[Federal Register Volume 83, Number 140 (Friday, July 20, 2018)]
[Proposed Rules]
[Pages 34702-34752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14411]



[[Page 34701]]

Vol. 83

Friday,

No. 140

July 20, 2018

Part II





Securities and Exchange Commission





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17 CFR Parts 240 and 249





Whistleblower Program Rules; Proposed Rule

  Federal Register / Vol. 83 , No. 140 / Friday, July 20, 2018 / 
Proposed Rules  

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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.

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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 [email protected]. 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.

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. 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. 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. Proposed Interpretive Guidance Regarding the Meaning and 
Application of ``independent analysis'' as Defined in Exchange Act 
Rule 21F-4(b)(3)

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    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\
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    \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).
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    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. Among 
other things, these rules:
     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. 
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\
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    \4\ The average (mean) of these awards was approximately $38 
million and the median award was approximately $33 million.
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    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. 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.
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    \5\ 17 CFR 240.21F-4(d).
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     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.
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    \7\ 17 CFR 240.21F-3(b)(1).
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     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

[[Page 34704]]

amount that the Commission determines more appropriately achieves 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. Relatedly, 
in the context of potential awards that could yield total collected 
monetary sanctions of at least $100 million, the proposed rules would 
authorize the Commission to adjust the award percentage so that it 
would yield a payout (subject to the 10% statutory minimum) that does 
not exceed an amount that is reasonably necessary to reward the 
whistleblower and to incentivize other similarly situated 
whistleblowers; however, in no event would the award be adjusted below 
$30 million.\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.
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    \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.
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    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\
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    \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 Sec.  
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). 
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.
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    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. 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\
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    \10\ Any funds used to replenish the IPF otherwise would be 
directed to the Treasury for use in funding other public programs.
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    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.
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    \11\ 17 CFR 240.21F-2.
    \12\ 138 S. Ct. 767 (2018).
    \13\ 138 S. Ct. at 781-82.
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    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

[[Page 34705]]

making an award determination. We are also proposing an amendment to 
Rule 21F-13 \19\ to clarify the materials that may comprise the 
administrative record for purposes of judicial review.
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    \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.
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    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.
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    \20\ 17 CFR 240.21F-8.
    \21\ 15 U.S.C. 78u-6(i).
    \22\ 17 CFR 240.21F-8(c)(7).
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    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.
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    \23\ 17 CFR 240.21F-4(c)(2).
    \24\ 17 CFR 240.21F-9 through 240.21F-12.
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    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\
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    \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. 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 
Sec.  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.
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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\
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    \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.
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    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. 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\
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    \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. 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.
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    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

[[Page 34706]]

particularly telling that Congress used the term ``action'' in Section 
21F of the Exchange Act, rather than the term ``proceeding,'' to 
describe the universe of administrative enforcement outcomes that might 
give rise to a whistleblower award. As used elsewhere in Section 21F, 
as well as in other provisions of the securities laws and the 
Commission's rules thereunder, the term ``proceeding'' refers to 
various specifically identified formal processes instituted before the 
Commission.\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).
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    \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. As one example, DPAs and NPAs have been a 
prominent tool in DOJ's criminal enforcement of the Foreign Corrupt 
Practices Act (``FCPA''), 15 U.S.C. 78dd-1 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'').
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    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. 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).
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    \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.'').
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    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. 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.
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    \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.
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    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\

[[Page 34707]]

Accordingly, our view is that it is reasonable to treat the monetary 
components of the agreements that would be covered by the proposed rule 
as ``monetary sanctions'' that are ``imposed'' within the meaning of 
Section 21F. Proposed Rule 21F-4(d)(3) thus would clarify that any 
money required to be paid under a DPA or NPA will be deemed a monetary 
sanction.\43\
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    \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 judicial or administrative 
proceedings, the Commission has reserved the authority under the 
agreement to pursue an enforcement action if the individual or 
company fails to pay the monetary obligations. 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.
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    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\
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    \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).
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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?
    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\
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    \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).
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    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). 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).
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B. Proposed Amendment to Exchange Act Rule 21F-4(e) 49 
Defining ``monetary sanctions'' 50
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    \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.
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    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.\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\
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    \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).
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    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\
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    \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\
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    \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.
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    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. Interpreted in this way, monetary

[[Page 34708]]

sanctions would include, for example, orders to pay discovery 
sanctions, receivership fees and costs, taxes, and even attorney's fees 
imposed under the Equal Access to Justice Act (``EAJA'').\56\
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    \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.
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    \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).
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    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.\61\
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    \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. 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).
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    \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).
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    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.
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    \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.'').
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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?
    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

[[Page 34709]]

Commission should specifically consider or address in clarifying the 
definition of ``monetary sanctions''?

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

    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

[[Page 34710]]

regulatory interests (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.
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    \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.
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    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. 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.
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    \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].''
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    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.
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    \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.
---------------------------------------------------------------------------

    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.
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    \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'').
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    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. 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

[[Page 34711]]

Commission (``CFTC'') has issued an award for the same action, nor will 
the Commission allow a whistleblower to readjudicate any issues decided 
against the whistleblower as part of the CFTC's award denial. In 
adopting that rule, the Commission made clear its view that a 
whistleblower should neither have two recoveries on the same action nor 
multiple bites at the adjudicatory apple.\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.
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    \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.'').
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    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.
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    \87\ Scalia & Garner, supra note 33, at 235, 239 (emphasis in 
original).
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    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\
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    \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).
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    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. In practice, this can occur 
either because the whistleblower provided the original information to 
the other authority, or because the Commission through its information 
sharing mechanisms provided the original information to the other 
authority, and in either case the authority utilized that information 
directly in its own investigation and/or its resulting enforcement 
action.
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    \90\ 17 CFR 240.21F-11(c).
    \91\ 15 U.S.C. 78u-6(a)(5).
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    We note that, under our existing interpretation of the ``based 
upon'' language in Section 21F(a)(5) and the clarifying rule that we 
are proposing, the other authority's enforcement action would not be a 
related action in circumstances where the other authority's enforcement 
action was in some manner ``based upon'' the results or findings of the 
Commission's enforcement action without the other authority ever 
actually receiving and utilizing the whistleblower's original 
information. Rather, in this situation the whistleblower's original 
information could, at best, be described as a derivative factor 
potentially contributing to the success of the other authority's 
action, and we deem this too attenuated a causal connection to meet the 
``based upon'' standard, which in our view requires 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\
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    \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.
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    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\
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    \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

[[Page 34712]]

related action? Are there alternative formulations that should be 
adopted instead?
    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?
    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.
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    \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.
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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.
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    \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.
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    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\
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    \97\ 17 CFR 240.21F-6.
    \98\ 76 FR 34300, 34331/2.
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    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 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\
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    \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. 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.
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    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

[[Page 34713]]

award claim triggers Exchange Act Rule 21F-16 (concerning awards to 
whistleblowers who engage in culpable conduct).\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.
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    \100\ 17 CFR 240.21F-6(d).
    \101\ 17 CFR 240.21F-16.
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    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. 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\
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    \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). 
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.
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    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).
    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. 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).
---------------------------------------------------------------------------

    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\

[[Page 34714]]

This would allow us to consider the relative (or marginal) value of the 
actual dollar amounts associated with any enhancements that we are 
considering under the positive award factors. We think that this is 
particularly important where the percentage enhancements are 
corresponding with particularly large dollar enhancements because, to 
the extent that individuals are motivated to come forward based on a 
potential award, it is the total dollar payout that would be relevant 
to them. Allowing us to assess each enhancement or reduction in dollar 
terms should permit us to more realistically and concretely assess the 
appropriate amount that is reasonably necessary to recognize a 
whistleblower's contributions in cases involving large potential 
awards.
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    \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). 
Notwithstanding the statutory language, the Commission's existing 
rules do not expressly authorize the Commission to consider the 
dollar amount of a potential award when setting the award 
percentage. Proposed paragraph (d) would make it clear that the 
Commission may consider the dollar amount of a potential award when 
setting the award percentage where at least $100 million in monetary 
sanctions has been collected.
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    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.
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    \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).
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    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.
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    \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.
    \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.
---------------------------------------------------------------------------

    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\
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    \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).
---------------------------------------------------------------------------

    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

[[Page 34715]]

regard, we note that utilizing 2016 data on net worth, an individual 
who received 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.
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    \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. 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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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.
    \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. 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.

[[Page 34716]]

Facts that would be relevant to determining whether the large payout is 
necessary 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,\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\
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    \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. Based on this subset of prior cases, a large majority of 
these executives received awards that were under $5 million.
    \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.
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    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. 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.
    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.
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    \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. 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

[[Page 34717]]

shorter periods of delay (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.
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    \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.
    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?
    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.
    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?
    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.

[[Page 34718]]

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
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    \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.
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    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\
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    \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)).
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    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 application of the whistleblower 
definition in Section 21F(a)(6), which defines the term 
``whistleblower'' as any individual who provides, or 2 or more 
individuals acting jointly who provide, information relating to a 
violation of the securities laws to the Commission, in a manner 
established, by rule or regulation, by the Commission.\139\
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    \139\ 15 U.S.C. 78u-6(a)(6).
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    Proposed Rule 21F-2(a) would track this whistleblower definition by 
conferring whistleblower status only on (i) an individual (ii) who 
provides the Commission with information ``in writing'' and only if 
(iii) ``the information relates to a possible violation of the federal 
securities laws (including any law, rule, or regulation subject to the 
jurisdiction of the Commission) that has occurred, is ongoing, or is 
about to occur.'' We address these three points in turn.
    First, proposed Rule 21F-2(a)(2) would provide whistleblower status 
to individuals and not to legal entities (such as corporations). This 
proposed provision would carry forward the similar language in existing 
Rule 21F-2(a)(1) without substantive change. We believe this position 
follows from the use of the term ``individual'' in the whistleblower 
definition in Section 21F(a)(6) and is consistent with the focus in 
Section 21F(h)(1)(A) on retaliation by employers in the terms and 
conditions of employment.
    Second, proposed Rule 21F-2(a)(1) would afford whistleblower status 
only to an individual who provides the Commission with information ``in 
writing.'' As the Supreme Court recognized,\140\ the whistleblower 
definition in Section 21F(a)(6) gives the Commission express authority 
to establish the required ``manner'' of reporting by rule or 
regulation. In the awards eligibility and confidentiality contexts, our 
whistleblower rules (specifically, Rule 21F-2(a)(2) \141\ and Rule 21F-
9(a) \142\) already require that information be provided to the 
Commission in writing either through the online portal at www.sec.gov 
or by mailing or faxing a Form TCR (Tip, Complaint or Referral) to the 
Commission's Office of the Whistleblower. We now believe it is 
appropriate to exercise our discretion to require that an individual 
provide information ``in writing'' to the Commission to qualify as a 
``whistleblower,'' not only in the awards and confidentiality context 
but also in the anti-retaliation context.\143\ Our experience to date 
in the awards context suggests that requiring that information be 
provided in writing presents, at most, a minimal burden to individuals 
who want to blow the whistle to the Commission while facilitating the 
staff's ability to track its use of the information. Moreover, if we 
recognized additional manners of reporting for anti-retaliation 
purposes (such as placing a telephone call), the Commission's staff 
could be ensnared by disputes in private anti-retaliation lawsuits over 
what information was provided to whom on what dates. Requiring that any 
reporting be done in writing obviates these difficulties.\144\
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    \140\ Digital Realty, 138 S. Ct. at 781 (``[T]he statute 
expressly delegates authority to the SEC to establish the `manner' 
in which information may be provided to the Commission by a 
whistleblower.'') (citing Section 21F(a)(6)).
    \141\ 17 CFR 240.21F-2(a).
    \142\ 17 CFR 240.21F-9(a).
    \143\ We believe that Section 21F(a)(6) and Digital Realty do 
not require a uniform ``manner'' of providing information for all 
purposes under Section 21F, and that we have discretion whether to 
specify different manners for the awards, confidentiality, and 
retaliation contexts. But we believe that specifying a uniform 
``manner'' of providing information--that is, in writing--for all 
three contexts is appropriate for the reasons that follow in the 
discussion above. See also 15 U.S.C. 78u-6(c)(2)(D) (``No award 
under subsection (b) shall be made . . . to any whistleblower who 
fails to submit information to the Commission in such form as the 
Commission may, by rule, require.'').
    \144\ We believe it appropriate not to enumerate the activities 
in Section 21F(h)(1)(A)(ii) (specifically, ``initiating, testifying 
in, or assisting in any investigation or judicial or administrative 
action of the Commission'') as additional manners of providing 
information to the Commission under Section 21F(a)(6). See Digital 
Realty, 138 S. Ct. at 781 (``Nothing in today's opinion prevents the 
agency from enumerating additional means of SEC reporting--including 
through testimony protected by clause (ii)'' of Section 
21F(h(1)(A).). Given clause (ii)'s cross-reference to ``such 
information'' provided under clause (i), we believe that clause (ii) 
is best read as extending employment retaliation protections to acts 
of continued cooperation by a person who has already provided 
information to the Commission.
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    Third, proposed Rule 21F-2(a)(1) would afford whistleblower status 
only to an individual who provides the Commission with information that 
``relates to a possible violation of the

[[Page 34719]]

federal securities laws (including any law, rule, or regulation subject 
to the jurisdiction of the Commission) that has occurred, is ongoing, 
or is about to occur.'' Much of this language carries over from 
existing Rule 21F-2 \145\ and simply reflects the extent to which that 
provision already tracked the whistleblower definition in Section 
21F(a)(6). At the same time, we are mindful of the whistleblower 
definition's focus on ``information relating to a violation of the 
securities laws'' \146\ and of the Supreme Court's admonition that 
Section 21F, as enacted by Dodd-Frank, is ``a law concerned only with 
encouraging the reporting of `securities law violations,' '' as opposed 
to other types of misconduct.\147\ Consistent with that statutory 
language and purpose, we believe it is appropriate to clarify what is 
implicit in the phrase ``securities laws''--namely, that whistleblower 
status (and thus Section 21F's employment retaliation protection) 
extends only to reports of possible violations of federal law, not 
state law, and that it extends broadly to reports of possible 
violations of any law, rule, or regulation subject to the jurisdiction 
of the Commission.\148\ Although Section 3(a)(47) of the Exchange Act 
defines the phrase ``securities laws'' more narrowly as encompassing 
only certain statutes,\149\ by its terms that definition only applies 
``unless the context otherwise requires.'' \150\ We believe that the 
context of Section 21F requires departing from that definition, given 
the textual clues that Congress designed Section 21F to encompass 
whistleblowing with respect to the full sweep of federal securities 
statutes, rules, and regulations,\151\ given Congress's core objective 
of `` `motivat[ing] people who know of securities law violations to 
tell the SEC,' '' \152\ and given the many securities regulations whose 
reported violations would fail to trigger award eligibility and anti-
retaliation protection if ``securities laws'' were more narrowly 
defined.\153\
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    \145\ 17 CFR 240.21F-2(a)(1).
    \146\ 15 U.S.C. 78u-6(a)(6) (emphasis added).
    \147\ Digital Realty, 138 S. Ct. at 781 (quoting S. Rep. No. 11-
176, at 38).
    \148\ As proposed, Rule 21F-2 would not repeat the parenthetical 
``(including any law, rule, or regulation subject to the 
jurisdiction of the Commission)'' when the phrase ``federal 
securities laws'' reappears later in the rule. This would be 
strictly for concision and ease of reading, and not to imply any 
difference of meaning.
    \149\ Section 3(a)(47) of the Exchange Act states that the term 
``securities laws'' means the Securities Act of 1933 (15 U.S.C. 78a 
et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.), the Sarbanes-Oxley Act of 2002, the Trust Indenture Act of 
1939 (15 U.S.C. 77aaa et seq.), the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.), the Investment Advisers Act of 1940 (15 
U.S.C. 80b et seq.), and the Securities Investor Protection Act of 
1970 (15 U.S.C. 78aaa et seq.).
    15 U.S.C. 78c(a)(47).
    \150\ 15 U.S.C. 78c(a).
    \151\ See, e.g., Section 21F(h)(1)(A)(iii) (protecting 
``disclosures that are required or protected under . . . any other 
law, rule, or regulation subject to the jurisdiction of the 
Commission'').
    \152\ Digital Realty, 138 S. Ct. at 777 (quoting S. Rep. No. 
111-176, at 38).
    \153\ See American Bankers Assn v. SEC, 804 F.2d 739, 753 (D.C. 
Cir. 1986) (``We read the context clause [in Section 3 of the 
Exchange Act] as meaning only that if in the case of a frequently 
occurring statutory term, its immediate context suggests that a 
literal application of the statutory definition would produce absurd 
consequences or run counter to the obvious thrust of the section, 
the agency may appropriately modify the definition.'') (emphasis 
added).
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    Additionally, proposed Rule 21F-2(a) would confer whistleblower 
status ``as of the time that'' an individual meets all three of the 
above conditions. We believe that this language would clarify that 
whistleblower status is conferred only prospectively and not 
retrospectively once all three conditions to achieve whistleblower 
status are met.
    Proposed Rule 21F-2(b), (c), and (d) would specify how the 
whistleblower status conferred by subsection (a) operates across the 
various contexts of awards eligibility, confidentiality protections, 
and anti-retaliation protections, respectively. Much like current Rule 
21F-2(a), proposed Rule 21F-2(b) would specify that, to be eligible for 
an award in a Commission action based on information provided to the 
Commission, a person ``must comply with the procedures and the 
conditions described in Rules 21F-4, 21F-8, and 21F-9 (respectively, 
sections 240.21F-4, 240.21F-8, and 240.21F-9 of this chapter).'' \154\ 
Proposed Rule 21F-2(b) reiterates, ``You should carefully review those 
rules before you submit any information that you may later wish to rely 
upon to claim an award.'' We believe that this proposed language will 
adequately alert individuals who intend to claim an award that they 
must comply with the cross-referenced rules, especially proposed Rule 
21F-9(a) and (b), which require the submission of information to the 
Commission either on Form TCR or through www.sec.gov, accompanied by a 
declaration sworn under penalty of perjury that the information 
submitted is true and correct.\155\ In our experience to date in the 
awards context, compliance with existing Rule 21F-9(a) has proven to be 
beneficial for enabling the Commission to determine, in a precise and 
reliable manner, which persons submitted which information on which 
dates.
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    \154\ We note that, under the Commission's existing rules, in 
order to make an award in connection with a related action brought 
by one of the regulatory or law-enforcement entities listed in Rule 
21F-3(b)(1) (17 CFR 240.21F-3(b)(1)), we must determine that the 
same original information that the whistleblower gave to the 
Commission also led to the successful enforcement of the related 
action under the same criteria that govern awards made in connection 
with Commission actions (see Rule 21F-3(b)(2), 17 CFR 240.21F-
3(b)(2)). This means that a whistleblower must comply with the other 
procedures and conditions described in Rules 21F-4 and 21F-8 (17 
CFR. 240.21F-4 and 240.21F-8) for a related action in the same 
manner and to the same degree as is required for the Commission 
action to which the other entity's action is related. For example, 
under Rule 21F-4(c) (17 CFR 240.21F-4(c)) the whistleblower must 
provide the same original information that he or she provided to the 
Commission directly to the other regulatory or law-enforcement 
entity and that the information the whistleblower gave to the other 
entity must lead to successful enforcement of that entity's action 
using the same criteria described in Rule 21F-4(c)(1)-(3) (17 CFR 
240.21F-4(c)(1)-(3)) for Commission enforcement actions. However, we 
are proposing to modify this requirement through our amendments to 
Exchange Act Rule 21F-3 (17 CFR 24.21F-3) to also permit an award in 
situations where the Commission itself shares the whistleblower's 
information with the other agency.
    \155\ We believe that additional express authority in this 
regard is conferred by Section 21F(c)(2)(D) of the Exchange Act. See 
15 U.S.C. 78u-6(c)(2)(D) (``No award under subsection (b) shall be 
made . . . to any whistleblower who fails to submit information to 
the Commission in such form as the Commission may, by rule, 
require.'').
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    Proposed Rule 21F-2(c) would specify that, to qualify for 
confidentiality protections afforded by Section 21F(h)(2) of the 
Exchange Act \156\ based on information provided to the Commission, a 
person ``must comply with the procedures and the conditions described 
in'' Rule 21F-9(a)--that is, must submit information using the 
Commission's online portal or Form TCR.\157\ We believe it is 
appropriate to adopt this provision both to codify the current practice 
of the Commission's staff and to clarify for future whistleblowers the 
conditions for receiving confidentiality protections. Further, 
requiring whistleblowers to adhere to the procedures specified in Rule 
21F-9(a) helps the staff to appreciate quickly and clearly which 
whistleblowers are seeking the heightened confidentiality protections 
provided by Section 21F(h)(2) of the Exchange Act when, among other 
things, sharing the whistleblowers' information with other governmental 
agencies.\158\
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    \156\ 15 U.S.C. 78u-6(h)(2).
    \157\ 17 CFR 240.21F-9(a).
    \158\ We are proposing to make a conforming amendment to 
Exchange Act Rule 21F-7(a) (17 CFR 240.21F-7(a)) to acknowledge the 
proposed requirement that a whistleblower must submit information 
according to the procedures specified in Exchange Act Rule 21F-9(a) 
(17 CFR 240.21F-9(a)) in order to qualify for the heightened 
confidentiality protections provided for in Exchange Act 21F(h)(2), 
15 U.S.C. 78u-(h)(2).

