relative to the actual dollar amounts at issue in the particular award. Thus, even if the whistleblower might otherwise receive a 20 percent award on a small case (for example, one with collections of $100,000), the Commission could reassess the whistleblower's contributions in dollar terms and determine to enhance the award upwards (potentially up to the 30 percent maximum, which in the particular example would yield a payout of $30,000). The Commission could do so if it determines that this enhancement in dollar terms would better acknowledge the whistleblower's contribution and better help incentivize similarly situated future whistleblowers. Further, in assessing whether the $2 million threshold has been, or likely will be satisfied, the Commission will consider collectively the total award amounts from all the Commission and related actions that were the result of the whistleblower's original information.

We note that the new authority proposed in paragraph (c) would come with important limitations

y situated future whistleblowers. Further, in assessing whether the $2 million threshold has been, or likely will be satisfied, the Commission will consider collectively the total award amounts from all the Commission and related actions that were the result of the whistleblower's original information.

We note that the new authority proposed in paragraph (c) would come with important limitations. Specifically, the Commission will not adjust an award upward under the proposed provision if any of the negative award factors that are identified in Exchange Act Rule 21F-6(b) 100 —and which are specified above—were found to be present with respect to the whistleblower's award claim, or if the 101 Thus, for example, if a whistleblower whose award claim might otherwise be eligible for an enhancement under this provision were found by the Commission to have unreasonably delayed reporting to the Commission under Exchange Act Rule 21F-6(b)(2), then the Commission could not increase his or her award under this provision.

100 17 CFR 240.21F-6(d).

101 17 CFR 240.21F-16.

In addition, we are proposing a new paragraph (d) that would add to Rule 21F-6's existing analytical framework by providing a mechanism for the Commission to conduct an enhanced review of awards in situations where a whistleblower has provided information that led to the success of one or more covered or related actions that, collectively, result in at least $100 million in collected monetary sanctions

dition, we are proposing a new paragraph (d) that would add to Rule 21F-6's existing analytical framework by providing a mechanism for the Commission to conduct an enhanced review of awards in situations where a whistleblower has provided information that led to the success of one or more covered or related actions that, collectively, result in at least $100 million in collected monetary sanctions. As we explain below, under proposed paragraph (d), the Commission, first, would consider the dollar amount of an award at given percentage levels in determining whether and how to adjust the award based on the positive and negative factors in paragraphs (a) and (b) of this section; and second, the Commission could determine that an exceedingly large potential payout resulting from the assessment under paragraphs (a) and (b) was not reasonably necessary to fulfill the purposes of the program and thus exercise its discretion to reduce the award to an appropriate amount. The Commission's ability to reduce an award under this provision would be subject to two significant limitations. First, in no event could the Commission reduce the total payout for any award(s) resulting from the whistleblower's original information below $30 million. Second, the Commission could not reduce the award for any specific action such that the total amount paid to all whistleblowers for that action would go below the 10 percent minimum statutory floor of collected monetary sanctions in that action. 102

102 For example, if the collected amount is $150 million, the Commission could exercise its discretion to reduce a potential payout of 25% ($37.5 million), but the Commission could not reduce the award below $30 million. In another example, if the collected amount is $400 million, the Commission could exercise its discretion to reduce a potential payout of 25% ($100 million), but the Commission could not reduce the award below 10% ($40 million)

million, the Commission could exercise its discretion to reduce a potential payout of 25% ($37.5 million), but the Commission could not reduce the award below $30 million. In another example, if the collected amount is $400 million, the Commission could exercise its discretion to reduce a potential payout of 25% ($100 million), but the Commission could not reduce the award below 10% ($40 million). Finally, if the collected amount is $150 million and the potential payout is 18% ($27 million), then the Commission could not reduce that award because it already is below the $30 million floor.

An important principle underlying proposed paragraph (d) is that, as the dollar value of an award amount grows exceedingly large, there is a significant potential for a diminishing marginal benefit to the program in terms of compensating the whistleblower and incentivizing future whistleblowers. In these situations, we believe that it is in the public interest that we scrutinize the dollar impact of these awards more carefully in considering award enhancements and reductions under the existing award criteria of paragraphs (a) and (b) of this section and, further, where appropriate, adjust an award downward so that the dollar amount of the payout is more in line with the program's goals of rewarding whistleblowers and incentivizing future whistleblowers from a cost-benefit perspective (again, subject to the $30 million floor for any whistleblower subject to a reduction under this provision and the 10 percent statutory minimum referenced above).

enced above).