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[[Page 34720]]

    Proposed Rule 21F-2(d) would revise existing Rule 21F-2(b) to 
define the scope of anti-retaliation protections in a way that mirrors 
the Supreme Court's authoritative reading of Section 21F. As the Court 
explained in Digital Realty, the whistleblower definition in Section 
21F(a)(6) ``first describes who is eligible for protection--namely, a 
whistleblower who provides pertinent information `to the Commission,' 
'' \159\ while ``[t]he three clauses of [Section 21F(h)(1)(A)] then 
describe what conduct, when engaged in by a whistleblower, is shielded 
from employment discrimination.'' \160\ Consistent with that reading, 
proposed Rule 21F-2(d) would explain both who is eligible for 
protection as a whistleblower and also what conduct by such a person is 
protected from employment retaliation, by requiring a person to satisfy 
several criteria listed in paragraph (d)(1).
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    \159\ 138 S. Ct. at 777 (quoting Section 21F(a)(6), 15 U.S.C. 
78u-6(a)(6)).
    \160\ Id. (citing Section 21F(h)(1)(A)(i)-(iii), 15 U.S.C. 78u-
6(h)(1)(A)(i)-(iii)).
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    In explaining who is eligible for employment retaliation 
protection, proposed Rule 21F-2(d)(1)(i) would first require that a 
person ``qualify as a whistleblower under subsection (a) before 
experiencing the retaliation'' for which redress is sought. We believe 
that this proposed rule implements the most natural reading of Section 
21F(h)(1)(A), which prohibits retaliation ``against[ ] a 
whistleblower'' (emphasis added) \161\ and also follows from the 
Supreme Court's focus in Digital Realty on whether the plaintiff had 
reported to the Commission before the alleged retaliation.\162\ In 
addition, proposed Rule 21F-2(d)(1)(ii) would carry forward the 
requirement in existing Rule 21F-2(b)(1)(i) \163\ that the person 
``reasonably believe'' that the information provided relates to a 
possible securities law violation.
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    \161\ 15 U.S.C. 78u-6(h)(1)(A).
    \162\ See 138 S. Ct. at 778 (``Somers did not provide 
information `to the Commission' before his termination, Sec.  78u-
6(a)(6), so he did not qualify as a `whistleblower' at the time of 
the alleged retaliation. He is therefore ineligible to seek relief 
under Sec.  78u-6(h).'').
    \163\ 17 CFR 240.21F-2(b)(1)(i).
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    In explaining what conduct is protected from retaliation, Rule 21F-
2(d)(1)(iii) requires that a person must perform a ``lawful act'' that 
both is performed in connection with any of the activities described in 
Section 21F(h)(1)(A)(i)-(iii) \164\ and ``relate[s] to the subject 
matter of'' the person's submission to the Commission under proposed 
Rule 21F-2(a).\165\ We believe that extending protection to all such 
lawful acts is most consistent with the text of Section 21F(h)(1)(A), 
which prohibits retaliation not simply for the activities described in 
Section 21F(h)(1)(A)(i)-(iii) but for ``any lawful act done by the 
whistleblower'' in performing those activities. Given the breadth of 
Congress's language, we preliminarily anticipate that anti-retaliation 
protection under proposed Rule 21F-2(d)(1)(iii) will properly encompass 
actions that are preparatory to the conduct described in Section 
21F(h)(1)(A)(i)-(iii), such as printing and completing a Form TCR and 
depositing the completed form in a mailbox. We also preliminarily 
anticipate that protected conduct under proposed Rule 21F-2(d)(1)(iii) 
will not be limited strictly to reports to the Commission, since that 
limitation would render clauses (ii) and (iii) of Section 21F(h)(1)(A) 
superfluous, given clause (i)'s express coverage of Commission 
reports.\166\
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    \164\ 15 U.S.C. 78u-6(h)(1)(A)(i)-(iii).
    \165\ We are not proposing to define the term ``lawful act'' 
under Section 21F(h)(1)(A) or otherwise to offer guidance as to its 
meaning. We note that the term does appear in a number of federal 
employment anti-retaliation statutes, but it does not appear that 
any of these statutes define the term. See, e.g., Marcella 
Auerbachian and Michael W. Paddock, Legal Ethics: Lines in the 
Sand--The Intersection of Bringing and Defending a Qui Tam False 
Claims Act Case, 20141006 AHLA Seminar Papers 19 (Oct. 6, 2014) 
(available on Westlaw) (``The FCA does not define `lawful acts' '').
    \166\ We are aware of one circuit decision suggesting in dicta, 
before the Digital Realty decision, that anti-retaliation protection 
under Section 21F(h)(1) should be limited exclusively to reports to 
the Commission. See Martensen v. Chicago Stock Exch., 882 F.3d 744, 
746 (7th Cir. 2018). We preliminarily believe that, in this respect, 
Martensen is inconsistent with the Supreme Court's subsequent 
decision in Digital Realty. See 138 S. Ct. at 779 (``With the 
statutory definition incorporated, clause (iii) protects a 
whistleblower who reports misconduct both to the SEC and to another 
entity, but suffers retaliation because of the latter, non-SEC, 
disclosure.'').
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    At the same time, proposed Rule 21F-2(d)(1)(iii) would limit anti-
retaliation protection to lawful acts that ``relate to the subject 
matter'' of the person's submission to the Commission under proposed 
Rule 21F-2(a). Given the silence of Section 21F and the Supreme Court's 
reluctance to address whether any subject-matter connection should be 
required,\167\ we believe it appropriate to clarify that, to receive 
protection, a lawful act must relate to the subject matter of the 
submission to the Commission.\168\
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    \167\ See Digital Realty, 138 S. Ct. at 780-81.
    \168\ We preliminarily believe that this clarification helps 
avoid the incongruous result that a person could qualify just once 
as a whistleblower and then receive lifetime protection for any non-
Commission reports described in clause (iii) with respect to 
distinct securities law violations that occur years later. Given the 
Supreme Court's instruction that Congress's core objective was to 
encourage reports to the Commission, 138 S. Ct. at 777, it makes 
more sense that such a person needs to return to the Commission to 
report the later violations in order to receive protection.
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    Proposed Rule 21F-2(d)(2) would address a timing issue under 
Section 21F's anti-retaliation provisions by clarifying that a person 
does not need to qualify as a whistleblower under Rule 21F-2(a) before 
performing the lawful act described in Rule 21F-2(d)(1)(iii), in order 
to be eligible for anti-retaliation protection. In other words, whether 
conduct is protected from retaliation would not depend on whether the 
person performing that conduct reported to the Commission beforehand or 
afterward (in order to qualify as a whistleblower). Section 21F is 
silent on this issue, and we believe that this clarification will help 
maintain appropriate incentives for persons to make the internal 
reports described in Section 21F(h)(1)(A)(iii) before or at the same 
time as reporting to the Commission. Proposed Rule 21F-2(d)(2) would 
reiterate, however, that a person must qualify as a whistleblower under 
proposed Rule 21F-2(a) before experiencing retaliation. Thus, for 
example, an individual who experiences repeated retaliation for a prior 
lawful act, and who first reports to the Commission while the 
retaliation is still ongoing, would be protected with respect to any 
retaliation experienced after the Commission report but not for any 
retaliation experienced before the Commission report.
    Proposed Rule 21F-2(d)(3) would carry forward existing Rule 21F-
2(b)(1)(iii) \169\ without substantive change. That provision states 
that the anti-retaliation protections apply regardless of whether a 
person satisfies the procedures and conditions to qualify for an award 
described in Rules 21F-4, 21F-8, and 21F-9 (such as, for example, 
submitting the information to the Commission using the electronic TCR 
portal on whe Commission's website or completing the required 
declaration as to the accuracy of the information submitted in the 
whislteblower's tip).
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    \169\ 17 CFR 240.21F-2(b)(1)(iii).
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    Proposed Rule 21F-2(d)(4) would carry forward existing Rule 21F-
2(b)(2) \170\ without substantive change. That provision states that 
the retaliation prohibition in Section 21F(h)(1) \171\ and the rules 
thereunder shall be enforceable in an action or proceeding brought by 
the Commission.
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    \170\ 17 CFR 240.21F-2(b)(2).
    \171\ 15 U.S.C. 78u-6(h)(1).
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    To illustrate how we anticipate proposed Rule 21F-2 would operate 
in practice, consider the following hypothetical scenario: An employee 
at a

[[Page 34721]]

publicly traded issuer overhears a conversation by colleagues 
discussing a scheme to create an artificial boost for reported sales. 
The employee investigates and discovers that sales invoices are being 
generated without any corresponding movement of inventory, and then 
reports the possible misconduct to the issuer's chief compliance 
officer. But a week passes without any action being taken on the 
report. If the Commission then receives an email from that employee in 
which the employee reports the same possible misconduct, and in sending 
the email the employee reasonably believed that the report relates to a 
possible securities laws violation, then the employee would qualify as 
a whistleblower under Rule 21F-2(a) and would be eligible for anti-
retaliation protections under Rule 21F-2(d)(1)(i)-(ii) as of the time 
the employee provides the information to the Commission. Assuming that 
the employee's internal report was within the scope Section 806(a) of 
Sarbanes-Oxley, that internal report itself would be a protected 
``lawful act'' under Rule 21F-2(d)(1)(iii). The fact that the employee 
made the internal report before the Commission report would not make a 
difference for anti-retaliation protections under Rule 21F-2(d)(2). 
That said, if the employee wanted to be eligible for an award under 
Rule 21F-2(b) and to qualify for confidentiality protections under Rule 
21F-2(c), he or she would need to make his or her first report of that 
information to the Commission using Form TCR or through the online 
portal at www.sec.gov, as required by Rule 21F-9(a), and not through an 
email to the Commission. To qualify for an award, the employee would 
additionally need to comply with the procedures and the conditions 
described in Rules 21F-4, 21F-8, and 21F-9.
Request for Comment
    20. Is it reasonable to require that an individual provide 
information to the Commission ``in writing'' to qualify as a 
whistleblower? Is this approach either too restrictive or too broad? 
Are there situations in which only some other form of communication 
would be possible or preferred? Please explain.
    21. Should our whistleblower rules enumerate any other ``manner'' 
of providing information to the Commission for purposes of anti-
retaliation protection? For example, should our rules enumerate 
testifying under oath in an investigation or judicial or administrative 
action of the Commission as an additional ``manner'' of providing 
information to the Commission? \172\
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    \172\ See Digital Realty, 138 S. Ct. at 781 (``Nothing in 
today's opinion prevents the agency from enumerating additional 
means of SEC reporting--including through testimony protected by 
clause (ii)'' of Section 21F(h)(1)(A).).
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    22. Does the proposed rule reasonably require that the lawful acts 
done by the whistleblower must relate to the subject matter of the 
whistleblower's submission to the Commission in order for the 
employment retaliation protections to apply? Should a different 
standard apply? Why or why not?
    23. Does the proposed rule appropriately address the timing of an 
individual's report to the Commission relative to the protected conduct 
and to any retaliation?
    24. In determining the amount of an award, the Commission considers 
participation in internal compliance systems. Given the change in anti-
retaliation protections, should the Commission still use this criteria 
in determining the size of whistleblower awards? Why or why not?
    25. Would it be necessary or appropriate to specify additional 
types of misconduct that fall within the prohibition in Section 
21F(h)(1)(A) against ``any other manner [of] discriminat[ion] against[ 
] a whistleblower''? For example, should our rules clarify that if an 
employer rejects a prospective employee, or a past employer attempts to 
cause such rejection, because that individual had engaged in activity 
protected under Rule 21F-2, this would be a form of retaliation covered 
by Section 21F(h)(1)(A)? \173\
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    \173\ The Supreme Court has held that a former employer's 
retaliatory negative reference was actionable under Title VII. See, 
e.g., Robinson v. Shell Oil Co., 519 U.S. 337, 346 (1997). Other 
federal anti-retaliation statutes have been held to cover such 
conduct, which is often referred to as ``blacklisting.'' See Black's 
Law Dictionary (10th ed. 2014) (defining ``blacklist'' as ``[t]o put 
the name of (a person) on a list of those who are disfavored and are 
therefore to be avoided or punished,'' and giving as an example, 
``the firm blacklisted the former employee''). The Department of 
Labor's regulations implementing Section 806 of the Sarbanes-Oxley 
Act of 2002 expressly prohibit ``blacklisting'' of an employee, 29 
CFR 1980.102(a), and define an ``employee'' as ``an individual 
presently or formerly working for a covered person, an individual 
applying to work for a covered person, or an individual whose 
employment could be affected by a covered person.'' Id. Sec.  
1980.101(g). In relevant part, Section 806 of the Sarbanes-Oxley Act 
is similar to Section 21F(h), providing that no covered entity or 
person may discharge, demote, suspend, threaten, harass, or in any 
other manner discriminate against an employee in the terms and 
conditions of employment, and, under Section 21F(h)(1)(A), that no 
employer may discharge, demote, suspend, threaten, harass, directly 
or indirectly, or in any other manner discriminate against, a 
whistleblower in the terms and conditions of employment.
    Both statutes broadly prohibit ``any . . . manner'' of 
discrimination in the terms or conditions of employment. See also 
Wanamaker v. Columbian Rope Co., 108 F.3d 462, 466 (2d Cir. 1997) 
(noting that former employees can state a claim for retaliation 
under the Age Discrimination in Employment Act for 
``blacklist[ing]''); Boscarello v. Audio Video Sys., Inc., 784 F. 
Supp. 2d 577, 582 (E.D. Va. 2011) (former contractor stated a 
retaliation claim under the Fair Labor Standards Act against former 
employer by alleging blacklisting).
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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) \174\
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    \174\ The Commission anticipates that proposed Rule 21F-8(d)(1), 
if adopted, would apply only in connection with submissions of 
information that are made by an individual after the effective date 
of the proposed rules. Further, the Commission preliminarily 
anticipates that proposed Rule 21F-8(d)(2), 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.
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    Currently an applicant seeking to submit information to the 
Commission in order to qualify as a whistleblower (for purposes of the 
award and confidentiality components of the whistleblower program) must 
submit this information by using one of two methods: (1) By providing 
the information through an online portal on the Commission's website, 
or (2) by submitting the paper Form TCR that was adopted by the 
Commission as part of the original whistleblower rulemaking in 
2011.\175\ Periodically the Commission has determined that it would be 
beneficial to modify the online portal. However, this has resulted in 
discrepancies forming over time between the information collected 
through the online portal and that elicited by Form TCR.
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    \175\ See Exchange Act Rule 21F-9(a), 17 CFR 240-21F-9(a). Under 
the proposed amendments to Exchange Act Rule 21F-2, 17 CFR 240.21F-
2, these procedures will remain necessary in order for a 
whistleblower to be eligible for an award and to obtain the 
confidentiality protections afforded by Exchange Act Section 
21F(h)(2), 15 U.S.C. 78u-6(h)(2), even though an individual's status 
as a ``whistleblower'' would no longer turn on compliance with these 
procedures.
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    To provide the Commission with the ability to make timely 
corresponding adjustments to the Form TCR when the Commission 
determines to modify the online portal, the Commission proposes to 
modify Exchange Act Rule 21F-8 \176\ by adding a new paragraph (d)(1) 
providing that the Commission will periodically designate on the 
Commission's web page a Form TCR

[[Page 34722]]

(Tip, Complaint, or Referral) that individuals seeking to be eligible 
for an award through the process identified in Sec.  240.21F-9(a)(2) 
shall use.
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    \176\ 17 CFR 240.21F-8.
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    In addition to the paper Form TCR, the Commission also adopted a 
paper Form WB-APP when it adopted the existing rules for the 
whistleblower program. Individuals seeking awards must make their award 
request using Form WB-APP. Like Form TCR, Form WB-APP can only be 
modified by amending the Code of Federal Regulations. However, we 
believe that it may be beneficial to provide the Commission with 
greater administrative flexibility to modify the form. Providing the 
Commission with the ability to modify the form's informational 
requirements in a timely fashion should also help promote the program's 
overall efficiency. Accordingly, the Commission proposes to modify 
Exchange Act Rule 21F-8 by adding a new paragraph (d)(2) providing the 
Commission will also periodically designate on the Commission's web 
page a Form WB-APP for use by individuals seeking to apply for an award 
in connection with a Commission covered judicial or administrative 
action (15 U.S.C. 21F(a)(1)), or a related action (Sec.  240.21F-
3(b)(1) of the chapter).
    In proposing this additional flexibility, we note that both Form 
TCR and Form WB-APP elicit information used by the Commission to 
administer its whistleblower award program and are not public 
disclosure documents. Moreover, we anticipate that the forms designated 
on the Commission's website for use in the whistleblower program would 
be substantially similar to those currently referenced in the Code of 
Federal Regulations.
    In accordance with the changes discussed above, the following 
corresponding amendments would be made. First, the Form TCR \177\ that 
the Commission adopted when it promulgated its whistleblower rules in 
2011 would be repealed and the parenthetical Code of Federal Regulation 
citations to that form in Exchange Act Rule 21F-9(c) \178\ and Rule 
21F-12(a)(2) \179\ would be removed. Second, the existing Form WB-APP 
currently referenced in the Code of Federal Regulations would be 
repealed and Rule 21F-10,\180\ Rule 21F-11,\181\ and Rule 21F-12 \182\ 
would be amended by removing the parenthetical references found 
throughout those rules to the Code of Federal Regulation citation to 
the current Form WB-APP.
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    \177\ 17 CFR 249.1800.
    \178\ 17 CFR 21F-9(c).
    \179\ 17 CFR 21F-12(a)(2).
    \180\ 17 CFR 21F-10.
    \181\ 17 CFR 21F-11.
    \182\ 17 CFR 21F-12.
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Request for Comment
    26. Are there any additional considerations or limitations that the 
Commission should consider in connection with the proposed rule change? 
For example, should we provide that any revisions to paper Form TCR or 
Form WB-APP shall not take effect for a 30-day period after posting on 
the Commission website?