As an illustration of a potential situation to which proposed paragraph (d) might be utilized, consider the settlements that the Commission and DOJ entered with Siemens AG in 2008. The total monetary sanctions collected in these two actions was $800 million (the Commission received $350 million in disgorgement of profits 103 and DOJ received $450 million in criminal penalties 104 ). Suppose that these two actions occurred today and that these actions were based on original information voluntarily provided to the Commission by an eligible whistleblower. In such a situation, the Commission would be required to pay an award to that whistleblower of between $80 million (a 10 percent award) and $240 million (a 30 percent award) for the two actions. Critically, under the existing framework of Rule 21F-6—without proposed paragraph (d)—the Commission in setting the appropriate amount of an award would be unable to consider the extraordinarily large dollar amounts that would be associated with any assessments and adjustments made when applying the existing award factors of Rule 21F-6; the Commission would also lack the authority to adjust the award amount downward if it found that amount unnecessarily large for purposes of achieving the whistleblower program's goals. So if the hypothetical meritorious whistleblower were an individual who did everything right in connection with his or her whistleblowing (that is, he or she were the model whistleblower), the Commission would almost certainly be obligated to pay this individual an award at or near the maximum $240 million level under the existing rules

for purposes of achieving the whistleblower program's goals. So if the hypothetical meritorious whistleblower were an individual who did everything right in connection with his or her whistleblowing (that is, he or she were the model whistleblower), the Commission would almost certainly be obligated to pay this individual an award at or near the maximum $240 million level under the existing rules. What paragraph (d) would do, as we explain below, is to afford the Commission the discretion to determine whether such an extraordinarily large payout is actually necessary to further the whistleblower program's goals of rewarding whistleblowers and incentivizing future whistleblowers, and if not, proposed paragraph (d) would afford the Commission the ability to adjust the actual payout to an award amount that is closer to the $80 million minimum that would be required to be paid pursuant to Section 21F(b). We believe that adopting paragraph (d) to afford us a discretionary mechanism to make such common-sense adjustments to extraordinarily large awards to ensure that they do not exceed an amount that is appropriate to achieve the goals and interests of the program is, to put it simply, good public policy.

103 See SEC Litigation Release No. 20829 (dated Dec. 15, 2008) (discussing the settlement reached SEC v. Siemens Aktiengellschaft, Civ. Action No. 08-CV-02167 (D.D.C.)).

104 See DOJ Press Release entitled “Siemens AG and Three Subsidiaries Plead Guilty to FCPA Violations and Agree to Pay $450 Million in Combined Criminal Fines” (dated Dec. 15, 2008) (available at: www.justice.gov/archive/opa/pr/2008/December/08-crm-1105.html ).

to Pay $450 Million in Combined Criminal Fines” (dated Dec. 15, 2008) (available at: www.justice.gov/archive/opa/pr/2008/December/08-crm-1105.html ).

Turning to the text of proposed paragraph (d), this new provision would do two important things that should help us ensure that any large awards are in fact aligned with the program's goals and not unnecessarily large to achieve the program's goals. First, proposed paragraph (d)(1) would permit the Commission to consider the potential dollar amount of the payout to a whistleblower resulting from his or her original information (in any Commission actions or related actions, collectively) when applying each of the existing award criteria; when the potential amount of an award payout could be in the range of 10 to 30 percent of at least $100 million, we believe it is reasonable and appropriate to consider the adjustments that we make for each award factor in dollar terms rather than to apply exclusively a percentage assessment that does not take into account what those percentage adjustments would translate to in actual dollars paid to the whistleblower. 105

105 The statutory framework that Section 21F establishes appears to permit—and at a minimum does not expressly prohibit—the Commission from considering the dollar amount of a potential award. Indeed, the language in Section 21F refers to the “amount of the award,” which appears to afford the Commission discretion to set the awards based on a consideration of the appropriate dollar amount that should be paid (provided that this dollar amount is between 10 percent and 30 percent of the collected monetary sanctions)

t—the Commission from considering the dollar amount of a potential award. Indeed, the language in Section 21F refers to the “amount of the award,” which appears to afford the Commission discretion to set the awards based on a consideration of the appropriate dollar amount that should be paid (provided that this dollar amount is between 10 percent and 30 percent of the collected monetary sanctions). Notwithstanding the

Second, proposed paragraph (d)(2) would permit the Commission to adjust the award downward if, after consideration of the existing award factors in paragraphs (a) and (b) of this section, the Commission finds that the potential award amount (from any Commission actions and related actions, collectively) exceeds what is reasonably necessary to reward the whistleblower and to incentivize similarly situated whistleblowers. 106 Importantly, proposed paragraph (d)(2) would not mandate that the Commission make a downward adjustment. Further, proposed paragraph (d)(2) would make clear that any adjustment to a whistleblower's award under that paragraph shall not yield a potential award payout (as assessed by the Commission at the time that it makes the award determination) below $30 million, nor may any downward adjustment result in the total amount awarded to all the meritorious whistleblowers, collectively, for each covered or related action constituting less than 10 percent of the monetary sanctions collected in that action.

106 Notably, this authority to make a downward adjustment would be available only if the resulting payout after applying the existing award factors would be at least $30 million (or such greater alternative amount that the Commission may periodically establish through publication of an order in the Federal Register ).

Critically, the $30 million reference in proposed rule (d)(2) would not be a ceiling on awards, and we do not intend that it would be applied as such

lable only if the resulting payout after applying the existing award factors would be at least $30 million (or such greater alternative amount that the Commission may periodically establish through publication of an order in the Federal Register ).