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 \183\
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    \183\ The Commission anticipates these proposed rule changes 
would apply only to whistleblower submissions that are made after 
the effective date of the proposed rules.
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    In our experience implementing the whistleblower award program to 
date, a small number of claimants have imposed an undue burden on the 
award determination process by submitting dozens and in some cases over 
a hundred award applications that lack any colorable connection between 
the tip that they provided and the Commission enforcement actions for 
which they are seeking awards. Processing these frivolous award 
applications uses staff resources that could otherwise be devoted to 
potentially meritorious award applications. Beyond the diversion of 
staff resources, we have found that, by utilizing the procedural 
opportunities to object to an award, these repeat applicants can 
significantly delay the processing of meritorious award applications 
and the eventual payment of awards.
    To prevent these repeat submitters from continuing to abuse the 
award application process to the detriment of potentially meritorious 
applicants, we believe that it would be appropriate to adopt a rule 
that would permit the Commission to permanently bar any applicant from 
seeking an award after the Commission determines that the applicant has 
abused the process by submitting three frivolous award 
applications.\184\ Specifically, under our proposal, if an applicant 
submits three or more award applications for Commission actions that 
the Commission finds to be frivolous or lacking a colorable connection 
between the tip (or tips) and the Commission action, the Commission may 
permanently bar the applicant from submitting any additional award 
applications (either for Commission actions or related actions) and the 
Commission would not consider any other award applications that the 
claimant has submitted or may seek to submit in the future.\185\
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    \184\ We are relying on our broad rulemaking authority to 
propose the amendments in this section. As noted earlier, 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, and has long been 
understood to provide the Commission with broad authority to issue 
rules and regulations carrying the force of law.
    \185\ Under the proposed rule, the Commission would not consider 
any applications made for related actions in assessing whether an 
applicant has submitted three or more award applications that are 
frivolous or lack any colorable connection between the tip and the 
enforcement action. The Commission would assess only applications 
submitted for Commission actions.
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    The proposed rule would expressly provide, however, that the Office 
of the Whistleblower shall as an initial matter (i.e., before any 
preliminary determination or preliminary summary disposition would be 
issued) advise any claimant of the Office's assessment that the 
claimant's award application for a Commission action is frivolous or 
lacking a colorable connection between the tip and the action for which 
the individual has sought an award. If the applicant withdraws the 
application at that time, it would not be considered by the Commission 
in determining whether to exercise its authority to impose a bar for 
three or more frivolous applications or applications lacking a 
colorable connection between the tip and the Commission action for 
which the award was sought.
    In addition, the proposed rule would codify the Commission's 
current practice with respect to applicants who violate Rule 21F-
8(c)(7).\186\ That rule provides that an applicant shall be ineligible 
for an award if, in the whistleblower's submission, his or her other 
dealings with the Commission, or his or her dealings with another 
authority in connection with a related action, he or she knowingly and 
willfully make any false, fictitious, or fraudulent statement or 
representation, or use any false writing or document knowing that it 
contains any false, fictitious, or fraudulent statement or entry with 
intent to mislead or otherwise hinder the Commission or

[[Page 34723]]

another authority.\187\ The Commission has issued two final orders that 
have permanently barred the applicants from submitting any further 
whistleblower award applications based on violations of Rule 21F-
8(c)(7). The proposed rule would clarify and codify the Commission's 
authority to bar applicants by providing that if the Commission finds 
that a claimant has violated paragraph (c)(7) of Rule 21F-8, the 
Commission may permanently bar the applicant from making any future 
award applications, and shall decline to process any other award 
applications that the claimant has already submitted.
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    \186\ 17 CFR 240.21F-8(c)(7).
    \187\ See Exchange Act section 21F(i), 15 U.S.C. 78u-6(i).
---------------------------------------------------------------------------

    In our view, it is appropriate to assess whether an applicant who 
engages in egregious behavior vis-[agrave]-vis the Commission in 
violation of Rule 21F-8(c)(7) should be permanently ineligible from 
obtaining an award. Such egregious conduct can result in the 
unnecessary and wasteful diversion of staff resources and in extreme 
cases it may expose investors and the public to potential harm 
(particularly where the misconduct concerns ongoing Commission law-
enforcement actions).\188\ Moreover, we believe that this proposed rule 
could discourage individuals from engaging in the egregious conduct 
prohibited by Rule 21F-8(c)(7), particularly when they are submitting 
their award applications, because they should recognize that it may not 
only lead to a denial of their current award claim but may also 
permanently disqualify them from obtaining a whistleblower award.
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    \188\ Importantly, the proposed rule would apply to false, 
fictitious, or fraudulent representations, statements, or documents 
beyond those made in connection with an award determination. For 
example, if the Commission finds that an individual knowingly or 
willfully made a false representation in testimony to the Commission 
in one matter, the Commission could bar that individual in 
connection with a whistleblower award submitted by that individual 
for an entirely separate matter. In this way, we believe that the 
proposed rule would provide an important additional incentive for 
individuals to behave truthfully and honestly with the Commission in 
all aspects of their dealings with the agency.
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    Under the proposed rule, the Commission would consider a permanent 
bar in the context of processing an award application. We expect that 
the preliminary determination or preliminary disposition addressing the 
award application would include a recommendation that the applicant be 
permanently barred; this should serve to place the applicant on notice 
that a bar is being considered and afford the applicant an opportunity 
to advance any arguments in connection with a potential bar before the 
Commission issues a final order.\189\
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    \189\ We do not intend to foreclose the potential that the 
Commission could impose such a bar in the context of a formal 
adjudicatory proceeding to which the individual was a respondent if 
the Enforcement Division made such a request and the parties 
litigated it before the Commission.
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Request for Comment
    27. Is it appropriate for OWB to advise a claimant of the Office's 
assessment that the claimant's award application for a Commission 
action is frivolous, and to offer the claimant the opportunity to 
withdrawal his or her award application(s), such that the 
application(s) would not be considered by the Commission in determining 
whether to impose a bar?
    28. Is it appropriate for the Commission to adopt a rule that would 
permanently bar any applicant after he or she has been found by either 
the Commission to have submitted at least three frivolous award 
applications? Should the number of frivolous award applications be 
fewer or greater before a bar would be imposed?
    29. Are there any additional procedures, considerations, or 
limitations that the Commission should consider in connection with the 
proposed rule change?

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) \190\
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    \190\ The Commission anticipates these proposed rule changes, if 
adopted, would apply only in connection with submissions of 
information that are made by an individual to qualify as a 
whistleblower after the effective date of the proposed rules.
---------------------------------------------------------------------------

    As noted above, Exchange Act Rule 21F-9(a) \191\ currently provides 
that to qualify as a whistleblower an individual may submit information 
about a possible securities law violation by one of two methods: ``(1) 
Online, through the Commission's website located at www.sec.gov,'' or 
``(2) [b]y mailing or faxing a Form TCR (Tip, Complaint or Referral) 
(17 CFR 249.1800) to the SEC Office of the Whistleblower, 100 F Street 
NE, Washington, DC 20549-5631, Fax (703) 813-9322.'' We propose to 
amend this rule to conform to the proposed amendments to Exchange Act 
Rule 21F-2 and to clarify that online submissions must be made through 
the Commission's online TCR portal. Similarly, we propose to revise the 
rule text to provide the Commission additional discretion in 
designating where paper Form TCRs may be sent and how whistleblowers 
may submit information to the Commission to qualify for an award or 
confidentiality protections.
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    \191\ 17 CFR 240.21F-9(a).
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    The revised language in Rule 21F-9(a) would provide that to submit 
information in a manner that satisfies Sec.  240.21F-2(b) and (c) of 
the chapter, an individual must submit his or her information to the 
Commission by either of these methods: (1) Online, through the 
Commission's website located at www.sec.gov, using the Commission's 
electronic TCR portal (Tip, Complaint or Referral); (2) by mailing or 
faxing a Form TCR to the SEC Office of the Whistleblower at the mailing 
address or fax number identified on the SEC's web page for making such 
submissions; or (3) by any other such method that the Commission may 
expressly designate on its website as a mechanism that satisfies Sec.  
240.21F-2(b) and (c).\192\ We believe that the clarifications and 
flexibility afforded by the proposed revisions should help to make the 
whistleblower program more user-friendly for potential 
whistleblowers.\193\ New paragraph (b)(3) would, among other things, 
afford the Commission discretion to identify alternative mechanisms for 
submitting information in instances where, for example, the 
Commission's on-line portal may be unavailable due to a maintenance or 
replacement.\194\
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    \192\ For purposes of the Exchange Act Rule 21F-12(a)(2), which 
provides that a ``whistleblower's Form TCR'' may be included within 
the administrative record upon which the Commission relies in 
considering a whistleblower award application, the reference to Form 
TCR in this rule refers to both the online submission made through 
the Commission's electronic TCR portal and the paper Form TCR.
    \193\ The changes that we are proposing to Exchange Act Rule 
21F-2, 17 CFR 240.21F-2--specifically the unified definition of 
``whistleblower'' that would apply in the award, employment anti-
retaliation, and confidentiality contexts--as well as the amendments 
that we are proposing to Exchange Act Rule 9(a), 17 CFR 240.21F-
9(a), would render inapplicable on a going-forward basis the formal 
interpretation that the Commission issued in 2015 regarding the 
meaning of Exchange Act Rule 21F-9. See 80 FR 47829, 47830/1, 2015 
WL 4710732 (Aug. 10, 2015) (``Rule 21F-9(a) . . . specif[ies] the 
reporting procedures that must be followed by an individual who 
seeks to qualify as a whistleblower under Rule 21F-2(a). . . .'').
    \194\ We are making a conforming amendment to Exchange Act Rule 
21F-9(b), 17 CFR 240-21F-9(b), to make clear that if a whistleblower 
provides information pursuant to a method permited by proposed 
section 9(b)(3), the whistleblower must also complete the 
declaration required by Exchange Act Rule 21F-9(b).
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    We are also proposing to add new paragraph (e) to Exchange Act Rule 
21F-9 to clarify that the first time an individual provides information 
to the Commission that the individual will rely upon as a basis for 
claiming an award, the individual must provide that

[[Page 34724]]

information in accordance with the procedures specified in Rules 21F-
9(a) and (b). If an individual fails to do so, the individual will--
subject to the limited exception discussed below--be barred from 
subsequently resubmitting the same information to the Commission in 
accordance with Rules 21F-9(a) and (b) and seeking to obtain an award 
based on that information, even if the individual has previously 
qualified as a whistleblower under the proposed amendment to Rule 21F-
2(a) by submitting the information in some other written form.\195\ To 
date, this has been the approach that the Commission has followed in 
making award determinations.\196\ We believe that the proposed rule 
language would provide additional clarity to potential whistleblowers 
to further alert them to the importance of following the procedures 
specified in Rules 21F-9(a) and (b).\197\ In proposing this amendment, 
we observe that compliance with the procedures in Rules 21F-9(a) and 
(b) advances many programmatic purposes. These include allowing the 
Commission to promptly determine whether an individual who submits 
information is subject to heightened whistleblower confidentiality 
protections; helping the staff efficiently process the information and 
other documentation provided by the individual and assess its potential 
credibility; and assisting the Commission in eventually evaluating the 
individual's potential entitlement to an award.
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    \195\ To illustrate the intersection of proposed amended Rule 
21F-2(a) and proposed Rule 21F-9(e): An individual who provides the 
Commission with information about a possible violation of the 
federal securities laws in writing will qualify as a whistleblower 
and obtain the retaliation protections provided under Section 
21F(h)(1) of the Exchange Act, 15 U.S.C. 78u-6(h)(1). However, to be 
eligible for an award as to that information, the individual must 
make the initial submission of that information in accordance with 
the procedures set forth in Rules 21F-9(a) and (b); i.e., the 
individual must submit the information on Form TCR or through the 
Commission's online TCR portal and must execute the required 
declaration. The individual may remain award-eligible for any new 
information that is submitted in accordance with the Rule 21F-9 
procedures, but not for the information that was previously 
submitted without following those procedures.
    \196\ In a few instances, the Commission has allowed individuals 
to perfect a defective submission provided that the individual did 
so promptly and before any significant investigative steps had 
occurred with respect to the submission. Any opportunity to perfect 
a defective submission would, under the proposed rule, be governed 
by the limited exception provided therein (which is generally 
consistent with the opportunities the Commission has to date 
provided in allowing individuals to perfect their submissions).
    \197\ If the proposed amendments in this release are adopted, 
Exchange Act 21F-9(a) would be revised to provide that to submit 
information in a manner that satisfies Sec.  240.21F-2(b) and (c) of 
the chapter an individual must submit his or her information to the 
Commission by any of these methods: (1) Online, through the 
Commission's website located at www.sec.gov, using the Commission's 
electronic TCR portal (Tip, Complaint or Referral); (2) Mailing or 
faxing a Form TCR to the SEC Office of the Whistleblower at the 
mailing address or fax number designated on the SEC's web page for 
making such submissions; or (3) By any other such method that the 
Commission may expressly designate on its website as a mechanism 
that satisfies Sec.  240.21F-2(b) and (c). Based on the proposed 
modifications to Exchange Act Rule 21F-9(b), it would provide that, 
further, to be eligible for an award, the individual must declare 
under penalty of perjury at the time he or she submits the 
information pursuant to paragraph (a)(1), (2), or (3) of the section 
that the information is true and correct to the best of his or her 
knowledge and belief.
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    Proposed paragraph (e) would also incorporate a limited exception 
that would permit the Commission, in its sole discretion, to make an 
award to a whistleblower who failed to comply with the procedural 
requirements of Rules 21F-9(a) and (b) when the individual first 
provided information to the Commission. The limited exception permitted 
by paragraph (e) would provide that notwithstanding the foregoing, the 
Commission, in its sole discretion, may waive an individual's non-
compliance with paragraphs (a) and (b) of Rule 21F-9 if the Commission 
determines that the administrative record clearly and convincingly 
demonstrates that the individual would otherwise qualify for an award 
and the individual demonstrates that he or she complied with the 
requirements of paragraphs (a) and (b) within 30 days of the first 
communication with the staff about the information that the individual 
provided.\198\ There may be some situations where an individual will 
have provided information to the Commission about a potential 
securities law violation but may have failed to perfect his or her 
submission in accordance with the procedures required to be a 
whistleblower eligible for an award. For example, an individual may 
learn about a potential securities law violation that is about to occur 
and may telephonically inform the staff in an effort to permit the 
Commission to take action before the violation occurs. Similarly, the 
Office of the Whistleblower periodically receives letters from 
individuals seeking to report securities law violations and the Office 
will generally provide deficiency notices to these individuals to the 
extent that it appears that these individuals want to become 
whistleblowers eligible for an award.\199\ We believe that, to the 
extent that the information that any such individual might provide 
could be the basis for the Commission bringing a successful enforcement 
action, the Commission should have within its discretion the ability to 
make an award provided that the individual complies with Rules 21F-9(a) 
and (b) within 30 days of receiving a deficiency letter (or having any 
other communication with the staff concerning the information that the 
individual provided).\200\
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    \198\ By requiring that the Commission must find that the 
administrative record ``clearly and convincingly'' demonstrates that 
the individual would (but for the untimely compliance with the 
requirements of Exchange Act Rules 21F-9(a) and (b)) qualify for an 
award, we mean to make this discretionary mechanism available only 
in those cases where there can be no serious doubt about the 
individual's contribution to the successful action and the 
individual's compliance with the award criteria and eligibility 
conditions. Otherwise, in determining whether to employ its 
discretion, the Commission would have to potentially expend 
considerable staff time and effort carefully developing an 
administrative record and analyzing whether the applicant would have 
been a meritorious whistleblower, and only then turn to decide 
whether to exercise its discretion to waive what is otherwise a 
threshold procedural requirement.
    \199\ Individuals do not have an entitlement to a deficiency 
letter and their failure to receive one will not be deemed a basis 
to excuse their failure to comply with the terms of Exchange Act 
Rule 21F-2. It is each individual's own responsibility to comply 
with the requirements of the Commission's rules with respect to 
submitting information to qualify for an award.
    \200\ We believe that using a 30-day time period is sufficient 
here. We note that in connection with judicial proceedings 30-day 
filing deadlines are not uncommon--indeed, Congress itself provided 
only a 30-day window for unsuccessful whistleblowers to challenge a 
Commission final order denying their award application, see Exchange 
Act section 21F(f), 15 U.S.C. 78u-6(f)--and that our proposed Rule 
21F-18, discussed infra, affords a 30-day time period for applicants 
to respond to preliminary summary dispositions that would be issued 
under that proposed rule.
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Request for Comment
    30. Does proposed Rule 21F-9(a) provide additional clarity and 
flexibility that may help make the submission of information by 
potential whistleblowers more user-friendly? Are there any additional 
factors that the Commission should assess in connection with the 
proposed rule amendments?
    31. Please comment on the limited exception provided for in 
proposed Rule 9(e) appropriate. Should the exception be adopted? If so, 
should it be narrowed or broadened? Should the 30-day time period be 
extended or reduced?

[[Page 34725]]

I. Proposed Amendment to Rule 21F-12 Regarding the Materials That May 
Form the Basis of the Commission's Award Determination \201\
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    \201\ 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.
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    Rule 21F-12 \202\ lists the materials that the Commission and the 
Claims Review Staff (``CRS'') may rely upon to make a whistleblower 
award determination. We are proposing to make two clarifying amendments 
to that rule.
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    \202\ 17 CFR 240.21F-12.
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    First, Rule 21F-12(a)(3) \203\ currently permits the Commission and 
the CRS to rely upon the whistleblower's Form WB-APP, including 
attachments, and ``any other filings or submissions from the 
whistleblower in support of the award application.'' Based on this 
provision's silence as to the timeliness of such ``other filings or 
submissions,'' some whistleblower award claimants have submitted 
hundreds of pages of supplemental information on an ongoing basis even 
after expiration of the respective time periods for responding to a 
Notice of Covered Action or a Preliminary Determination, resulting in 
significant administrative burdens on the Office of the Whistleblower 
and potential delays to the whistleblower claims process. We believe 
that expressly excluding untimely supplemental submissions from 
consideration by the Commission and the CRS would incentivize 
applicants to make thorough submissions in the first instance when 
responding to the Notice of Covered Action and the CRS's Preliminary 
Determination (or a Preliminary Summary Disposition issued by the 
Office of the Whistleblower under Proposed Rule 21F-18, discussed 
infra), which should reduce these administrative burdens and the 
potential for delays to the claims process.
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    \203\ 17 CFR 240.21F-12(a)(3).
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    Accordingly, we propose amending Rule 21F-12(a)(3) to clarify that 
the Commission and the CRS (and the Office of the Whistleblower when 
processing a claim pursuant to proposed Rule 21F-18) may rely upon 
materials timely submitted by the whistleblower in response either to 
the Notice of Covered Action, to a request from the Office of the 
Whistleblower or the Commission, or to the Preliminary Determination. 
The deadline for filing a claim for a whistleblower award is ninety 
(90) days after the relevant Notice of Covered Action under Rule 21F-
10(a) & (b) \204\ and Rule 21F-11(a) & (b).\205\ Consistent with Rule 
21F-8(b),\206\ the Commission may specify a deadline when it requests 
additional information from the whistleblower in support of an award 
application. The time frame for responding to the Preliminary 
Determination is expressly established by Rule 21F-10(e) \207\ and Rule 
21F-11(e).\208\ Under our proposal, materials submitted outside those 
respective time frames would not be considered absent extraordinary 
circumstances excusing the delay.\209\
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    \204\ 17 CFR 240.21F-10(a) & (b).
    \205\ 17 CFR 240.21F-11(a) & (b).
    \206\ 17 CFR 240.21F-8(b).
    \207\ 17 CFR 240.21F-10(e).
    \208\ 17 CFR 240.21F-11(e).
    \209\ See Exchange Act Rule 21F-8(a), 17 CFR 240.21F-8(a).
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    Second, we propose amending Rule 21F-12(a)(6),\210\ which currently 
provides in pertinent part that the Commission and the Claims Review 
Staff in making an award determination may consider any ``documents or 
materials including sworn declarations from third-parties that are 
received or obtained by the Office of the Whistleblower to assist the 
Commission resolve the claimant's award application, including 
information related to the claimant's eligibility.'' We propose to 
modify this provision to clarify that it applies only to materials 
submitted by third parties, because some claimants have misinterpreted 
it as also encompassing materials submitted by the claimants 
themselves. Moreover, in light of the modification that we are 
proposing to Rule 21F-12(a)(3) to require that a claimant make a 
``timely'' submission in response to a Preliminary Determination, we 
believe that it is important to clarify that Rule 21F-12(a)(6) does not 
apply to information provided by whistleblowers.
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    \210\ 17 CFR 240.21F-12(a)(6).
---------------------------------------------------------------------------

Request for Comment
    32. Does the proposed amendment as to timeliness provide an 
appropriate safeguard against abusive supplemental filings by 
whistleblower award claimants?
    33. Do the proposed amendments provide sufficient clarity? Is there 
alternative language that might provide greater clarity about the 
materials that the Commission and the CRS may rely upon in making an 
award determination?

J. Proposed Amendment to Rule 21F-13 Regarding the Administrative 
Record on Appeal \211\
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    \211\ 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.
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    Rule 21F-13 \212\ describes the availability of judicial review and 
the record on appeal of a whistleblower award determination by the 
Commission. Rule 21F-13(b) provides that the record on appeal will 
consist of the Preliminary Determination (or a Preliminary Summary 
Disposition issued under proposed Rule 21F-18, discussed infra), the 
Final Order of the Commission, ``and any other items from those set 
forth in Rule 21F-12(a) of this chapter that either the claimant or the 
Commission identifies for inclusion in the record.'' \213\ That 
provision thus ensures that the record on appeal will include the 
materials described in Rule 21F-12(a) that were the basis for the 
Commission's award determination.
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    \212\ 17 CFR 240.21F-13.
    \213\ 17 CFR 240.21F-13(b).
---------------------------------------------------------------------------

    Some claimants have interpreted Rule 21F-13(b) as permitting them 
to designate materials for inclusion in the record on appeal that 
technically meet the descriptions in Rule 21F-12(a) but that were never 
actually before the Commission in issuing the Final Order. However, 
that interpretation creates significant tension with the basic 
principle of administrative law that, on appeal, ``the court's review 
is limited to the administrative record before the agency at the time 
of its decision.'' \214\ That interpretation also would inappropriately 
expand the record on appeal beyond the limits in Rule 16 of the Federal 
Rules of Appellate Procedure.\215\
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    \214\ EarthReports, Inc. v. FERC, 828 F.3d 949, 959 (D.C. Cir. 
2016).
    \215\ Rule 16(a) states,
    The record on review or enforcement of an agency order consists 
of:
    (1) The order involved;
    (2) any findings or report on which it is based; and
    (3) the pleadings, evidence, and other parts of the proceedings 
before the agency.
    Fed. R. App. P. 16(a)(1)-(3) (emphases added).
---------------------------------------------------------------------------

    As amended, Rule 21F-13(b) would eliminate the designation of items 
for inclusion in the record on appeal and instead would define the 
record on appeal in a manner that conforms more closely to Rule 16 of 
the Federal Rules of Appellate Procedure. Materials designated or 
submitted by a whistleblower for the first time after the Commission 
issues its Final Order

[[Page 34726]]

would not be deemed part of the administrative record.
    Under amended Rule 21F-13(b), the record on appeal therefore would 
include the Final Order of the Commission, any materials that were 
considered by the Commission in issuing the Final Order, and any 
materials that were part of the claims process leading from the Notice 
of Covered Action to the Final Order. In the interest of clarity, Rule 
21F-13(b) would specify that this includes, but is not limited to, the 
materials that are part of the claims process described in Rules 21F-10 
and 21F-11 and proposed Rule 21F-18: The Notice of Covered Action, 
whistleblower award applications filed by the claimant, the Preliminary 
Determination (or Preliminary Summary Disposition), materials that were 
considered by the Claims Review Staff in issuing the Preliminary 
Determination (or by the Office of the Whistleblower in issuing a 
Preliminary Summary Disposition), and materials that were timely 
submitted by the claimant in response to the Preliminary Determination 
(or the Preliminary Summary Disposition). Additional materials not 
specifically listed in the parenthetical in proposed Rule 21F-13(b) 
might become part of the claims process and therefore part of the 
record if, for example, the Office of the Whistleblower obtains 
materials from a third party and provides them to the Commission for 
its consideration in resolving a whistleblower award application. See 
Rule 21F-12(a)(6).
    In addition, we are proposing to amend the second sentence of Rule 
21F-13(b) to clarify that the record on appeal would not include any 
pre-decisional or internal deliberative process materials that are 
prepared exclusively to assist either the Commission or the CRS. That 
provision currently references only the Commission. This change would 
clarify the Commission's current practice in order to give greater 
clarity to claimants pursuing appeals.
    We also propose adding a third sentence to Rule 21F-13(b) providing 
that, when more than one claimant applies for an award under a single 
Notice of Covered Action, the Commission may exclude from the record on 
appeal any materials that exclusively concern any claimant other than 
the claimant who brought the appeal, as necessary to comply with the 
confidentiality protections in Section 21F(h)(2)(A) of the Exchange 
Act.\216\ This sentence would codify the Commission's current practice 
in order to give greater clarity to claimants pursuing appeals.
---------------------------------------------------------------------------

    \216\ 15 U.S.C. 78u-6(h)(2)(A).
---------------------------------------------------------------------------

Request for Comment
    34. We seek comments about whether the proposed language 
sufficiently conforms to Rule 16 of the Federal Rules of Appellate 
Procedure and whether alternative language would provide greater 
conformity or clarity.

K. Proposed Rule 21F-18 Establishing a Summary Disposition Process 
217
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    \217\ The Commission anticipates that proposed Rule 21F-18, if 
adopted, would apply to any whistleblower award application for 
which the Commission has not yet issued a Preliminary Determination 
as of the effective date of the proposed rules, as well as to any 
future award applications that might be filed.
---------------------------------------------------------------------------

    Over the course of the years that the Commission has implemented 
the whistleblower award program, it has become apparent to us that a 
significant number of award applications may be denied on relatively 
straightforward grounds because they do not implicate novel or 
important legal or policy questions. These grounds for denial include, 
among other things, the fact that the individual did not comply with 
the form-and-manner requirements as specified in Rule 21F-9 for 
submitting information to be eligible for an award, or that the 
information was not used by the staff responsible for investigating, 
preparing and litigating the covered action and thus the individual's 
information did not ``lead to'' the success of the covered action.
    In an effort to provide a more timely resolution of relatively 
straightforward denials, we are proposing a summary disposition 
process. This process would be in lieu of the claims adjudication 
processes that are specified in Rule 21F-10 and Rule 21F-11.\218\ The 
principal difference between the proposed summary disposition process 
and the existing processes specified in Rule 21F-10 and 21F-11 is that 
for a claim designated for summary disposition the CRS would not be 
involved in reviewing the record, issuing a Preliminary Determination, 
considering any written response filed by the claimant, or issuing the 
Proposed Final Determination; these functions would be assumed by the 
Office of the Whistleblower in an effort to streamline the Commission's 
consideration of denials that are relatively straightforward.
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    \218\ 17 CFR 240.21F-10; 17 CFR 240.21F-11.
---------------------------------------------------------------------------

    The proposed summary disposition process incorporates two other 
modifications that should help expedite the processing of denials. 
First, the 30-day period for replying to a Preliminary Summary 
Disposition would be shorter than the 60-day period for replying to a 
Preliminary Determination provided for by Rule 21F-10(e)(2) \219\ and 
21F-11(e)(2).\220\ We believe that this shorter period should be 
sufficient for a claimant to reply and that it is appropriate given 
that the matters subject to summary disposition should be relatively 
straightforward. Second, under the proposed summary disposition 
process, a claimant would not have the opportunity to receive the full 
administrative record upon which a Preliminary Denial would have been 
based. Instead, the Office of the Whistleblower would (to the extent 
appropriate given the nature of the denial) provide the claimant with a 
staff declaration that contains the pertinent facts upon which the 
Preliminary Summary Disposition is based. Given the relatively 
straightforward nature of the matters that would generally be eligible 
for summary disposition, we believe that this modification from the 
record-review process specified in Rules 21F-10 and 21F-11 should still 
afford any claimant a sufficient opportunity to provide a meaningful 
reply to a Preliminary Summary Denial. This should eliminate the delay 
that can arise when a claimant does not expeditiously request the 
record, thereby helping to further expedite the summary adjudication 
process.
---------------------------------------------------------------------------

    \219\ 17 CFR 240.21F-10(e)(2) (providing that if an individual 
decides to contest the Preliminary Determination, he or she must 
submit his or her written response and supporting materials within 
sixty (60) calendar days of the date of the Preliminary 
Determination, or if a request to review materials is made pursuant 
to paragraph (e)(1) of the section, then within sixty (60) calendar 
days of the Office of the Whistleblower making those materials 
available for your review.).
    \220\ 17 CFR 240.21F-11(e)(2). We believe that 30-day response 
period is sufficient and have considered the fact that judicial 
proceedings often rely on this same time period for filing 
responsive materials. See, e.g., Fed. R. of App. P. 31(a)(1) 
(establishing a default 30-day time period for an appellee or 
respondent to file a response brief to the appellant or petitioner's 
opening brief). See also Rule 450(a) of the SEC's Rules of Practice 
(providing that in adjudicatory proceedings pending before the 
Commission ``[o]pposition briefs shall be filed within 30 days after 
the date opening briefs are due'').
---------------------------------------------------------------------------

    The proposed summary disposition process would be available for any 
non-meritorious award application that falls within any of the 
following five categories: (1) Untimely award application; \221\ (2) 
noncompliance with the requirements of Rule 21F-9,\222\ which concerns 
the manner for submitting a tip to be eligible for an

[[Page 34727]]

award; (3) claimant's information was never provided to or used by the 
staff handling the covered action or the underlying investigation (or 
examination), and those staff members otherwise had no contact with the 
claimant; (4) noncompliance with Rule 21F-8(b),\223\ which requires an 
applicant to submit supplemental information that the Commission may 
require \224\ and to enter into a confidentiality agreement; and (5) 
failure to specify in the award application the submission that the 
claimant made pursuant to Rule 21F-9(a) \225\ upon which the claim to 
an award is based. In addition, the proposed rule would provide that 
other defective or non-meritorious award applications could be subject 
to the summary disposition process under appropriate circumstances.
---------------------------------------------------------------------------

    \221\ The time periods for submitting an award application are 
specified in Rule 21F-10(b) and Rule 21F-11(b). See 17 CFR 240.21F-
10(b) & 240.21F-11(b).
    \222\ 17 CFR 240.21F-9.
    \223\ 17 CFR 240.21F-8(b).
    \224\ The authority to require additional information of an 
applicant is delegated to the Office of the Whistleblower. See 17 
CFR 240.21F-10(d).
    \225\ 17 CFR 240.21F-9(a).
---------------------------------------------------------------------------

    Under the proposed summary disposition process, the Office of the 
Whistleblower would issue a Preliminary Summary Disposition denying an 
application. This Preliminary Summary Disposition would be in lieu of 
the Preliminary Determination that the Claims Review Staff would issue 
under Rule 21F-10 or Rule 21F-11. A claimant would then have a 30-day 
period to reply with a written response explaining the grounds for 
contesting the denial. Failure to file a timely written response would 
constitute a failure to exhaust the administrative process and the 
Preliminary Summary Disposition would automatically become the final 
order with respect to that applicant's award claim. If an applicant 
does file a timely response, the Office of the Whistleblower would 
consider the full record, including the applicant's response (and any 
materials the applicant timely submitted therewith), and prepare a 
Proposed Final Summary Disposition to be provided to the 
Commission.\226\ Similar to the procedure under Rule 21F-10 and 21F-11, 
the Commission would have thirty (30) days to consider the Proposed 
Final Summary Disposition; if no Commissioner requests that the full 
Commission consider the Proposed Final Summary Disposition within the 
30-day period, it would become the final order of the Commission. If a 
Commissioner does request full Commission consideration, the Commission 
would consider the matter and issue a final order. The Office of the 
Whistleblower would then notify the claimant of the final order.
---------------------------------------------------------------------------

    \226\ Although the CRS has to date approved all proposed final 
orders involving a challenge to a preliminary determination, we do 
not believe the absence of the CRS's role at the comparable stage of 
the proposed summary disposition process should have a meaningful 
impact given the relatively straight-forward nature of the claims 
that would be processed under the proposed rule. Further, as a 
matter of agency internal procedure, all proposed final orders are 
reviewed by the Office of the General Counsel and we anticipate that 
this review would occur in connection with all Proposed Summary 
Dispositions issued under this proposed rule, further reducing any 
potential negative impact from the elimination of the CRS's role.
---------------------------------------------------------------------------

    If the Commission has received more than one award application for 
a particular matter, the Office of the Whistleblower could use the 
summary disposition process for any of those award applications that 
qualify, even if other of the applications are subjected to the regular 
consideration processes specified in Rules 21F-10 and 21F-11. Even in 
the multiple whistleblower context, we believe that there could be 
efficiencies in summarily considering and disposing of applications 
that constitute reasonably straightforward denials. For example, this 
could free up staff resources to concentrate on the meritorious claims 
or the more difficult determinations. Relatedly, to the extent that a 
claim is denied under the summary disposition process while other 
claims may remain pending under the Rule 21F-10 or Rule 21F-11 process, 
this should allow the summarily denied claimant an earlier ability to 
exhaust his opportunities for judicial review.\227\ This, in turn, may 
potentially permit the Commission to more promptly pay any meritorious 
whistleblower on any award that may eventually result from the final 
order issued under the Rule 21F-10 or Rule 21F-11 process.\228\
---------------------------------------------------------------------------

    \227\ We note that, the Commission has consistently interpreted 
Rules 10 and 11 to require that all claims processed under those 
rules should be addressed in one omnibus final order. The summary 
disposition process that we are proposing would, we believe, permit 
a more expeditious adjudication of any relatively straightforward 
denials that might otherwise have been folded into a final order 
under Rule 10 or 11.
    \228\ Pursuant to Rule 21F-14(c)(2), 17 CFR 240.21F-14(c)(2), 
the Commission cannot pay an award to any meritorious whistleblower 
in a particular matter until the completion of the appeals process 
for all whistleblower award claims has been exhausted.
---------------------------------------------------------------------------

    Finally, the proposed rule would clarify that Rule 21F-12,\229\ 
which governs the items that may be considered when the Commission 
entertains an award application under Rule 21F-10 or Rule 21F-11, 
applies in the context of summary dispositions. Specifically, the 
proposed rule would state that ``[i]n considering an award 
determination pursuant to this rule, the Office of the Whistleblower 
and the Commission may rely upon the items specified in [Rule 21F-
12(a)]. Further, [Rule 21F-12(b)] applies to summary dispositions.''
---------------------------------------------------------------------------

    \229\ 17 CFR 240.21F-12.
---------------------------------------------------------------------------

Request for Comment
    35. We seek comments about the proposed summary disposition 
process, including whether the categories of award applications that 
would be eligible for summary disposition are appropriate, whether the 
proposal would afford claimants sufficient process, and whether there 
are any specific modifications that we should consider making to the 
proposed process.