Critically, the $30 million reference in proposed rule (d)(2) would not be a ceiling on awards, and we do not intend that it would be applied as such. Rather, $30 million for a potential payout is the floor below which we would not lower any award that is subject to a reduction under the proposed rule. Further, the proposed amendment would be triggered only in situations where a whistleblower (including two or more individuals who acted together as a joint whistleblower) provides information that leads to the success of one or more covered actions and related actions that results in at least $100 million in collected monetary sanctions. 107 In the nearly seven years of experience that we have had in implementing and administering the whistleblower program, we have issued final orders granting 50 whistleblower awards to 55 individuals (including, as explained above, individuals who acted as joint whistleblowers). 108 To date, only two Commission covered actions and related actions have crossed the threshold of collecting at least $100 million in monetary sanctions and for which the payout exceeded our proposed $30 million floor. 109 Those two actions taken alone involved the payment of $112 million to four individuals.

four individuals.

107 In assessing whether the $100 million threshold has been crossed to invoke proposed paragraph (d), we preliminarily anticipate considering not just the likely payout in any Commission covered actions that resulted from the whistleblower's information, but also any potential payout that might result from any related actions that resulted from the whistleblower's information. Thus, for example, if a Commission covered action and a related action brought by the Department of Justice, and a related action brought by an appropriate regulatory authority, collectively, resulted in the collection of at least $100 million in monetary sanctions based on a whistleblower's original information, then proposed paragraph (d) would be triggered. We would then decide whether one or more of the awards should be adjusted downward to yield a total payout that complies with the terms of the proposed rule. Further, we note that in the context of a joint whistleblower, for purposes of applying the proposed rule, we would treat them collectively as one whistleblower in applying proposed paragraph (d), including in assessing whether the $100 million threshold is satisfied; however, in determining whether and to what extent to make a downward adjustment, we would expect to consider the need to appropriately incentivize individuals even when acting jointly to come forward and report to the Commission.

pect to consider the need to appropriately incentivize individuals even when acting jointly to come forward and report to the Commission.

108 These totals are through April 2018 and treat as single awards several cases where whistleblowers' original information led to multiple covered actions that were processed together in one award Order recognizing the total contributions of the whistleblower. Similarly, consistent with the approach proposed above governing cases where we grant an award for both a Commission enforcement action and a related action by another agency based on the same information provided by the whistleblower ( see 17 CFR 240.21F-3(b)), we consider covered-action awards together with their corresponding related action awards as single whistleblower awards.

109 One of the awards that exceeded $30 million was issued in September 2014 for more than $30 million in a Commission action and related actions. See Order Determining Whistleblower Award Claim, Exchange Act Release No. 34-73174 (Sept. 22, 2014), available at https://www.sec.gov/rules/other/2014/34-73174.pdf . Two other awards were issued in March 2018 for $49 and $33 million, respectively, to three individuals (two of whom were acting as joint whistleblowers) in a single covered action. See Order Determining Whistleblower Award Claim, Exchange Act Release No. 34-82897 (March 19, 2018), available at https://www.sec.gov/rules/other/2018/34-82897.pdf .

arch 19, 2018), available at https://www.sec.gov/rules/other/2018/34-82897.pdf .

We believe that the $100 million collected-monetary-sanctions threshold reflects the appropriate level at or above which it would be reasonable for the Commission to consider whether the likely award payout from the collected monetary sanctions will exceed an amount that is appropriate to achieve the program's goals. For matters involving collected sanctions at or above the $100 million threshold, we think the potential for a whistleblower award to exceed the amount necessary to achieve the program's goals exists and that awards based on $100 million or more are sufficiently large to warrant heightened scrutiny under the rule that we are proposing. Our proposed approach in triggering proposed paragraph (d) based on the amount of monetary sanctions collected is not unlike the approach that the DOJ utilizes (and which some courts also utilize) in the context of the False Claims Act (“FCA”) when determining the appropriate amount of an award to a relator. Specifically, DOJ has developed a series of guidelines to determine the appropriate size of an award, and one consideration that may lead to a downward adjustment is whether the “FCA recovery was relatively large.” 110

110 See Claire M. Sylvia, The False Claims Act: Fraud Against the Government section 8.4 (updated June 2018) (citing DOJ Relator's Guidelines, reprinted in 11 False Claims Act and Qui Tam Q. Rev. 17 (Oct. 1997); see also U.S. ex rel. Simmons v. Samsung Electronics Am., Inc., 116 F. Supp. 3d 575, 580-81 (quoting and applying the DOJ award guidelines).

plying the DOJ award guidelines).

We similarly believe that the $30 million floor is appropriate. In our view, there is a potential that as the payout to a whistleblower grows beyond the $30 million floor, the marginal benefit of each additional dollar paid may decrease to such an extent that, in terms of furthering the program's overall goals, the payout may be more than is reasonably necessary. In our judgment $30 million represents a reasonable line at which to draw the floor. 111 In this just the $30 million floor —even allowing for a reduction due to taxes—would find himself or herself in the range of the the top 99.5 percentile to 99.9 percentile of the U.S. population by net worth. 112 Further, the analysis conducted in Part VII(B)(5) demonstrates for us that even this sum (again, allowing for a reduction due to taxes) if modestly invested should produce a reasonable lifetime income stream for most potential whistleblowers. We thus believe it is appropriate and reasonable to afford the agency a mechanism to more closely scrutinize awards that exceed this floor to determine whether and to what extent they are necessary to reward the whistleblower or incentivize similarly situated whistleblowers.