L. Technical Amendment to Rule 21F-4(c)(2) \230\
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    \230\ The Commission anticipates this proposed rule change, if 
adopted, would apply to all new whistleblower award applications 
filed after the effective date of the amended final rules, as well 
as all whistleblower award applications that are pending and have 
not yet been the subject of a final order of the Commission by the 
effective date.
---------------------------------------------------------------------------

    We propose to amend Rule 21F-4(c)(2) \231\ concerning the 
definition of information that led to a successful enforcement action 
because it contains an erroneous cross-reference. The reference is 
intended to be to Rule 21F-4(b)(5) regarding the definition of original 
source. The rule currently refers to paragraph (b)(4) of the section.
---------------------------------------------------------------------------

    \231\ 17 CFR 240.21F-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) \232\
---------------------------------------------------------------------------

    \232\ 17 CFR 240.21F-4(b)(3). Although we are proposing this 
interpretive guidance for public comment, the Commission may 
determine to rely on the principles articulated therein for any 
whistleblower claims that are currently pending because we believe 
that this guidance clarifies the existing rules that define and 
apply the term ``independent analysis.''
---------------------------------------------------------------------------

    Two core requirements of the whistleblower award program are: (1) 
That the whistleblower must have provided ``original information'' to 
the Commission; and (2) that such information must have ``led to'' the 
successful enforcement of an action. Congress defined ``original 
information'' in relevant part as information that is derived from 
either a whistleblower's ``independent knowledge'' or the 
whistleblower's independent ``analysis.'' This guidance addresses the 
potential availability of a whistleblower award in cases where 
information provided by a whistleblower is not based on the 
whistleblower's

[[Page 34728]]

``independent knowledge'' but, instead, is premised on information 
derived from the whistleblower's ``independent analysis'' of publicly 
available information. Such cases implicate both the scope of the 
independent analysis prong of the ``original information'' requirement 
and what is necessary for independent analysis to ``lead to'' the 
successful enforcement of an action.
    In formulating our views on how a whistleblower may satisfy the 
requirement of ``original information'' through the alternative of 
``independent analysis,'' we have considered Congress's and the 
Commission's determinations to substantially restrict any role for 
publicly available information in potential whistleblower awards. When 
the Commission in 2011 adopted the rules implementing the whistleblower 
program, it explained that paying awards for publicly available 
information was not consistent with Congress's purpose in establishing 
the program. Specifically, the Commission stated that ``Congress 
primarily intended our program `to motivate those with inside knowledge 
to come forward and assist the Government to identify and prosecute 
persons who have violated the securities laws[.]' '' \233\ The 
Commission further acknowledged that Congress sought to make awards 
available in cases where ``highly-probative, expert analysis of data . 
. . suggest[s] an important new avenue of inquiry, or otherwise 
materially advance[s] an existing investigation.'' \234\ But 
critically, the Commission made clear that, in its view, Congress did 
not intend to base awards ``on information that is available to the 
general public.'' \235\
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    \233\ 76 FR 34300, 34311/3.
    \234\ Id. at 34312/3.
    \235\ Id. at 34311/3. We note that although publicly available 
information may not serve as the basis for an award, the provision 
of such information to the Commission can be an important public 
service.
---------------------------------------------------------------------------

    Independent Analysis Standard. Consistent with these understandings 
of congressional intent and consistent with the Commission's views when 
it adopted the definition of ``original information'' in the original 
whistleblower rulemaking, we are proposing the following standard: In 
order to qualify as ``independent analysis,'' a whistleblower's 
submission must provide evaluation, assessment, or insight beyond what 
would be reasonably apparent to the Commission from publicly available 
information. In assessing whether this requirement is met, the 
Commission would determine based on its own review of the relevant 
facts during the award adjudication process whether the violations 
could have been inferred from the facts available in public sources. 
While we recognize that this standard does not constitute a bright 
line, we believe that it should provide a solid foundation for the 
Commission to apply when assessing awards involving potential 
independent analysis.
    The Independent Analysis Must ``Lead to'' the Success of the 
Enforcement Action. Even when this standard is met, however, a 
whistleblower's independent analysis must still have ``led to'' a 
successful covered enforcement action. This standard requires an 
assessment of whether the whistleblower's analysis--as distinct from 
the publicly available information on which the analysis was based--
either (1) was a principal motivating factor in the staff's decision to 
open its investigation, or (2) made a substantial and important 
contribution to the success of an existing investigation.
    In the sections that follow, we explain the relevant background and 
reasoning for the standards that we have set forth above.

A. Background: ``Original Information'' and Publicly Available 
Information

    In formulating this guidance, we have considered the qui tam 
provisions of the False Claims Act,\236\ the federal government's 
principal bounty statute and an important forerunner of the 
Commission's whistleblower award authority.\237\ The False Claims Act 
requires that qui tam relators must provide their own, independent 
information--and not publicly available information--in order to avoid 
the so-called ``public disclosure bar.'' \238\ Specifically, in its 
present form (and excluding one exception that is not relevant here 
\239\), the public disclosure bar requires a court to dismiss a qui tam 
action ``if substantially the same allegations or transactions as 
alleged in the action or claim were publicly disclosed'' in certain 
designated sources.\240\
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    \236\ 31 U.S.C. 3730.
    \237\ See Proposed Rules for Implementing the Whistleblower 
Provisions of Section 21F of the Securities Exchange Act of 1934, 
Release No. 34-63237, 75 FR 70488, 70491 n.14 (Nov. 3, 2010) (noting 
that cases interpreting the qui tam provisions of the False Claims 
Act can provide helpful guidance in the interpretation of Section 
21F, though not necessarily controlling or authoritative in all 
circumstances).
    \238\ See Graham County Soil and Water Conservation Dist. v. 
United States ex rel. Wilson, 559 U.S. 280, 294 (2010) (explaining 
that, through the public disclosure bar, Congress sought ``the 
golden mean between adequate incentives for whistle-blowing insiders 
with genuinely valuable information and discouragement of 
opportunistic plaintiffs who have no significant information to 
contribute of their own'') (quoting, United States ex rel. 
Springfield Terminal Railway v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 
1994)).
    \239\ 31 U.S.C. 3730(4)(A).
    \240\ Not all public sources of information implicate the public 
disclosure bar. The sources specified in the statute are a Federal 
criminal, civil, or administrative hearing in which the Government 
or its agent is a party; a congressional, Government Accountability 
Office, or other Federal report, hearing, audit, or investigation; 
or the news media. There is a limited exception for situations where 
the qui tam relator was an original source of the information. 31 
U.S.C. 3730(e)(4)(A).
---------------------------------------------------------------------------

    In Section 21F, Congress similarly limited awards to ``original 
information''--defining the term to require a whistleblower's own, 
independent information rather than publicly available 
information.\241\ While not taking precisely the same approach as in 
the False Claims Act, Congress nonetheless required that ``original 
information'' for purposes of the Commission's award program must not 
be exclusively derived from the news media or certain other public 
sources.\242\ Further, Congress affirmatively required that ``original 
information'' be derived from a whistleblower's ``independent knowledge 
or analysis.'' \243\ The Senate report issued in connection with Dodd-

[[Page 34729]]

Frank, which enacted Section 21F,\244\ explained Congress's expectation 
that in order to obtain an award a whistleblower would be required to 
provide the ``critical components'' of information that supported an 
enforcement action beyond any information about the matter that was 
publicly available.\245\
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    \241\ Although the term ``original information'' does not appear 
in the False Claims Act, courts have used the term to differentiate 
a qui tam relator's own, independent information upon which an award 
may be based from information that is available in the designated 
public sources. See, e.g., United States ex rel. Colquitt v. Abbott 
Labs, 858 F.3d 365, 374-75 (5th Cir. 2017); United States v. Walker, 
438 F. A'ppx 885, 888 (11th Cir. 2011); United States ex rel. JDJ 
and Associates LLP v. Natixis, 2017 U.S. Dist. Lexis 164106, *33 
(S.D.N.Y. 2017). In United States ex rel. Marcus v. Hess, 317 U.S. 
537 (1943), a seminal False Claims Act case that prompted Congress 
to enact a forerunner of the public disclosure bar, the Court 
permitted a qui tam suit to proceed where the same defendants had 
been criminally indicted for the same conduct alleged in the qui tam 
action. In dissent, Justice Jackson termed it a ``misuse of the 
statute'' to permit an action where the averments in the complaint 
substantially copied the indictment and it was not shown that the 
petitioner ``had any original information, that he added anything by 
investigations of his own, . . . .'' 317 U.S. at 558 (Jackson, J., 
dissenting). ``Original information'' as a term to describe 
information upon which an award may be based has been a part of 
various federal bounty statutes for more than 100 years. See, e.g., 
United States v. Simons, 7 F. 709 (E.D. Mich. 1881) (discussing 
statute that permitted awards for ``original information concerning 
any fraud upon the customs revenue'').
    \242\ 15 U.S.C. 78u-6(a)(3)(C). These other sources are 
allegations made in a judicial or administrative hearing, or in a 
governmental report, hearing, audit, or investigation (unless the 
whistleblower is a source of the information). Further, we note that 
both the False Claims Act and the Internal Revenue Service 
whistleblower statute permit discretionary awards of up to 10% in 
the event that the government proceeds with a case based principally 
on public disclosures. See 31 U.S.C. 3730(d)(1); 26 U.S.C. 
7623(b)(2)(A). Congress did not include any similar discretionary 
award authority in Section 21F.
    \243\ 15 U.S.C. 78u-6(a)(3)(A).
    \244\ Public Law 111-203, section 922(a), 124 Stat. 1376, 1841 
(July 21, 2010).
    \245\ See S. Rep. No. 111-176 at 111 (2010). The Senate Report 
stated: `` `Original information' is defined as information that is 
derived from the independent analysis or knowledge of the 
whistleblower, and is not derived from an allegation in court or 
government reports, and is not exclusively from news media. In 
circumstances when bits and pieces of the whistleblower's 
information were known to the media prior to the emergence of the 
whistleblower, and that for the purposes of the SEC enforcement the 
critical components of the information was supplied by the 
whistleblower, the intent of the Committee is to require the SEC to 
reward such person(s) in accordance with the degree of assistance 
that was provided.''
---------------------------------------------------------------------------

    In promulgating rules to implement the whistleblower program, the 
Commission further restricted any role for publicly available 
information in a potential whistleblower award. While Congress had 
defined ``original information'' as that which is derived from a 
whistleblower's ``independent knowledge'' or ``independent analysis,'' 
Congress did not define either of these terms. The Commission's 
definitional rules, however, effectively preclude awards merely for the 
submission of publicly available information.
    First, the Commission excluded publicly available information as a 
source of a whistleblower's ``independent knowledge,'' which the 
Commission defined as ``factual information in [the whistleblower's 
possession] that is not derived from publicly available sources.'' 
\246\ At the adopting stage for the whistleblower rules, the Commission 
considered comments that were critical of this blanket exclusion and 
that recommended some allowance for particular kinds of public 
information.\247\ The Commission rejected such an approach and chose to 
adopt the broad exclusion of any publicly available information that 
had been proposed.\248\ Moreover, the Commission interpreted ``publicly 
available sources'' expansively to include not only sources that are 
widely disseminated (such as corporate press releases and filings, 
media reports, and information on the internet), but also sources that, 
though not widely disseminated, are generally available to the public 
(such as court filings and documents obtained through Freedom of 
Information Act requests).\249\
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    \246\ 17 CFR 240.21F-4(b)(2) (emphasis added).
    \247\ For example, one commenter suggested that the Commission 
should exclude only information from sources such as news media and 
governmental reports that are specifically set forth in the statute. 
See Securities Whistleblower Incentives and Protections, Release No. 
34-64545, 76 FR 34300, 34311/3 (June 13, 2011) (citing comment 
letter from Taxpayers Against Fraud).
    \248\ Id.
    \249\ 76 FR 34300, 34311/1.
---------------------------------------------------------------------------

    Second, in defining the term ``independent analysis,'' the 
Commission permitted a whistleblower to employ publicly available 
information, but required that the whistleblower produce insights that 
are non-public, providing that independent analysis means an 
individual's own analysis, whether done alone or in combination with 
others and analysis means an individual's examination and evaluation of 
information that may be publicly available, but which reveals 
information that is not generally known or available to the 
public.\250\
---------------------------------------------------------------------------

    \250\ 17 CFR 240.21F-4(b)(3).
---------------------------------------------------------------------------

    Significantly, the Commission considered--and rejected--a 
suggestion that the proposed definition of ``independent analysis'' be 
revised to permit an award to a whistleblower whose tip brings publicly 
available information to the staff's attention:

    We believe that ``independent analysis'' requires that the 
whistleblower do more than merely point the staff to disparate 
publicly available information that the whistleblower has assembled, 
whether or not the staff was previously ``aware of'' the 
information. ``Independent analysis'' requires that the 
whistleblower bring to the public information some additional 
evaluation, assessment, or insight.\251\

    \251\ 76 FR 34300, 34305, 34312/3.
---------------------------------------------------------------------------

    In setting forth the standard for ``independent analysis'' in this 
guidance, we are particularly mindful that the appropriate standard 
should be sufficiently demanding that it would not undermine the clear 
exclusion of public information from the definition of ``independent 
knowledge.'' Any other approach would, in our view, undermine the 
overall framework that was established by the Commission in 2011 when 
it adopted the definitions of ``independent knowledge'' and 
``independent analysis.''

B. ``Independent Analysis''

    As noted, the Commission defined ``analysis'' as the 
whistleblower's ``examination and evaluation of information that may be 
publicly available, but which reveals information that is not generally 
known or available to the public.'' \252\ Thus, if a whistleblower 
submits publicly available information in a TCR and alleges a fraud or 
other securities violations on the basis of that information, the 
Commission must determine whether the whistleblower's ``examination and 
evaluation'' of the publicly available information ``reveal[ed]'' the 
possible violations.
---------------------------------------------------------------------------

    \252\ 17 CFR 240.21F-4(b)(3).
---------------------------------------------------------------------------

    To ``reveal'' means to make something known that was previously 
secret or hidden, or to open something up to view.\253\ Accordingly, to 
be considered ``analysis,'' the whistleblower's submission must include 
some insight--beyond the existence of the publicly available 
information--that is revelatory; that is, the whistleblower's 
evaluation of the publicly available information should do the work of 
making known and opening up to view for the Commission the possible 
securities violations.
---------------------------------------------------------------------------

    \253\ See Merriam-Webster Dictionary, available at https://www.merriam-webster.com/dictionary/reveal; Oxford English 
Dictionary, available at https://en.oxforddictionaries.com/definition/reveal; Cambridge Dictionary, available at http://dictionary.cambridge.org/us/dictionary/english/reveal; Black's Law 
Dictionary (10th ed. 2014) (citing ``to reveal'' as one definition 
of ``disclose''); see also 15 U.S.C. 78u-6(h)(2)(A) (prohibiting the 
Commission or staff from disclosing information ``which could 
reasonably be expected to reveal the identity of a whistleblower. . 
. .'') (emphasis added).
---------------------------------------------------------------------------

    As a principal illustration of how to apply our rule on 
``independent analysis,'' we look to the model that Congress had before 
it at the time it enacted the whistleblower program; the work of Harry 
Markopolos in his efforts to expose Bernard Madoff's Ponzi scheme.\254\ 
Among other things, Markopolos brought to bear his expertise as a 
certified fraud examiner and his knowledge of the options markets to 
demonstrate that Madoff's purported investment strategy could not have 
produced his claimed investment returns.\255\ For example, in a 2000 
submission, beginning from the premise that Madoff purported to manage 
between $3 billion and $7 billion in assets pursuant to his ``split-
strike conversion'' strategy, Markopolos explained that the strategy as 
described

[[Page 34730]]

in public materials ``would require lots of options trading and lots of 
options in open interest'' \256\ for hedging purposes. Based upon his 
calculations of the total value of call option open interest on the 
Chicago Board Option Exchange and of OEX put option open interest, 
Markopolos revealed that ```hedging cannot be taking place as 
described. . . . [I]f only $3 billion are allocated to this strategy 
then there still aren't enough options in open interest for this type 
of hedging to occur, since Madoff would be at least \1/3\ of the open 
interest and we know that is not the case.' '' \257\ Similarly, in a 
2005 submission, Markopolos offered a specific mathematical 
illustration of how he believed the income and protection parts of 
Madoff's strategy would be expected to function under real-world market 
conditions, arguing that the income that might be expected from stock 
dividends and the sale of equity call options offset by the cost of 
purchasing put options, made Madoff's claimed returns ``way too good to 
be true.'' \258\ In the same submission, Markopolos also calculated 
that Madoff would have had to account for more than 100% of the total 
OEX put option open interest in order to hedge his stock holdings as 
depicted in certain marketing literature.\259\
---------------------------------------------------------------------------

    \254\ See S. Rep. No. 111-176 at 110 (2010) (citing to 
Markopolos's testimony).
    \255\ Markopolos also submitted a large amount of information 
that likely would have satisfied the ``independent knowledge'' prong 
of ``original information'' under Rule 21F-4(b)(2), 17 CFR 240.21F-
4(b)(2). For example, he described his own firm's inability to 
duplicate Madoff's returns using the same strategy and provided 
information about Madoff's claims and purported operations that he 
obtained from speaking with third parties who invested with Madoff. 
See Investigation of Failure of the SEC to Uncover Bernard Madoff's 
Ponzi Scheme, Report No. OIG-509 (Aug. 31, 2009) (``OIG Report''), 
Exh. 137, available at https://www.sec.gov/news/studies/2009/oig-509/oig-509_exhibits.htm.
    \256\ OIG Report, Exh. 134.
    \257\ OIG Report at 62, quoting Markopolos 2000 submission, Exh. 
134.
    \258\ OIG Report, Exh. 268.
    \259\ OIG Report, Exh. 268.
---------------------------------------------------------------------------

    Markopolos's submissions included information that would qualify as 
``independent analysis'' as defined in our whistleblower rules (and 
explained further in this guidance) if submitted today. Markopolos's 
information was ``highly-probative,'' \260\ going beyond the publicly 
available information itself to ``reveal'' that Madoff's claimed 
returns were unachievable under real market conditions. We anticipate 
that we may find a requisite level of ``analysis'' in analogous cases 
where an individual with a high level of specialized training or 
expertise reviews publicly available information and illuminates for 
the Commission possible violations that are obscured because of the 
technical nature of the source material.\261\
---------------------------------------------------------------------------

    \260\ 76 FR 34300, 34312/3.
    \261\ However, we caution that we expect this standard may be 
particularly demanding for attorneys and accountants who seek 
whistleblower awards based on their review of publicly available 
information. As the Enforcement staff is substantially comprised of 
experienced attorneys and accountants, an outside attorney or 
accountant would generally be expected to contribute insights or 
revelations that would not be reasonably evident to an accountant or 
attorney on the Enforcement staff who reviewed the same publicly 
available information.
---------------------------------------------------------------------------

    Importantly, this is not to suggest that ``independent analysis'' 
is limited to persons with technical expertise or other specialized 
training. In each case, the touchstone is whether the whistleblower's 
submission is revelatory in utilizing publicly available information in 
a way that goes beyond the information itself and affords the 
Commission with important insights or information about possible 
violations.
    While ``independent analysis'' is evident in Markopolos's tips, 
other submissions that utilize publicly available information may not 
be so clear. However, we believe that case law interpreting the False 
Claims Act's public disclosure bar generally suggests a helpful 
framework for distinguishing tips in which the whistleblower's 
``independent analysis'' of publicly available information reveals 
important information about possible violations beyond the public 
sources themselves. The public disclosure bar precludes recovery when 
``substantially the same allegations or transactions'' as alleged by 
the qui tam relator were previously disclosed publicly in one of the 
designated sources. The D.C. Circuit and other federal courts of 
appeals have held that fraudulent transactions are publicly disclosed--
and a qui tam suit thus barred--when essential facts that are 
sufficient to give rise to an inference of fraud are in the public 
domain.\262\ This rule bars qui tam suits when publicly disclosed 
information provides ``the government . . . [with] enough information 
`to investigate the case and to make a decision whether to prosecute' 
or . . . `could at least have alerted law-enforcement authorities to 
the likelihood of wrongdoing.' '' \263\ Conversely, where a qui tam 
relator ``supplie[s] the missing link between the public information 
and the alleged fraud,'' and thereby `` `bridge[s] the gap by [his] own 
efforts and experience,' the public disclosure bar does not apply.'' 
\264\ In this way, qui tam awards are reserved for relators who `` 
`contributed significant independent information' about a possible 
fraud.'' \265\
---------------------------------------------------------------------------

    \262\ See, e.g., United States ex rel. Oliver v. Philip Morris 
USA Inc., 826 F.3d 466, 471-73 (D.C. Cir. 2016), reh. en banc 
denied, 2016 U.S. App. Lexis 17161 (D.C. Cir. 2016); Amphastar 
Pharmaceuticals Inc. v. Aventis Pharma SA, 856 F.3d 696, 703 (9th 
Cir. 2017); Cause of Action v. Chicago Transit Authority, 815 F.3d 
267, 278 (7th Cir. 2016), cert. denied, 137 S. Ct. 205 (2016).
    \263\ Phillip Morris USA, 826 F.3d at 472; see also United 
States ex rel. Solis v. Millennium Pharms., Inc., 885 F.3d 623, 626 
(9th Cir. 2018) (``A prior disclosure and an allegation may be 
substantially similar when the prior public disclosure put the 
government `on notice to investigate the fraud before the relator 
filed his complaint.''').
    \264\ United States ex rel. Shea v. Cellco Partnership, 863 F.3d 
923, 935 (DC Cir. 2017).
    \265\ Id. at 933 (quoting United States ex rel. Springfield 
Terminal Railway v. Quinn, 14 F.3d 645, 653 (D.C. Cir. 1994)).
---------------------------------------------------------------------------

    Relying in part on the False Claims Act framework to assist us in 
formulating a proposed standard for interpreting Exchange Act Rule 21F-
4(b)(3), we believe the following is appropriate: A whistleblower's 
examination and evaluation of publicly available information does not 
constitute ``analysis'' if the facts disclosed in the public materials 
on which the whistleblower relies and in other publicly available 
information are sufficient to raise an inference of the possible 
violations alleged in the whistleblower's tip. This is because, where 
the violations that the whistleblower alleges can be inferred by the 
Commission from the face of public materials, those violations are not 
``reveal[ed]'' to the Commission by the whistleblower's tip or any 
purported analysis that the whistleblower has submitted. Rather, in 
order for a whistleblower to be credited with providing ``independent 
analysis,'' the whistleblower's examination and evaluation should 
contribute ``significant independent information'' that ``bridges the 
gap'' between the publicly available information and the possible 
securities violations.
    As noted, ``significant independent information'' that ``bridges 
the gap'' in revealing violations may be found in the application of 
technical expertise, but this is not required.\266\ However, we have 
received tips in which a whistleblower merely offers observations drawn 
from publicly available information. In these cases, the whistleblower 
typically directs the staff to publicly available information and 
states that the information itself suggests a fraud or other 
violations. Examples would be where the whistleblower points to common 
hallmarks of fraud on the face of the public materials (e.g., 
impossibly high, guaranteed investment returns or extravagant claims in 
press releases) or to public discourse (e.g., discussions on a public 
message board) in which investors or others are alleging a fraudulent 
scheme. Further, it would not matter whether the individual relied on 
only one source (e.g., a single website) to collect the publicly 
available information that demonstrates the

[[Page 34731]]

hallmarks of the fraud, or whether the individual relied on a multitude 
of different publicly available sources to collect the information. 
These tips generally would not qualify as ``independent analysis'' 
under our interpretation because the whistleblower's essential 
contribution is merely that he or she directed the staff to publicly 
available information that gives rise to an inference of violations; 
the whistleblower's tip has not ``bridged the gap'' between public 
information that does not itself provide a basis for inferring a 
possible violation and a conclusion that a violation may have occurred. 
Further, we believe that this same result would generally obtain 
whether the whistleblower directs the staff to a single piece of 
publicly available information or the whistleblower aggregates 
information from multiple different sources.\267\ If the violations can 
be inferred by the Commission from the available and/or assembled 
publicly available information, without more, then the whistleblower 
has not contributed significant independent information that reveals 
the violations.\268\
---------------------------------------------------------------------------

    \266\ For example, non-experts may configure publicly available 
information in a non-obvious way that reveals patterns indicating 
possible violations that would not be otherwise inferable from the 
public information or may engage in highly probative calculations or 
some other meaningful exercise with the information that may 
demonstrate the possibility of securities violations.
    \267\ As noted above, we explained in the adopting release for 
our whistleblower rules that a whistleblower would need to do more 
than point us to disparate public information in order to provide 
``independent analysis'' within the meaning of our rule. 76 FR 
34300, 34305, 34312/3.
    \268\ The Commission, in its adjudicatory capacity, routinely 
draws reasonable inferences from facts in the record. See, e.g., SEC 
Rule of Practice 250, 17 CFR 201.250 (drawing reasonable inferences 
from factual allegations in deciding dispositive motions). ``Drawing 
inferences from direct and circumstantial evidence is a routine and 
necessary task of any factfinder. `The very essence of [the 
factfinder's] function is to select from among conflicting 
inferences and conclusions that which it considers most reasonable.' 
'' Siewe v. Gonzalez, 480 F.3d 160, 166 (2d Cir. 2007) (quoting 
Tennant v. Peoria and Pekin Union Railway, 321 U.S. 29 (1944)).
---------------------------------------------------------------------------

    Thus, in each case the Commission should consider whether publicly 
available information (both that supplied by the whistleblower and 
other public sources) was sufficient to give rise to an inference of 
the violations alleged by the whistleblower, or whether the 
whistleblower's examination and evaluation of public source material 
revealed new, significant, and independent information that ``bridged 
the gap'' for the staff in demonstrating the possibility of violations. 
Moreover, under our rules the whistleblower will be notified of any 
preliminary determination that his or her tip did not constitute 
``independent analysis,'' and will have an opportunity to contest that 
determination in a written submission to the Commission.\269\
---------------------------------------------------------------------------

    \269\ See 17 CFR 240.21F-10(e).
---------------------------------------------------------------------------

C. Leads to Successful Enforcement

    Assuming that a whistleblower's submission meets the threshold 
requirement that it constitute ``independent analysis,'' for the 
whistleblower to be eligible for an award the ``information that . . . 
is derived from the . . . [whistleblower's] analysis'' must also lead 
to a successful enforcement action. This determination turns ``on an 
evaluation of whether the analysis is of such high quality that it 
either causes the staff to open an investigation, or significantly 
contributes to a successful enforcement action, as set forth in Rule 
21F-4(c).'' \270\ Further, if the staff looks to other information as 
well in determining to open an investigation, the Commission will only 
find that the independent analysis ``led to'' the success of the 
enforcement action if the Commission determines that the 
whistleblower's analysis was a ``principal motivating factor'' in the 
staff's decision to open the investigation.\271\
---------------------------------------------------------------------------

    \270\ 76 FR 34300, 34312/3. This would require that the 
whistleblower's analysis made a substantial and important 
contribution to the action. See Whistleblower Award Proceeding 2016-
9, Release No. 34-77833 (May 13, 2016).
    \271\ 75 FR 70488, 70497/2.
---------------------------------------------------------------------------

    Thus, even an otherwise compelling analysis may not satisfy the 
``leads to'' requirement depending on the nature of other information 
already in the staff's possession. For example, if the staff has 
already obtained testimony from insiders describing the facts of a 
violation, a subsequent whistleblower submission that demonstrates the 
possibility of the violation through independent analysis of publicly 
available information would not likely qualify for an award because, 
against the backdrop of the facts already known to the staff, the 
whistleblower's analysis would not significantly contribute to the 
staff's investigation.
Request for Comment
    30. We seek comment on the interpretation of ``independent 
analysis'' in light of the background set forth above. Are there 
additional considerations that the Commission should factor into the 
interpretation? For example, should the interpretation address more 
explicitly cases in which an individual selects, compiles, and presents 
publicly available information in a new way for the staff? If so, how?
    31. Should any aspect of the interpretation be codified in rule 
text? For example, should the Commission adopt rule text that would 
make clear that for a whistleblower to be credited with providing 
``original information'' through ``independent analysis,'' the 
whistleblower's examination and evaluation should contribute 
``significant independent information'' that ``bridges the gap'' 
between the publicly available information and the possible securities 
violations?

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

    Beyond the specific rule proposals and interpretations expressly 
advanced above, we invite public comment on whether the Commission 
could at a future point propose a rule that would permit the Commission 
on a discretionary basis to pay awards to whistleblowers in Commission 
enforcement actions that do not result in an order for monetary 
sanctions that exceeds $1,000,000 \272\ or enforcement actions where 
the whistleblower's tip consisted of publicly available 
information.\273\ Similarly, do we have the statutory authority to 
propose and adopt a rule that would permit the Commission on a 
discretionary basis to make award payments that are not tied to the 
monetary payments collected where a meritorious whistleblower has 
received an award determination in a covered action, but the ordered 
monetary sanctions cannot be collected or the amount collected would 
result in a de minimis payment? Alternatively, would a legislative 
change be required for the Commission to establish the type of 
discretionary award mechanisms described in this section? Moreover, 
whether by rule or legislative change, would such discretion to make 
awards in these instances be in the public interest? Please explain the 
grounds for your views.
---------------------------------------------------------------------------

    \272\ For example, could we propose and adopt a rule that would 
authorize the Commission on a discretionary basis to utilize the IPF 
to pay awards to whistleblowers who make significant contributions 
in Commission Enforcement actions that do not qualify as covered 
actions for which we can currently pay awards?
    \273\ These would be situations where, under the existing 
statute and our current rules, the information provided by the 
whistleblower would not qualify as information that was derived from 
the whistleblower's ``independent knowledge'' or independent 
analysis,'' see Exchange Act Rule 21F-4(b)(2) & (3), 17 CFR 240.21F-
4(b)(2) & (3), and thus would not be ``original information'' upon 
which the Commission could base an award, see Exchange Act Rule 21F-
4(b)(1)(i), 17 CFR 240.21F-4(b)(1)(i).
---------------------------------------------------------------------------

V. General Request for Public Comment

    We request and encourage any interested person to submit comments

[[Page 34732]]

on any aspect of the proposed rule amendments, interpretations, or 
other items specified above. With respect to any comments on the 
economic analysis contained below, we note that such comments would be 
of greatest assistance to our rulemaking initiative if accompanied by 
supporting data and analysis of the issues addressed therein and by 
alternatives to our proposals where appropriate.
    Finally, other than the items specifically identified in this 
release, persons wishing to comment are expressly advised that the 
Commission is not proposing any other changes to the whistleblower 
program rules (i.e., Exchange Act Rules 21F-1 through 21F-17), nor is 
the Commission otherwise reopening any of those rules for comment.

VI. Paperwork Reduction Act

A. Background

    The proposed amendments would affect certain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\274\ The Commission is submitting the 
proposal to the Office of Management and Budget (``OMB'') for review in 
accordance with the PRA.\275\ The titles for the affected collections 
of information are:
    ``Electronic Data Base Collection System--TCR'' (OMB Control No. 
3235-0672); and ``Form TCR'' and
    ``Form WB-APP'' (OMB Control No. 3235-0686).
---------------------------------------------------------------------------

    \274\ 44 U.S.C. 3501 et seq.
    \275\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    Currently an applicant seeking to submit information to the 
Commission in order to qualify as a whistleblower must submit this 
information by using one of two methods: (1) By providing the 
information through an online portal on the Commission's website that 
is designed for receiving electronic submissions, or (2) by submitting 
the paper Form TCR that was initially adopted by the Commission as part 
of the original whistleblower rulemaking in 2011.\276\ In addition to 
the paper Form TCR, the Commission also adopted a paper Form WB-APP 
when it adopted the existing rules for the whistleblower program. 
Individuals seeking awards must make their award request using Form WB-
APP. The hours and costs associated with preparing and submitting 
information through the online portal and affected forms constitute 
reporting and cost burdens imposed by each collection of information. 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information requirement unless it displays 
a currently valid OMB control number.
---------------------------------------------------------------------------

    \276\ See Exchange Act Rule 21F-9, 17 CFR 240-21F-9(a).
---------------------------------------------------------------------------

B. Summary of the Proposed Amendments

    As described in more detail above, to provide the Commission with 
the ability to make timely corresponding adjustments to the paper Form 
TCR when it determines to modify the online portal, the Commission 
proposes to modify Exchange Act Rule 21F-8 \277\ by adding a new 
paragraph (d)(1) providing that the Commission will periodically 
designate a Form TCR (Tip, Complaint, or Referral) that individuals 
seeking be eligible for an award through the process identified in 
Sec.  240.21F-9(a)(2) shall use. In addition, to provide the Commission 
with greater administrative flexibility to modify Form WB-APP, the 
Commission proposes to modify Exchange Act Rule 21F-8 by adding a new 
paragraph (d)(2) providing that the Commission will also periodically 
designate a Form WB-APP for use by individuals seeking to apply for an 
award under either Sec.  240.21F-10 or Sec.  240.21F-11.
---------------------------------------------------------------------------

    \277\ 17 CFR 240.21F-8.
---------------------------------------------------------------------------

    In connection with these proposed amendments, we propose to 
reorganize the OMB control numbers and associated burden estimates for 
the collections of information contained in the Commission's online 
portal, Form TCR and Form WB-APP. Although the online portal and Form 
TCR collect substantially the same type of information--information 
alleging potential securities law violations--they currently have 
separate OMB control numbers. In addition, although Form TCR and Form 
WB-APP collect different types of information, the latter of which 
collects information from individuals applying for whistleblower 
awards, these collections of information are currently gathered 
pursuant to the same OMB control number.
    Pursuant to the proposed reorganization, both the online portal and 
Form TCR would fall under the same OMB control number (No. 3235-0672). 
The title for this collection of information and the associated burden 
estimate would be adjusted accordingly to reflect the submission of 
relevant information through both the online portal and the paper Form 
TCR (see Table 2 of section VI(C)). Form WB-APP would this have its own 
OMB control number (No. 3235-0686) and the collection of information 
would be retitled accordingly (see Table 2 of section VI(C)).

C. Burden and Cost Estimates Related to the Proposed Amendments

    We do not anticipate that the proposed amendments would increase 
the burden or cost to individuals preparing and submitting the required 
information through the online portal and affected forms. Although we 
intend to make certain modifications to Form TCR so that the 
information elicited by the form is consistent with the information 
collected through the online portal, we do not believe that these 
conforming modifications will increase appreciably the burden for 
individuals completing the form.
    We estimate that the combined burden associated with both paper 
Form TCR and the online complaint form is 9,050 hours annually. We 
anticipate that the burdens imposed by the online complaint form will 
vary depending on the complexity of the alleged violations that are the 
subject of the tip and the amount of information possessed by the 
individual submitting the tip. We estimate that it takes a complainant, 
on average, 30 minutes to complete the online complaint form. Based on 
an estimate of 16,000 annual responses, we estimate that the annual PRA 
burden for the online complaint form is 8,000 hours. Although the 
completion time will depend on the complexity of the alleged violation 
and the amount of information the whistleblower possesses in support of 
the allegations, we estimate that it takes a whistleblower, on average, 
one and one-half hours to complete and submit Form TCR. We estimate 
that it may take individuals more time to complete Form TCR than the 
online complaint form because a person will have to hand write in the 
required information and spend time mailing and faxing the form to the 
Commission. Based on the receipt of an average of approximately 700 
annual Form TCR submissions for the past three fiscal years, the 
Commission estimates that the annual reporting burden of Form TCR is 
1,050 hours.
    We estimate that it takes a whistleblower, on average, one hour to 
complete Form WB-APP, though the completion time depends largely on the 
complexity of the alleged violation and the amount of information the 
whistleblower possesses in support of his or her application for an 
award. Based on the receipt of an average of approximately 110 annual 
properly filed Form WB-APP submissions for the past

[[Page 34733]]

six fiscal years,\278\ the Commission estimates that the annual 
reporting burden of Form WB-APP is 110 hours.
---------------------------------------------------------------------------

    \278\ This figure does not include Form WB-APP submissions which 
were facially deficient, subsequently withdrawn or submitted by 
individuals who have been barred by the Commission from 
participation in the whistleblower program.
---------------------------------------------------------------------------

    We do not believe that the proposed amendments would increase the 
professional costs associated with preparing and submitting the 
affected forms. Under the whistleblower rules, an anonymous 
whistleblower who is seeking an award is required, and a whistleblower 
whose identity is known may elect, to retain counsel to represent the 
whistleblower in the whistleblower program. We expect that in most 
instances the whistleblower's counsel will complete, or assist in the 
completion, of some or all of the required forms on behalf of the 
whistleblower. However, we expect that in the vast majority of cases in 
which a whistleblower is represented by counsel, the whistleblower will 
enter into a contingency fee arrangement with counsel, providing that 
counsel be paid for the representation through a fixed percentage of 
any recovery by the whistleblower under the program. Thus, we expect 
most whistleblowers will not incur any direct out of pocket expenses 
for attorneys' fees for the completion of the affected forms.
    We expect that a very small number of whistleblowers (no more than 
5%) enter into hourly fee arrangements with counsel.\279\ In those 
cases, a whistleblower will incur direct expenses for attorneys' fees 
for the completion of the required forms. To estimate those 
expenses,\280\ we make the following assumptions:
---------------------------------------------------------------------------

    \279\ This estimate is based, in part, on the Commission's 
belief that most whistleblowers likely will not retain counsel on an 
hourly basis to assist them in preparing the forms.
    \280\ Individuals submitting their information in writing who 
are not seeking to be eligible for the Commission's whistleblower 
award program are not required to retain an attorney, even if they 
choose to submit their information anonymously, and thus are not 
required to use either the Form TCR or the Form WB-APP. As such, for 
purposes of calculating the estimated costs of the forms, we have 
only included the potential costs associated with completing and 
submitting the Form TCR and Form WB-APP.
---------------------------------------------------------------------------

    (i) The Commission will continue to receive on average 
approximately 700 Forms TCR and 110 Forms WB-APP annually;
    (ii) Individuals will pay hourly fees to counsel for the submission 
of approximately 35 Forms TCR and 6 Forms WB-APP annually; \281\
---------------------------------------------------------------------------

    \281\ These amounts are based on the assumption, as noted above, 
that no more than 5% of all whistleblowers will be represented by 
counsel pursuant to an hourly fee arrangement.
---------------------------------------------------------------------------

    (iii) Counsel retained by whistleblowers pursuant to an hourly fee 
arrangement will charge on average $400 per hour; \282\ and
---------------------------------------------------------------------------

    \282\ The Commission uses this hourly billing rate for purposes 
of estimating the professional costs of other rules, and we believe 
it is an appropriate billing rate to use in this context, 
recognizing that some attorneys representing whistleblowers may not 
be securities lawyers and may charge different average hourly rates.
---------------------------------------------------------------------------

    (iv) Counsel will bill on average: (i) Three hours to complete a 
Form TCR, and (ii) two hours to complete a Form WB-APP.\283\
---------------------------------------------------------------------------

    \283\ The Commission expects that counsel will likely charge a 
whistleblower for additional time required to gather from the 
whistleblower or other sources relevant information needed to 
complete Forms TCR and WB-APP. Accordingly, we estimate that, on 
average, counsel will bill a whistleblower three hours for the 
completion of Form TCR and two hours for completion of Form WB-APP 
(even though we estimate that a whistleblower acting without counsel 
will be able to complete the Form TCR in 1.5 hours and Form WB-APP 
in 1 hour).
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that each year whistleblowers 
will incur the following total amounts of attorneys' fees in connection 
with completing Forms TCR and WB-APP: (i) $42,000 \284\ for the 
reporting burden of Form TCR; and (ii) $4,800 \285\ for the reporting 
burden of Form WB-APP.
---------------------------------------------------------------------------

    \284\ 35 x ($400 x 3) = $42,000.
    \285\ 6 x ($400 x 2) = $4,800.
---------------------------------------------------------------------------

    The tables below summarize the burden and cost estimates associated 
with the online portal and affected forms both currently and after the 
proposed reorganization of the relevant control numbers:

                               Table 1 of Section VI(C)--Current Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                    OMB control
                              Title                                     No.        Burden hours        Costs
----------------------------------------------------------------------------------------------------------------
``Electronic Data Base Collection System--TCR''.................       3235-0672           8,000              $0
``Form TCR'' and ``Form WB-APP''................................       3235-0686           1,160          46,800
----------------------------------------------------------------------------------------------------------------


              Table 2 of Section VI(C)--Revised Burden Estimates Under the Proposed Reorganization
----------------------------------------------------------------------------------------------------------------
                                                                    OMB control
                              Title                                     No.        Burden hours        Costs
----------------------------------------------------------------------------------------------------------------
``Tips, Complaints and Referrals (TCR)''........................       3235-0672           9,050         $42,000
``Form WB-APP''.................................................       3235-0686             110           4,800
----------------------------------------------------------------------------------------------------------------

D. Mandatory Collection of Information

    A whistleblower is required to complete either a hardcopy Form TCR 
or submit his or her information electronically through the online 
portal and to complete Form WB-APP to qualify for a whistleblower 
award.