111 See, e.g., WorldCom, Inc. v. FCC, 238 F.3d 449, 462 (D.C. Cir. 2001) (citation omitted) (explaining that “[a]n agency has `wide discretion' in making line-drawing decisions and `[t]he relevant question is whether the agency's numbers are within a zone of reasonableness' ”); see also, e.g., National Shooting Sports Foundation, Inc. v. Jones, 716 F.3d 200, 214, (D.C. Cir. 2013) (citation omitted) (“An agency `is not required to identify the optimal threshold with pinpoint precision. It is only required to identify the standard and explain its relationship to the underlying regulatory concerns.”).

112 In 2016, approximately 0.5 percent of the U.S. population had a net worth of $16.12 million while 0.1 percent of the U.S. population had a net worth of $43.1 million

2013) (citation omitted) (“An agency `is not required to identify the optimal threshold with pinpoint precision. It is only required to identify the standard and explain its relationship to the underlying regulatory concerns.”).

112 In 2016, approximately 0.5 percent of the U.S. population had a net worth of $16.12 million while 0.1 percent of the U.S. population had a net worth of $43.1 million. See https://dqydj.com/net-worth-brackets-wealth-brackets-one-percent/ .

While we believe that the $30 million floor should reflect an amount that in most cases would be an extremely attractive inducement for company insiders across many industries to come forward to report securities-law violations, we recognize that future experience in the years ahead could suggest that some adjustment is appropriate. 113 Accordingly, to the extent that our experience with the program in future years may suggest that an adjustment to the floor is appropriate, we propose to establish a mechanism by which the Commission may publicly notice an order announcing such an increase by publishing it in the Federal Register .

113 The economic analysis, infra Part VII, discusses various potential annual incomes that a meritorious whistleblower might obtain from investing a $30 million award payout in various types of annuities. We note that, to the extent that certain whistleblowers may experience significant harmful consequences, such as large financial sacrifices or career-ending ramifications, as a result of their whistleblowing activities, the proposed rule (should it be triggered by the potential payout) would allow the Commission the flexibility to consider these particular facts and circumstances to determine an appropriate award level. Proposed paragraph (d) would allow the Commission similar flexibility in situations involving multiple individuals acting as a joint whistleblower

, as a result of their whistleblowing activities, the proposed rule (should it be triggered by the potential payout) would allow the Commission the flexibility to consider these particular facts and circumstances to determine an appropriate award level. Proposed paragraph (d) would allow the Commission similar flexibility in situations involving multiple individuals acting as a joint whistleblower.

In considering the appropriateness of the $30 million floor below which we could not make a downward departure for any payouts stemming from a whistleblower's original information, we also note that the monetary incentive may often be an important reason a whistleblower comes forward, but it is typically not the only reason in our experience to date. In this regard, we note that the monetary incentive is one component in a package of reporting incentives made available under Section 21F, which includes employment retaliation protections and confidentiality requirements (including, critically, the ability of whistleblowers to remain anonymous through the course of an investigation and resulting enforcement action). 114 Indeed, our experience to date has been that approximately one-half of the whistleblowers who have received awards for information regarding their current or former employers took advantage of the opportunity to submit their tips to the Commission anonymously; the ability to report anonymously is an additional attractive feature of our program that helps to encourage company insiders and others to come forward by lessening their fear of potential exposure.

114 See 15 U.S.C. 78u-6(d) (anonymity); id. 78u-6(h)(1) (employment retaliation protection); id. 78u-6(h)(2) (confidentiality protections); see also 17 CFR 240.21F-9(c) and 240.21F-10(c)

nonymously; the ability to report anonymously is an additional attractive feature of our program that helps to encourage company insiders and others to come forward by lessening their fear of potential exposure.

114 See 15 U.S.C. 78u-6(d) (anonymity); id. 78u-6(h)(1) (employment retaliation protection); id. 78u-6(h)(2) (confidentiality protections); see also 17 CFR 240.21F-9(c) and 240.21F-10(c).

In advancing proposed paragraph (d), we are mindful of our own responsibility to investors and the general public to ensure that the Investor Protection Fund (IPF) that Congress established to fund awards is used efficiently and effectively to achieve the program's objectives. 115 We recognize that the Commission has obtained significant monetary judgments against parties in enforcement actions in recent years. Several individual matters involved orders in excess of $300 million in monetary sanctions in FY-2016 and FY-2017. 116 If there were an eligible whistleblower in one of these matters, and assuming the Commission collected the amounts ordered, an exceedingly large whistleblower award, beyond what we believe was intended when the program was established, could result. Multiple such awards would, in turn, cause the funds in the IPF to be diminished. As of the end May 2018, the balance of the IPF for the first time fell below the $300 million threshold that triggers the statutory replenishment mechanism; this occurred when the Commission paid $83 million—its largest payout to date on an enforcement action—to three individuals. 117 Whenever the reserve in the IPF falls below $300 million, Section 21F(g)(3) requires the Commission to replenish the IPF. 118 These funds otherwise would be directed to the Treasury, where they could be made available for use in funding other valuable public programs.