E. Confidentiality

    As explained above, the statute provides that the Commission must 
maintain the confidentiality of the identity of each whistleblower, 
subject to certain exceptions. Section 21F(h)(2) states that, except as 
expressly provided the Commission and any officer or employee of the 
Commission shall not disclose any information, including information 
provided by a whistleblower to the Commission, which could reasonably 
be expected to reveal the identity of a whistleblower, except in 
accordance with the provisions of section 552a of title 5, United 
States Code, unless and until required to be disclosed to a defendant 
or respondent in connection with a public proceeding instituted by the 
Commission or certain specific entities listed in paragraph (C) of 
Section 21F(h)(2).
    Further, as discussed above, we are proposing Rule 21F-2(c) to 
require that an individual who is seeking this heightened 
confidentiality protection must submit his or her information to the 
Commission using the online portal or by completing a hardcopy Form 
TCR. If an individual fails to do so, then

[[Page 34734]]

under our proposed rule he or she would be ineligible for the 
heightened confidentiality protections.
    Section 21F(h)(2) also permits the Commission to share information 
received from whistleblowers with certain domestic and foreign 
regulatory and law enforcement agencies. However, the statute requires 
the domestic entities to maintain such information as confidential, and 
requires foreign entities to maintain such information in accordance 
with such assurances of confidentiality as the Commission deems 
appropriate.
    In addition, Section 21F(d)(2) provides that a whistleblower may 
submit information to the Commission anonymously and still be eligible 
for an award, so long as the whistleblower is represented by counsel. 
However, the statute provides that a whistleblower must disclose his or 
her identity prior to receiving payment of an award.

F. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
     Evaluate the accuracy of our assumptions and estimates of 
the burden of the proposed collection of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collection of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed amendments would have any 
effects on any other collection of information not previously 
identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct their comments to the Office of 
Management and Budget, Attention: Desk Officer for the U.S. Securities 
and Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and send a copy to, Brent J. Fields, Secretary, 
U.S. Securities and Exchange Commission, 100 F Street NE, Washington, 
DC 20549, with reference to File No. S7-08-17. Requests for materials 
submitted to OMB by the Commission with regard to the collection of 
information should be in writing, refer to File No. S7-08-17 and be 
submitted to the U.S. Securities and Exchange Commission, Office of 
FOIA Services, 100 F Street NE, Washington, DC 20549. OMB is required 
to make a decision concerning the collection of information between 30 
and 60 days after publication of this proposed rule. Consequently, a 
comment to OMB is best assured of having its full effect if the OMB 
receives it within 30 days of publication.

VII. Economic Analysis

    The Commission is sensitive to the economic consequences of its 
rules, including the benefits, costs, and effects on efficiency, 
competition, and capital formation. Section 23(a)(2) \286\ of the 
Securities Exchange Act of 1934 requires the Commission, in 
promulgating rules under the Exchange Act, to consider the impact that 
any rule may have on competition and prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. Further, Section 3(f) of the Exchange Act \287\ requires the 
Commission, when engaging in rulemaking where it is required to 
consider or determine whether an action is necessary or appropriate in 
the public interest, to consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.
---------------------------------------------------------------------------

    \286\ 15 U.S.C. 78w(a)(2).
    \287\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The economic analysis in this part focuses on the proposed 
amendments to Rule 21F-2, Rule 21F-4(d)(3), Rule 21F-6, Rule 21F-
3(b)(4), Rule 21F-8, newly proposed Exchange Act Rule 21F-18, and the 
proposed interpretive guidance. As discussed above, the proposed 
amendments to Rule 21F-2 are in response to the Supreme Court's recent 
decision in Digital Realty Trust, Inc. v. Somers; \288\ proposed Rule 
21F-4(d)(3) would allow awards based on non-prosecution agreements or 
deferred prosecution agreements entered into by the DOJ or state 
attorneys general, and settlement agreements entered into by the 
Commission; proposed Rule 21F-3(b)(4) would eliminate potential double 
recovery under the current definition of related action; proposed 
amendments to Rule 21F-6 would allow additional considerations for 
small and large awards; proposed Rule 21F-8(e) would provide authority 
to bar applicants from future award applications in certain limited 
situations; proposed Rule 21F-18 would provide a streamlined award 
consideration process for certain limited categories of non-meritorious 
applications; and the proposed interpretive guidance would 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.'' The other proposed amendments in this release are either 
procedural, technical in nature or codify existing practice, and 
therefore we do not expect them to significantly impact efficiency, 
competition, and capital formation.
---------------------------------------------------------------------------

    \288\ 138 S. Ct. 767 (2018).
---------------------------------------------------------------------------

    Many of the benefits and costs discussed below are difficult to 
quantify. For example, although the analysis that follows details the 
specific ways in which we expect the proposed rules to affect 
whistleblower incentives, we lack the data necessary to estimate the 
magnitudes of these effects separately or in the aggregate. Similarly, 
we do not know the precise cost--in terms of awards paid out of the 
IPF--of defining a non-prosecution agreement or deferred prosecution 
agreement entered into by the DOJ or a state attorney general or a 
settlement agreement entered into by the Commission as an 
``administrative action'' and any money required to be paid thereunder 
as a ``monetary sanction.'' Moreover, we do not know the funds that 
might be conserved in the IPF by the avoidance of double recoveries for 
the same action and the avoidance of large awards that are not 
reasonably necessary to achieve the goals of the whistleblower program. 
Therefore, while we have attempted to quantify economic impacts where 
possible, much of the discussion of economic effects is qualitative in 
nature.

A. Economic Baseline

    To examine the potential economic effects of the amendments, we 
employ as a baseline the comprehensive set of rules that the Commission 
adopted in May 2011 to implement the whistleblower program. The 
baseline also includes: The Supreme Court's recent decision in Digital 
Realty Trust, Inc. v. Somers; a description of whistleblower programs 
administered by other regulatory authorities; and a discussion of the 
IPF (including its replenishment mechanism), summary statistics that 
describe the distribution of awards paid by the whistleblower program 
under the 2011 rules, and estimates of wages and salaries obtained from 
a number of surveys.

[[Page 34735]]

1. Whistleblower Programs
    In this section, we discuss a non-exhaustive list of the various 
federal and state whistleblower programs that are currently 
administered by other agencies or authorities and which might be 
implicated by the proposed rules.\289\ The CFTC administers its own 
whistleblower award program under section 23 of the Commodity Exchange 
Act.\290\ Both the SEC and CFTC programs were established by the Dodd-
Frank Act and are substantially identical in their substantive 
terms.\291\ As discussed above, 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. 
In 2011, Utah established a whistleblower-award scheme to provide 
rewards of up to thirty percent of the money collected in state 
securities-law enforcement actions.\292\ The following year, Indiana 
enacted a whistleblower award scheme to provide rewards up to ten 
percent of the money collected in a state securities-law enforcement 
action.\293\ 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 IRS 
administers.\294\ 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 awards of 10 percent to 30 percent of any monetary sanction 
over $1 million that the Federal Government collects based on that 
information.\295\
---------------------------------------------------------------------------

    \289\ Although we discuss several federal whistleblower programs 
that we believe are more likely to be implicated by the proposed 
rules, there are other federal whistleblower programs that are not 
discussed but which could potentially be implicated.
    \290\ 7 U.S.C. 26.
    \291\ See Securities Whistleblower Incentives and Protections 
Proposing Release, 75 FR at 70490.
    \292\ Utah Code Annotated 61-1-101 et seq.
    \293\ Indiana Code 23-19-7-1 et seq.
    \294\ 26 U.S.C. 7623.
    \295\ 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).
---------------------------------------------------------------------------

2. Supreme Court Decision in Digital Realty Trust, Inc. v. Somers
    The Supreme Court recently held in Digital Realty Trust, Inc. v. 
Somers,\296\ that Section 21F(h)(1) of the Exchange Act unambiguously 
requires that a person 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 retaliation 
protections in Section 21F more broadly was therefore not entitled to 
deference.\297\ The Court reasoned that the definition of 
``whistleblower'' codified in Section 21F(a)(6) requires such a report 
to the Commission as a prerequisite for employment retaliation 
protection, and that this definition is ``clear and conclusive.'' \298\ 
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.' '' \299\
---------------------------------------------------------------------------

    \296\ 138 S. Ct. 767 (2018).
    \297\ Id. at 781-82.
    \298\ Id.
    \299\ Id. at 777 (quoting S. Rep. No. 111-176, at 38 (2010)).
---------------------------------------------------------------------------

3. IPF and Awards Issued by the SEC Whistleblower Program
    In Section 21F(g) of the Exchange Act, Congress established the IPF 
to provide funding for the payment of whistleblower awards. The IPF has 
a permanent indefinite appropriation that is available without further 
appropriation or fiscal year limitation for the purpose of funding 
awards to whistleblowers (and to fund the Office of Inspector General's 
Employee Suggestion Program).\300\
---------------------------------------------------------------------------

    \300\ However, the Commission is required to request and obtain 
an annual apportionment from the Office of Management and Budget to 
use these funds. See SEC Agency Financial Report for 2017 (Nov. 14, 
2017), available at https://www.sec.gov/files/sec-2017-agency-financial-report.pdf.
---------------------------------------------------------------------------

    As of the end of Fiscal Year 2017, the balance of the IPF was 
approximately $322 million.\301\ Whenever the reserve in the IPF falls 
below $300 million, Section 21F(g)(3) requires the Commission to 
replenish the IPF.\302\ In May 2018, the balance of the IPF for the 
first time fell below the $300 million threshold that triggers the 
statutory replenishment mechanism; \303\ this occurred when the 
Commission paid $83 million--its largest payout to date on an 
enforcement action--to three individuals.
---------------------------------------------------------------------------

    \301\ See Section II.D, above.
    \302\ See 15 U.S.C. 78u-6(g)(3).
    \303\ For a description of the IPF's statutory replenishment 
mechanisms, see Section 21F(g)(3) of the Exchange Act, 15 U.S.C. 
78u-6(g)(3).
---------------------------------------------------------------------------

    From August 2012 through April 2018, the Commission's whistleblower 
program issued 50 whistleblower awards to 55 individuals (including, as 
explained above, individuals who acted as joint whistleblowers).\304\ 
Table 1 of Section VII(A)(3) reports the frequency distribution of 
these awards by award size. Forty-two of these awards were less than $5 
million, of which thirty-one awards were less than $2 million. Of the 
remaining eight awards, five were at least $5 million but less than $30 
million and three exceeded $30 million.\305\ According to the Office of 
the Whistleblower, of the 55 individuals who have received awards, 
approximately 10 percent are high-ranking corporate executives at 
companies of varying sizes and a large majority of these executives 
received awards that were under $5 million.
---------------------------------------------------------------------------

    \304\ These totals 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.
    \305\ One of the three awards that exceeded $30 million was 
issued in September 2014 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. The other two awards were 
issued in March 2018 for $49 and $33 million, respectively, to three 
individuals (two of whom were acting as joint whistleblowers). 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. We note that these three awards alone 
reduced the balance of the IPF by approximately $112 million.

  Table 1 of Section VII(A)(3)--Frequency Distribution of Whistleblower
                                 Awards
[We use awards issued to whistleblowers by the SEC Whistleblower Program
from August 2012 through April 2018. Number is the number of awards that
 fall within an award size category. Percent is the number of awards in
  an award size category as a fraction of the total number of awards.]
------------------------------------------------------------------------
           Award size category                Number          Percent
------------------------------------------------------------------------
Less than $2 million....................              31              62
At least $2 million but less than $5                  11              22
 million................................

[[Page 34736]]

 
At least $5 million but less than $10                  2               4
 million................................
At least $10 million but less than $15                 1               2
 million................................
At least $15 million but less than $20                 1               2
 million................................
At least $20 million but less than $30                 1               2
 million................................
At least $30 million....................               3               6
                                         -------------------------------
    Total...............................              50             100
------------------------------------------------------------------------

    In addition to summarizing the distribution of awards to 
whistleblowers, we also summarize the distribution of awards by 
enforcement action. For each enforcement action, we identify all 
whistleblowers who receive an award for that enforcement action and sum 
up their awards to arrive at the aggregate award for that enforcement 
action. Table 2 of section VII(A)(3) indicates that between August 2012 
and April 2018, there were 45 enforcement actions for which the 
Commission issued whistleblower awards.\306\ Thirty-seven enforcement 
actions had awards of less than $5 million, of which twenty-eight 
awards were less than $2 million. Of the remaining eight actions, six 
had aggregate awards of at least $5 million but less than $30 million 
and only two had an aggregate award that exceeded $30 million.
---------------------------------------------------------------------------

    \306\ As noted, we aggregate related actions with their 
corresponding Commission actions for purposes of this analysis.

    Table 2 of Section VII(A)(3)--Frequency Distribution of Awards by
                           Enforcement Action
[We use awards issued to whistleblowers by the SEC Whistleblower Program
  from August 2012 through April 2018. For each enforcement action, we
  identify all whistleblowers who receive an award for that enforcement
action and sum up their awards to arrive at the aggregate award for that
enforcement action. We then plot the distribution of aggregate awards by
 enforcement action. Number is the number of aggregate awards that fall
within an award size category. Percent is the number of aggregate awards
 in an award size category as a fraction of the total number of awards.]
------------------------------------------------------------------------
           Award size category                Number          Percent
------------------------------------------------------------------------
Less than $2 million....................              28              62
At least $2 million but less than $5                   9              20
 million................................
At least $5 million but less than $10                  3               7
 million................................
At least $10 million but less than $15                 2               4
 million................................
At least $15 million but less than $20                 0               0
 million................................
At least $20 million but less than $30                 1               2
 million................................
At least $30 million....................               2               4
                                         -------------------------------
    Total...............................              45             100
------------------------------------------------------------------------

4. Estimates of Current Annual Wages
    Prospective whistleblowers' annual wages are potentially relevant 
to various aspects of the proposed rules. Table 3 of Section VII(A)(3) 
presents, by industry, the pre-tax annual wages per employee (``average 
wages'') estimated by the Bureau of Labor Statistics for 2016.\307\ 
Average wages vary from a low of $22,445 in the leisure and hospitality 
industry to a high of $98,458 in the information industry.
---------------------------------------------------------------------------

    \307\ Wage data used for calculating the annual wages per 
employee are derived from the quarterly tax reports submitted to 
state government workforce agencies by employers, subject to state 
unemployment insurance laws, and from Federal agencies subject to 
the Unemployment Compensation for Federal Employees program. Further 
information is available at https://www.bls.gov/cew/cewbultn16.htm.
---------------------------------------------------------------------------

    These averages do not reflect the substantial degree of within-
industry wage variation. For example, more senior employees involved in 
financial activities likely earn higher wages than their more junior 
counterparts, and staff that supply significant expertise may earn more 
than those that do not. A survey of 2,499 firms registered with the 
Commission and included in the Russell 3000 Index as of May 2017 
revealed median total CEO compensation at approximately $3.8 
million.\308\ A study of the 200 largest pay packages awarded to CEOs 
at U.S. public companies in fiscal year 2016 revealed that the median 
pay for this group of CEOs was $16.9 million, while the average pay was 
$19.7 million.\309\ A 2017 report documenting survey responses from 377 
financial professionals included average base salaries for senior-level 
financial executives of between $133,859 and $342,154, depending on 
title and whether companies are public or private.\310\ Notwithstanding 
the foregoing, we think it is relevant to observe that although the 
compensation of CEOs and other senior ranking officials provides 
insights into the wage variation within a particular industry, in our 
experience a company's workforce typically consists of far more lower-

[[Page 34737]]

paying positions, relatively speaking. For example, the average base 
salary for securities professionals working in New York City in 2015 
(the last year for which such data is available) was $388,000 and the 
nominal value of the average annual bonus for that year was 
approximately $146,200.
---------------------------------------------------------------------------

    \308\ See ``CEO and Executive Compensation Practices: 2017 
Edition'' (available at: https://www.conference-board.org/publications/publicationdetail.cfm?publicationid=7584).
    \309\ See ``Equilar 200: Ranking the Largest CEO Pay Packages'' 
(available at http://www.equilar.com/reports/49-equilar-200-ranking-the-largest-ceo-pay-pakages-2017.html) for a summary of the study 
and its findings. See ``Equilar 200: The Largest CEO Pay Packages of 
2016'' (available at http://www.equilar.com/reports/49-table-equilar-200-ranking-largest-ceo-pay-packages.html) for the ranking 
of CEOs by their pay packages. See ``How the C.E.O. Rankings Were 
Done'' (https://www.nytimes.com/2017/05/26/business/how-the-ceo-rankings-were-done.html) for a discussion of the study's 
methodology.
    \310\ See ``Financial Executive Compensation Report 2017'' Grant 
Thornton, 2017 (available at: https://www.grantthornton.com/~/media/
content-page-files/tax/pdfs/FEI-financial-exec-comp-survey-2017/FEI-
survey-results-2017.ashx).