115 See Exchange Act section 21F(g), 15 U.S.C. 78u-6(g).

116 See, e.g., SEC Division of Enforcement Annual Report for 2017 (Nov. 15, 2017), available at https://www.sec.gov/files/enforcement-annual-report-2017.pdf

e Commission to replenish the IPF. 118 These funds otherwise would be directed to the Treasury, where they could be made available for use in funding other valuable public programs.

115 See Exchange Act section 21F(g), 15 U.S.C. 78u-6(g).

116 See, e.g., SEC Division of Enforcement Annual Report for 2017 (Nov. 15, 2017), available at https://www.sec.gov/files/enforcement-annual-report-2017.pdf .

117 At the end of 2010, the IPF had just under $452 million in it, with no awards having yet been made. See Annual Report on the Dodd-Frank Whistleblower Program, Fiscal Year 2011, at 8 (available at: https://www.sec.gov/files/whistleblower-annual-report-2011.pdf ), and by the end of fiscal year 2017, the IPF had approximately $322 million in it. Thus, from the end of 2010 until the end of fiscal year 2017, approximately $130 million in awards were paid out. The $83 million awards that were just paid for a single enforcement action were approximately equal to 64% of the sum of all of the other awards that the Commission had paid up through fiscal year 2017.

118 See 15 U.S.C. 78u-6(g)(3).

In light of the foregoing, we believe that, where a whistleblower's original information leads to Commission or related actions that, collectively, involve at least $100 million in collected monetary sanctions, it is consistent with the interests of investors and the broader public interest that the Commission have a mechanism to ensure that the payout does not exceed an amount beyond what is reasonably necessary to achieve the program's goals and, to the extent that it is, to adjust the award percentage so that it better aligns with those goals. In our view, proposed paragraph (d) would provide such a mechanism if adopted.

We generally anticipate that the Commission's application of proposed paragraph (d) would be based on the unique facts and circumstances of each award matter

t is reasonably necessary to achieve the program's goals and, to the extent that it is, to adjust the award percentage so that it better aligns with those goals. In our view, proposed paragraph (d) would provide such a mechanism if adopted.

We generally anticipate that the Commission's application of proposed paragraph (d) would be based on the unique facts and circumstances of each award matter. We believe that in determining whether a payout exceeds what is appropriate to achieve the program's objectives, the Commission would carefully assess the potential payout in relation to both any unusually detrimental circumstances that impact the whistleblower and the level of financial incentive that may be necessary to encourage future similarly situated whistleblowers to come forward. Facts that would be relevant to determining whether the large payout may be appropriate given the specific whistleblower's circumstances include, for example, whether the whistleblower made an extraordinary and highly unusual sacrifice by coming forward (such as placing himself or herself in legal jeopardy to bring the Commission information that it would otherwise not have been able to obtain or demonstrably suffering career-ending consequences commensurate with the potential large award). In a situation involving two or more individuals acting as a joint whistleblower, we would consider the need to appropriately incentivize individuals even when acting jointly to come forward and report to the Commission. 119 and the compensation levels within that industry, 120 and whether potential whistleblowers may be located overseas and the likely compensation levels in those countries (to the extent available). 121

119 According to the Office of the Whistleblower, of the 55 individuals who have received awards, approximately 10 percent were high-ranking corporate executives at companies of varying sizes. Each whistleblower award determination is based on the facts and circumstances of the case, including the monetary sanctions collected

compensation levels in those countries (to the extent available). 121

120 We would generally contemplate using publicly available data on compensation levels in making this determination. Award applicants could submit information as part of their award application to the extent that they are concerned that the proposed rule might be implicated by their application.

121 The existence of any of these facts would not foreclose the Commission from finding that any large payout that exceeded the $30 million floor in proposed rule 21F-6(d) was nonetheless not reasonably necessary to achieve the program's goals and to thus reduce the award to an appropriate amount. Conversely, the absence of special circumstances or extraordinary sacrifices does not mean that the Commission would in all cases determine to reduce the amount of the award.

In making any downward adjustment to a large award, the Commission would retain discretion to determine the appropriate award amount and proposed paragraph (d) is not intended to mandate any specific reduction or one-size-fits-all result. Nonetheless, we anticipate that in those cases where proposed paragraph (d) is triggered and the Commission determines that a downward adjustment is warranted, the extent to which the Commission exercises its authority to decrease such awards would vary along a sliding scale that corresponds with the overall size of the potential award in dollar terms

pecific reduction or one-size-fits-all result. Nonetheless, we anticipate that in those cases where proposed paragraph (d) is triggered and the Commission determines that a downward adjustment is warranted, the extent to which the Commission exercises its authority to decrease such awards would vary along a sliding scale that corresponds with the overall size of the potential award in dollar terms. For example, we generally anticipate that the nature and magnitude of any decrease applied to an award in the $35-40 million range would typically be less than the magnitude of the decrease applied to an award in the $100-$150 million range. In our view, this sliding-scale approach would make sense because the larger the dollar amount of a payout away from the $30 million floor, the greater the likelihood of diminishing marginal benefits to the program from each additional dollar paid to the whistleblower. In no event, however, would the Commission decrease an award below the $30 million floor (or whatever future floor the Commission might establish by order) using the authority afforded to the Commission pursuant to the proposed rule.

We preliminarily contemplate that proposed paragraph (d) would be applied in any instance where the Commission determines to process two or more separate covered actions together in the same final order, provided that both actions involve the same information submitted by the whistleblower. We would similarly expect that the Commission could apply this rule if, after having made an award to a whistleblower, the Commission subsequently processes an award application for that whistleblower (either in connection with a second covered action or a related action) and the subsequent award application is based on the same general information from the whistleblower as the earlier award determination

similarly expect that the Commission could apply this rule if, after having made an award to a whistleblower, the Commission subsequently processes an award application for that whistleblower (either in connection with a second covered action or a related action) and the subsequent award application is based on the same general information from the whistleblower as the earlier award determination.

We do not believe that the proposed rule conflicts with the statutory directive in Section 21F(c)(1)(B)(ii) 122 that “[i]n determining the amount of an award,” the Commission “shall not take into consideration the balance of the [IPF].” This statutory provision prevents the Commission from adjusting an individual award based on the availability of money in the IPF. Critically, proposed paragraph (d) would not permit the Commission to consider the balance of the IPF when determining whether an award should be reduced. Rather, as noted above, paragraph (d) would only authorize the Commission to consider whether a potential award payout exceeds an amount that is reasonably necessary to achieve the program's goals. In this way, proposed paragraph (d) would provide a mechanism for the Commission to ensure that it is granting awards in an efficient and effective manner that serves the “twin goals of protecting investors and increasing public confidence in the markets” 123 and our adoption of this proposed rule would be within our authority to adopt “additional relevant [award] factors.” 124 To make this clear, we are adding a provision to proposed pararagraph (d) stating that the Commission shall not take into account the balance of the IPF in determining whether to make a downward adjustment under the proposed paragraph or in making any other award determinations under Exchange Act Rule 21F-6.

122 15 U.S.C. 78u-6(c)(1)(B)(ii).

123 76 FR 34300, 34356/2.

124 Exchange Act section 21F(c)(1)(B)(iv); 15 U.S.C. 78u-6(c)(1)(B)(iv)

o proposed pararagraph (d) stating that the Commission shall not take into account the balance of the IPF in determining whether to make a downward adjustment under the proposed paragraph or in making any other award determinations under Exchange Act Rule 21F-6.

122 15 U.S.C. 78u-6(c)(1)(B)(ii).

123 76 FR 34300, 34356/2.

124 Exchange Act section 21F(c)(1)(B)(iv); 15 U.S.C. 78u-6(c)(1)(B)(iv).

Finally, the proposed rule would provide certain standards for the Commission to consider in determining whether to issue an order that adjusts the $2 million award threshold, the $100 million threshold, and the $30 million award(s) floor under proposed paragraphs (c) or (d), respectively. Specifically, the proposed rule would state that in issuing such an order “the Commission shall consider (among other factors that it deems relevant) whether the adjustment is necessary or appropriate to encourage whistleblowers to come forward and the potential impact the adjustments might have on the Investor Protection Fund.”

Guidance regarding the meaning of “unreasonable delay” in existing Rule 21F-6(b)(2) and proposed Rule 21F-6(c) . In proposing the foregoing modifications to the criteria that govern award determinations, we believe it is appropriate to provide guidance on our approach regarding “unreasonable delay” as relates to an award determinations. We believe that any delay in reporting to the Commission beyond 180 days is presumptively unreasonable. In light of the Supreme Court's recent decisions in Kokesh v. SEC 125 and Gabelli v. SEC, 126 delay on the part of a whistleblower can have a debilitating impact on the Commission's ability to make a full recovery of ill-gotten gains and to obtain civil penalties and, in this way, delay may impair our ability to return funds to investors who have been harmed by the wrongdoing

ptively unreasonable. In light of the Supreme Court's recent decisions in Kokesh v. SEC 125 and Gabelli v. SEC, 126 delay on the part of a whistleblower can have a debilitating impact on the Commission's ability to make a full recovery of ill-gotten gains and to obtain civil penalties and, in this way, delay may impair our ability to return funds to investors who have been harmed by the wrongdoing. Further, although this 180-day presumption is not expressly codified in either Exchange Rule 21F-6(b)(2), 127 which deals with “unreasonable delays,” or the rule that we are proposing, we would typically expect to treat any delay exceeding this period as unreasonable for purposes of both rules going forward. That said, in assessing unreasonable delay under both the existing rule and the proposed rule, we would still consider any highly unusual facts and circumstances of a particular award application in assessing unreasonable delay, such that the general presumption of “unreasonable delay” might be overcome in certain rare instances. Finally, we caution that i.e., less than 180 days) may also readily qualify as unreasonable depending on the particular facts and circumstances at issue, including, for example, whether the violations were ongoing, whether investors continued to experience harm or the whistleblower continued to profit from the wrongdoing during the period of the whistleblower's delay or whether the delay had a discernable impact on the monetary sanctions that were ordered in the enforcement action. Put simply, a whistleblower who delays reporting to the Commission should expect that his or her “reward” for reporting might well be negatively impacted.

125 137 S. Ct. 1635 (2017) (providing that the Commission must bring any enforcement action seeking to obtain disgorgement within five years of the date the violation occurred).

126 568 U.S. 442 (2013) (providing that the Commission must bring any enforcement action seeking to obtain civil penalties within five years of the date the violation occurred)

orting might well be negatively impacted.

125 137 S. Ct. 1635 (2017) (providing that the Commission must bring any enforcement action seeking to obtain disgorgement within five years of the date the violation occurred).

126 568 U.S. 442 (2013) (providing that the Commission must bring any enforcement action seeking to obtain civil penalties within five years of the date the violation occurred).

127 17 CFR 240.21F-6(b)(2).

Request for Comment

10. With respect to proposed paragraph (c), is it appropriate to consider increasing smaller awards and would doing so help to further incentivize insiders and others to come forward with tips? If so, is the $2 million ceiling for invoking the rule appropriate or is it either too high or too low? Please explain.

11. With respect to proposed paragraph (c), should the enhancement authority be unavailable in the situation where a whistleblower's award was reduced under Rule 21F-6(b) or Rule 21F-16? Please explain.

12. Would the proposed amendments to paragraph (d) of Rule 21F-6 appropriately balance the Commission's various programmatic interests, in particular encouraging company insiders and others to come forward while also ensuring that awards are not unnecessarily large beyond an amount that is sufficient to compensate whistleblowers and achieve the Commission's law-enforcement interests? If not, is there an alternative formulation of the proposed rule that the Commission should adopt to guard against payouts that are in excess of amounts that are reasonably necessary to further the Commission's goals?

13. With respect to proposed paragraph (d), are the $100 million collected sanctions threshold and the $30 million floor appropriate? Is there another threshold or floor that the Commission should adopt? If so, please explain what should be the appropriate threshold or floor.

guard against payouts that are in excess of amounts that are reasonably necessary to further the Commission's goals?

14. In considering whether to make a downward adjustment to a potential award under proposed paragraph (d), is it reasonable for the Commission to consider the likely amount of the award in relation to the whistleblower program's goals of rewarding meritorious whistleblowers and sufficiently incentivizing future similarly situated whistleblowers?

a. In the release, we explain that facts that would be relevant to determining whether the large payout may be appropriate given the specific whistleblower's circumstances include, for example, whether the whistleblower made an extraordinary and highly unusual sacrifice by coming forward (such as placing himself or herself in legal jeopardy to bring the Commission information that it would otherwise not have been able to obtain or demonstrably suffering career-ending consequences commensurate with the potential large award). Are there other (or additional) considerations that the Commission should assess in making that determination?

b. Also in the release, we explain that facts that would be relevant to determining whether the large payout is needed and appropriate to encourage future similarly situated whistleblowers to come forward include the industry in which knowledgeable whistleblowers might work, the type of position held by that whistleblower, and the compensation levels within that industry, and whether potential whistleblowers may be located overseas and the likely compensation levels in those countries (to the extent available). Are there other (or additional) considerations that the Commission should assess in making that determination?

ch knowledgeable whistleblowers might work, the type of position held by that whistleblower, and the compensation levels within that industry, and whether potential whistleblowers may be located overseas and the likely compensation levels in those countries (to the extent available). Are there other (or additional) considerations that the Commission should assess in making that determination?

15. In the context of two or more individuals acting together as a whistleblower, should the $30 million floor in proposed paragraph (d) apply where the aggregate award to both individuals exceeds $30 million or where the award to each individual would potentially exceed $30 million? Please explain the reasons for your views.

16. In determining whether the $100 million threshold has been met for application for the proposed rule, should the Commission consider not just the likely payout in any Commission covered action that results from the original information that the whistleblower provided to the Commission, but also any potential payout that might result from any related actions? Why or why not?

17. As discussed above, the Commission could apply proposed paragraph (d) if, after having made an award to a whistleblower, the Commission subsequently processes an award application for that whistleblower (either in connection with a second covered action or a related action) and the subsequent award application is based on the “same general information” from the whistleblower as the earlier award determination. Is there a different standard that the Commission should apply for invoking the rule in these situations? In particular, should the proposed rule be applicable in either a narrower or a broader set of circumstances where information provided by a whistleblower results in multiple actions? Please explain the reasons for your view.

ion” from the whistleblower as the earlier award determination. Is there a different standard that the Commission should apply for invoking the rule in these situations? In particular, should the proposed rule be applicable in either a narrower or a broader set of circumstances where information provided by a whistleblower results in multiple actions? Please explain the reasons for your view.

18. Proposed paragraph (d) would permit the Commission to consider the potential dollar amount of the award when applying each of the existing award criteria in Exchange Act Rule 21F-6(a) and 6(b), provided that the Commission determined that the likely total payout to the whistleblower resulting from the original information that he or she provided was $100 million or greater. As explained above, this would allow the Commission to consider each award factor in dollar terms rather than to apply exclusively a percentage assessment that does not take into account what those percentage adjustments would translate to in actual dollars paid to the whistleblower.

a. Should the Commission consider the dollar value of an award that involves the collection of at least $100 million in monetary sanctions in determining the size of the award? Why or why not?

b. As part of this rulemaking, should we expand this approach so that it would cover all awards considered under Exchange Act Rule 21F-6, even those below the $100 million threshold? Would such a revision to the award determination approach under Exchange Act Rule 21F-6 allow us to better assess each enhancement or reduction in dollar terms (as well as percentage terms) so that we could more realistically and concretely assess the impact of each award factor on the overall award to ensure that we are appropriately rewarding the whistleblower and incentivizing future whistleblowers? Why or why not?

he award determination approach under Exchange Act Rule 21F-6 allow us to better assess each enhancement or reduction in dollar terms (as well as percentage terms) so that we could more realistically and concretely assess the impact of each award factor on the overall award to ensure that we are appropriately rewarding the whistleblower and incentivizing future whistleblowers? Why or why not?

19. With respect to the interpretive guidance concerning “unreasonable delay,” is the 180-day rebuttable presumption of unreasonable delay appropriate? Does establishing such a presumption help to put individuals on notice that they should come forward without an inappropriate delay? Please explain.

E. Proposed Amendment to Exchange Act Rule 21F-2 128 Addressing Whistleblower Status and Certain threshold Criteria Related to Award Eligibility, Heightened Confidentiality From Identity Disclosure, and Employment Anti-Retaliation Protection 129

128 17 CFR 240.21F-2.

129 The Commission anticipates that this proposed rule change, if adopted, would apply as follows: With respect to employment retaliation claims, the proposed rule would apply only to employment-retaliation violations occurring after the effective date of the rules; with respect to award eligibility and confidentiality protections, the proposed rule would apply only to information about a potential securities law violation that is submitted for the first time by an individual after the effective date of the rules.

the effective date of the rules.

As adopted by the Commission in 2011, Rule 21F-2(a) 130 describes the qualifications to be a whistleblower for purposes of the award program and heightened confidentiality protections, and Rule 21F-2(b) 131 provides a separate, broader definition of the term that is applicable to the employment anti-retaliation provisions in Section 21F(h)(1) of the Exchange Act. 132 Specifically, unlike Rule 21F-2(a), Rule 21F-2(b) defines a whistleblower not by reference to the statutory definition of the term in Exchange Act Section 21F(a)(6) 133 — i.e., as one who reports to the Commission—but instead by reference to the protected activities described in Section 21F(h)(1)(A)(i)-(iii), including the internal reporting described in clause (iii) of that provision. 134 The Supreme Court recently held in Digital Realty Trust, Inc. v. Somers, 135 however, that a whistleblower under Section 21F of the Exchange Act must report a possible securities law violation to the Commission in order to qualify for employment retaliation protection under Section 21F(h)(1), and that the Commission's rule interpreting the term more broadly in connection with Section 21F's retaliation protections was therefore not entitled to deference. 136 The Court reasoned that Dodd-Frank's definition of “whistleblower,” codified in Section 21F(a)(6), requires such a report to the Commission as a prerequisite for anti-retaliation protection, and that this definition is “clear and conclusive.” 137 The Court also determined that strict application of the definition's reporting requirement in the employment anti-retaliation context is consistent with Congress's core objective of “ `motivat[ing] people who know of securities law violations to tell the SEC.' ” 138

130 17 CFR 240.21F-2(a).

131 17 CFR 240.21F-2(b).

132 15 U.S.C. 78u-6(h)(1).

133 15 U.S.C. 78u-6(a)(6).

134 15 U.S.C. 78u-6(h)(1)(A)(i)-(iii).

135 138 S. Ct. 767 (2018).

136 Digital Realty, 138 S. Ct. at 781-82.

137 Id.

138 Id. at 777 (quoting S. Rep

s consistent with Congress's core objective of “ `motivat[ing] people who know of securities law violations to tell the SEC.' ” 138

130 17 CFR 240.21F-2(a).

131 17 CFR 240.21F-2(b).

132 15 U.S.C. 78u-6(h)(1).

133 15 U.S.C. 78u-6(a)(6).

134 15 U.S.C. 78u-6(h)(1)(A)(i)-(iii).

135 138 S. Ct. 767 (2018).

136 Digital Realty, 138 S. Ct. at 781-82.

137 Id.

138 Id. at 777 (quoting S. Rep. No. 111-176, at 38 (2010)).

Accordingly, we believe that it is appropriate to amend Rule 21F-2 to conform to the Supreme Court's construction of Section 21F. Proposed Rule 21F-2(a) would provide a uniform definition for whistleblower status to apply for all purposes under Section 21F—award eligibility, confidentiality protections, and anti-retaliation protections—consistent with the Supreme Court's applic

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.