Table 3 of Section VII(A)(3)--2016 Annual Wages per Employee by Industry
 [This table presents the pre-tax annual wages per employee at privately
owned establishments aggregated by industry as reported by the Bureau of
                            Labor Statistics]
------------------------------------------------------------------------
                                                           Annual wages
                        Industry                           per employee
                                                                ($)
------------------------------------------------------------------------
Natural resources and mining............................         $56,115
Construction............................................          58,647
Manufacturing...........................................          64,870
Trade, transportation, and utilities....................          44,764
Information.............................................          98,458
Financial activities....................................          88,841
Professional and business services......................          69,992
Education and health services...........................          48,058
Leisure and hospitality.................................          22,445
Other services..........................................          35,921
Unclassified............................................          51,837
------------------------------------------------------------------------

B. Analysis of Benefits, Costs, and Economic Effects of the Proposed 
Rules

    In this section, we discuss the potential benefits, costs, and 
economic effects of the proposed rules. For proposed Rule 21F-6(c), we 
also discuss alternatives to the approach contemplated in the proposed 
rule as well as reasons for rejecting those alternatives.
1. Proposed Amendments to Rule 21F-2
    Most of the proposed amendments to Rule 21F-2 are either in 
response to the Supreme Court's decision in Digital Realty Trust, Inc. 
v. Somers \311\ or do not differ substantively from current rules and 
practice. Two proposed amendments, however, do represent changes 
relative to the economic baseline, and their potential benefits, costs, 
and economic effects are discussed here. Proposed Rule 21F-2(a)(1) 
would extend employment retaliation protection only to an individual 
who provides the Commission with information ``in writing.'' Proposed 
Rule 21F-2(d)(1)(iii) would, among other things, limit employment 
retaliation protection to lawful acts that ``relate to the subject 
matter'' of the person's submission to the Commission under proposed 
Rule 21F-2(a).
---------------------------------------------------------------------------

    \311\ 138 S. Ct. 767 (2018).
---------------------------------------------------------------------------

a. Proposed Rule 21F-2(a)(1)
    Proposed Rule 21F-2(a)(1) could potentially impose a burden on 
those individuals who want to report potential violations to the 
Commission and wish to qualify as a ``whistleblower'' solely for 
employment retaliation protection. Such individuals might decide not to 
report to the Commission if the reporting burden is perceived to 
outweigh the benefits associated with retaliation protection. Our 
experience to date in the awards context suggests that requiring that 
information be provided in writing presents, at most, a minimal burden 
to individuals who want to report violations to the Commission. To the 
extent that this experience is informative about the reporting burden 
in the retaliation context, such a burden would also be, at most, 
minimal. Accordingly, the proposed rule would likely not have an 
adverse impact on the whistleblowing incentives of those individuals 
who wish to qualify as a ``whistleblower'' solely for employment 
retaliation protection.
    We have considered several alternatives to the approach 
contemplated in proposed Rule 21F-2(a). The first alternative is to 
require information to be provided to the Commission through the online 
portal at http://www.sec.gov, or mailing or faxing a Form TCR to the 
Office of the Whistleblower. The second alternative is to permit 
additional manners of reporting for anti-retaliation purposes (such as 
placing a telephone call).
    We rejected the first alternative because it would, in our view, 
unnecessarily limit the means of reporting to the Commission by 
individuals who are merely seeking employment retaliation protection. 
Limiting whistleblower status to those individuals who follow the first 
alternative could result in the unnecessary exclusion of individuals 
from the benefits of Section 21F(h)(2)'s employment retaliation 
protections without providing any accompanying benefit to the 
Commission, whistleblowers, or the public generally. Further, requiring 
individuals to report ``in writing'' could potentially impose lower 
costs (including time spent) on these individuals than the costs they 
would have borne under the first alternative.
    We rejected the second alternative because of potential costs that 
could arise if the Commission's staff became ensnared by disputes in 
private anti-retaliation lawsuits over what information was provided to 
whom on what dates. Requiring that any reporting be done in writing 
obviates these potential costs.
b. Proposed Rule 21F-2(d)(1)(iii)
    Proposed Rule 21F-2(d)(1)(iii) helps avoid the result that an 
individual could qualify just once as a whistleblower and then receive 
lifetime protection for any non-Commission reports described in clause 
(iii) of Section 21F(h)(1)(A). For individuals who want to make non-
Commission reports about potential violations to their employers and 
desire employment retaliation protection for such lawful acts, the 
proposed rule could increase the incentives of these individuals to 
instead report directly to the Commission. These individuals would only 
qualify for employment retaliation protection if they report to the 
Commission under the proposed rule. Reporting to the Commission ``in 
writing'' as contemplated under proposed Rule 21F-2(a) could 
potentially impose a burden on these individuals. In light of the 
analysis of proposed Rule 21F-2(a)(1) supra, we believe that such a 
reporting burden would, at most, be minimal and would

[[Page 34738]]

likely not limit the reporting incentives afforded by proposed Rule 
21F-2(d)(1)(iii).
2. Proposed Rule 21F-3(b)(4)
    Proposed Rule 21F-3(b)(4) would provide that a law-enforcement 
action will 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. Further, proposed 
Rule 21F-3(b)(4) would provide that the Commission will not make an 
award to the whistleblower for the related action if the whistleblower 
has already been granted an award by the authority responsible for 
administering the more applicable whistleblower award program. Further, 
under proposed Rule 21F-3(b)(4), if the whistleblower was denied an 
award by the other award program, the whistleblower would not be 
permitted to readjudicate any issues before the Commission that the 
authority responsible for administering the other whistleblower award 
program resolved as part of the award denial.
    The proposed rule would prevent a whistleblower from adjudicating 
his or her contributions in separate forums and potentially obtaining 
two separate awards on the same enforcement action. While the existing 
rules preclude this result when an action is applicable to both the 
Commission's whistleblower program and the CFTC's whistleblower 
program,\312\ the existing rules do not expressly preclude this result 
when the non-SEC whistleblower program is administered by an authority 
other than the CFTC. Thus, the proposed rule would help the Commission 
avoid paying awards that are not reasonably necessary in light of the 
whistleblower program's goals in cases where an action is applicable to 
the Commission's whistleblower program and the whistleblower program of 
an authority other than the CFTC.
---------------------------------------------------------------------------

    \312\ See 17 CFR 240.21F-3(b)(3).
---------------------------------------------------------------------------

    The proposed rule would likely not have an adverse impact on the 
incentives of individuals who may report violations that result in 
enforcement actions potentially implicating both the Commission's 
whistleblower program and the whistleblower program of another 
authority other than the CFTC. As discussed earlier in Section II(C), 
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. 
Given that the proposed rule codifies the Commission's current 
practice, we believe that these potential whistleblowers would have 
already taken such current practice into account when deliberating on 
whether to report.
3. Proposed Rule 21F-4(d)(3)
    Proposed Rule 21F-4(d)(3) would provide that, for purposes of 
making a whistleblower award, a non-prosecution agreement or deferred 
prosecution agreement entered into by the 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 will be deemed 
to be an ``administrative action'' and any money required to be paid 
thereunder will be deemed a ``monetary sanction.'' The proposed rule 
will result in more awards being paid from the IPF because awards would 
be paid for non-prosecution and deferred prosecution agreements entered 
into by the U.S. Department of Justice or a state attorney general as 
well as settlement agreements entered into by the Commission in 
addition to judicial or administrative proceedings covered by the 
existing rules. While potentially increasing payouts from the IPF, the 
proposed rule should enhance the incentives for whistleblowers to come 
forward in a timely manner to the extent that it signals to prospective 
whistleblowers that a wider array of enforcement resolutions may result 
in awards.
4. Proposed Rule 21F-6(c)
    Proposed Rule 21F-6(c) would provide a mechanism for the Commission 
to adjust upwards any awards that would potentially be below $2 million 
to a single whistleblower. However, this new authority would come with 
important limitations. Specifically, the Commission will not adjust an 
award upward if any of the negative award factors that are identified 
in Exchange Act Rule 21F-6(b) \313\ were found to be present with 
respect to the whistleblower's award claim, or if the award claim 
triggers Exchange Act Rule 21F-16 (concerning awards to whistleblowers 
who engage in culpable conduct).\314\
---------------------------------------------------------------------------

    \313\ 17 CFR 240.21F-6(b).
    \314\ 17 CFR 240.21F-16.
---------------------------------------------------------------------------

    The proposed rule could enhance the whistleblowing incentives of 
those individuals who anticipate receiving awards below $2 million and 
do not expect to be subject to any of the above conditions that would 
preclude an application of the award enhancement mechanism. The 
prospect of a larger award could encourage these individuals to report 
violations to the Commission. By withholding the upward adjustment if a 
whistleblower unreasonably delayed reporting to the Commission after 
learning the relevant facts, the proposed rule could increase 
whistleblowing incentives by encouraging individuals to report 
violations promptly and thereby facilitate the Commission's ability to 
protect investors.
    The proposed rule could have a deterrent effect on potential 
violators because these individuals understand that they would lose the 
opportunity for an award enhancement if they engage in securities law 
violations and subsequently act as whistleblowers of those violations. 
Similarly, the proposed rule could have a deterrent effect on potential 
whistleblowers who contemplated interfering with an internal compliance 
and reporting system by denying award enhancements to such potential 
whistleblowers.
    From a cost perspective, the proposed rule could potentially result 
in larger awards being paid from the IPF because an award that would 
yield a potential payout to a single whistleblower below $2 million may 
be adjusted upward. As indicated in Table 1 of Section VII(A)(3), the 
Commission has granted 31 whistleblower awards (i.e., 62% of awards) 
that were below $2 million. To the extent that the distribution of past 
awards provides a reasonable estimate of the distribution of likely 
future awards, smaller awards are likely in the future, some of which 
could be subject to the proposed rule.
5. Proposed Rule 21F-6(d)
a. Consideration of Proposed Rule
    Proposed Rule 21F-6(d) would provide a mechanism for the Commission 
to conduct an enhanced review of awards where the total monetary 
sanctions collected in the Commission or related actions would equal at 
least $100 million and where the potential payout to a single 
whistleblower in connection with those actions would exceed $30 
million. Where these two conditions are met, the proposed rule would 
afford the Commission the discretion to determine if it is appropriate 
to adjust the award downward. The goal of any downward adjustment is to 
ensure that the likely total award payout to the whistleblower does not 
exceed an amount that the Commission determines is appropriate to 
achieve the program's objectives of rewarding meritorious 
whistleblowers and sufficiently incentivizing future whistleblowers. 
However, consistent with the statutory mandate, in no event

[[Page 34739]]

would the total amount awarded to all whistleblowers in the aggregate 
be less than 10 percent of the monetary sanctions collected from the 
action. Further, an application of the proposed rule would not result 
in a reduction of an award below $30 million. We believe that the 
proposed rule could foster a more efficient use of the IPF by reducing 
the likelihood of awards that are excessive in light of the 
whistleblower program's goals and the interests of investors and the 
broad public interest. As indicated in Table 1 of Section VII(A)(3), we 
have granted three whistleblower awards that exceeded $30 million. 
These three awards alone reduced the balance of the IPF by 
approximately $112 million. To the extent that the distribution of past 
awards provides a reasonable estimate of the distribution of likely 
future awards, large awards are likely in the future, some of which 
could be subject to the proposed rule. Absent the proposed rule, 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, the 
interests of investors and the broad public interest. These awards 
could also substantially diminish the IPF, requiring the Commission to 
direct more funds to replenish the IPF rather than directing those 
funds to the United States Treasury where they could be used for other 
important public purposes.\315\
---------------------------------------------------------------------------

    \315\ See Section VII(A)(3) for a discussion of the IPF and its 
replenishment mechanism.
---------------------------------------------------------------------------

    As whistleblowers consider their reporting decisions, they weigh, 
among other things, the expected size of the award and the expected 
costs associated with their whistleblowing. We acknowledge that 
proposed paragraph 6(d) could shift the upper end of the distribution 
of expected awards. However, we recognize that realized awards to date 
are typically substantially smaller in magnitude. In addition, 
according to the Office of the Whistleblower, of the 55 individuals who 
have received awards, approximately 10 percent are high-ranking 
corporate executives at companies of varying sizes and a large majority 
of these executives received awards that were under $5 million. This 
indicates to us that, as a practical matter, even those whistleblowers 
with the most to lose in terms of potential income have been willing to 
come forward for a recovery below the proposed $30 million floor. Thus, 
the data available does not indicate that proposed paragraph 6(d) would 
discourage whistleblowers from coming forward.
    Additional factors further support the view that potential 
whistleblowers will not be discouraged from coming forward as a result 
of proposed paragraph 6(d). As discussed earlier, $30 million would be 
a floor, not a ceiling on large awards. Rather, $30 million is the 
point above which we would begin to consider whether the likely award 
is consistent with the program's objectives; we may choose not to 
reduce the award.
    Further, the operation of proposed paragraph 6(d) would likely 
affect only a small subset of potential whistleblowers. As discussed in 
Section VII(A)(3) above, to date we have issued 50 whistleblower awards 
to 55 individuals (including, as explained above, individuals who acted 
as joint whistleblowers) and only three awards (i.e., 6% of awards) 
have exceeded $30 million.\316\ To the extent that the distribution of 
past awards provides a reasonable estimate of the distribution of 
likely future awards, and potential whistleblowers do not 
systematically over- or underestimate the size of recoveries,\317\ only 
a minority of potential whistleblowers would be potentially affected by 
the proposed rule.\318\
---------------------------------------------------------------------------

    \316\ One award that exceeded $30 million was issued in 
September 2014 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. The second and third awards that exceeded 
$30 million were issued in March 2018 in a Commission 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.
    \317\ The proposed rule could affect a larger subset of 
potential whistleblowers if potential whistleblowers systematically 
overestimate the size of the recovery; conversely, the proposed rule 
could affect a smaller subset of potential whistleblowers if 
potential whistleblowers systematically underestimate the size of 
the recovery.
    \318\ We acknowledge that there are other pending awards that 
could exceed the $30 million floor. We do not discuss those matters 
here because they have not been finalized, but we note that such 
awards would still constitute a relatively small proportion of the 
overall future potential awards that the Commission is likely to 
make.
---------------------------------------------------------------------------

    Additionally, our review of the academic literature relevant to 
whistleblower incentives indicates that whistleblowers are often 
willing to report notwithstanding the absence of financial incentives. 
Non-monetary incentives that can motivate individuals to report 
include: (i) A desire to see wrongdoers punished, (ii) an interest in 
``doing the right thing'' for the sake of investors or others who might 
be harmed by the wrongdoing, or (iii) a desire to protect one's own 
self-interests.\319\
---------------------------------------------------------------------------

    \319\ See Anthony Heyes & Sandeep Kapur, An Economic Model of 
Whistleblower Policy, 25 J. L. Econ. & Org. 164-166 (2009) 
(providing a short review of academic literature on sociology and 
psychology and listing non-monetary motives for whistleblowing); see 
also Aaron S. Kesselheim et al., Whistle-Blower's Experience in 
Fraud Litigation Against Pharmaceutical Companies, 362 New England 
J. Med. 1834, 1835 (2010) (listing self-preservation, justice, 
integrity, altruism or public safety as primary motivations for qui 
tam lawsuits). See Securities Whistleblower Incentives and 
Protections, Exchange Act Release No. 64545, 76 FR at 34360, note 
453 (June 13, 2011).
---------------------------------------------------------------------------

    Moreover, even at the $30 million floor that we are proposing, it 
appears to us that a $30 million award could yield a lump sum that, if 
invested in an annuity, could generate an annual return that is 
attractive in light of the wage and salary data presented in Section 
VII(A)(4).\320\ A number of non-mutually exclusive factors can 
contribute to making the lump sum smaller than the whistleblower award. 
First, to the extent that the whistleblower wishes to remain anonymous 
through the course of an investigation and resulting enforcement 
action, that whistleblower must have an attorney represent him or her 
in connection with a submission of information and claim for an 
award.\321\ The payment of attorney fees out of the whistleblower award 
would likely reduce the lump sum that could be invested in an annuity. 
Second, if the whistleblower award is awarded to two or more 
individuals who acted together as a joint whistleblower, then the award 
would likely be divided among the individual whistleblowers. Such a 
division of the award among the individual whistleblowers would reduce 
the lump sum that each individual could invest in an annuity.
---------------------------------------------------------------------------

    \320\ We note that the annual incomes presented below are pre-
tax numbers, as are the wage and salary data presented in Section 
VII(A)(4).
    \321\ See 17 CFR 240.21F-7(b)(1).
---------------------------------------------------------------------------

    To illustrate the annual income that a whistleblower could 
potentially receive by investing the lump sum residual award that 
remains after accounting for the factors discussed above, we annuitize 
a range of possible lump sums to generate different streams of 
payments. Such payments could potentially replace the stream of wage 
payments that a whistleblower would lose by leaving his or her 
employer. Alternatively, if the whistleblower experiences no change in 
his or her employment situation, the payments could be interpreted as 
additional income.
    In Table 4 in Section VII(B)(5)(a), we report the annual income 
that could be generated over twenty years by

[[Page 34740]]

investing a lump sum upfront payment in a twenty-year annuity.\322\ To 
capture the potential effects associated with taxes, attorneys' fees, 
and award division among individuals acting as a joint whistleblower, 
we calculate different annual incomes by varying the upfront payment 
from $5 million to $50 million in $5 million increments, and by varying 
the rate of return on the annuity from 2% per annum to 10% per annum in 
2% increments. As an example, investing an upfront amount of $20 
million in the annuity at 2% per annum generates an annual income of 
approximately $1.2 million.\323\ Table 4 indicates that increasing the 
upfront payment while holding the rate of return constant increases the 
annual income; in addition, increasing the rate of return while holding 
the upfront payment constant also increases the annual income. To 
illustrate the effects of lengthening the duration of income 
generation, we repeat the calculations assuming a lump sum investment 
in a forty-year annuity (Table 5 in Section VII(B)(5)(a)), a sixty-year 
annuity (Table 6 in Section VII(B)(5)(a)), and a perpetuity \324\ 
(Table 7 in Section VII(B)(5)(a)). In Tables 5, 6, and 7, we continue 
to calculate different annual incomes by varying the upfront payment 
from $5 million to $50 million in $5 million increments, and by varying 
the rate of return on the annuity from 2% per annum to 10% per annum in 
2% increments.\325\
---------------------------------------------------------------------------

    \322\ The other assumptions used in the calculations are: A 
fixed income is paid at the end of every month; monthly compounding 
of interest; there is no residual income at the end of the annuity; 
the annuity has 12 x 20 = 240 monthly payments; income is pre-tax; 
annual income is 12 multiplied by the monthly income generated by 
the annuity (e.g., for an upfront payment of $20 million and a 2% 
rate of return per annum, the annuity generates a monthly income of 
$101,176.67. Multiplying $101,176.67 by 12 yields the $1,214,120 
figure reported in the table.) These assumptions notwithstanding, we 
note that only a portion of the fixed income generated by a 
purchased commercial annuity is taxable under IRS rules. See 
Internal Revenue Service Publication 939, General Rule for Pensions 
and Annuities available at https://www.irs.gov/pub/irs-pdf/p939.pdf.
    \323\ Id.
    \324\ A perpetuity is a stream of fixed, periodic payments that 
go on indefinitely.
    \325\ The other assumptions used in Table 6-8 are: A fixed 
income is paid at the end of every month; monthly compounding of 
interest; there is no residual income at the end of the annuity; the 
annuity has monthly payments; income is pre-tax; annual income is 12 
multiplied by the monthly income generated by the annuity. These 
assumptions notwithstanding, we note that only a portion of the 
fixed income generated by a purchased commercial annuity is taxable 
under IRS rules. See Internal Revenue Service Publication 939, 
General Rule for Pensions and Annuities available at https://www.irs.gov/pub/irs-pdf/p939.pdf.

                Table 4 in Section VII(B)(5)(a)--Annual Income Generated by a Twenty Year Annuity
 [We assume that a lump sum upfront payment is invested in a twenty-year annuity to generate annual income over
    twenty years. We calculate different annual incomes by varying the upfront payment from $5 million to $50
 million in $5 million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per
                                             annum in 2% increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
         Upfront payment         -------------------------------------------------------------------------------
                                        2%              4%              6%              8%              10%
----------------------------------------------------------------------------------------------------------------
$5,000,000......................        $303,530        $363,588        $429,859        $501,864        $579,013
10,000,000......................         607,060         727,176         859,717       1,003,728       1,158,026
15,000,000......................         910,590       1,090,765       1,289,576       1,505,592       1,737,039
20,000,000......................       1,214,120       1,454,353       1,719,435       2,007,456       2,316,052
25,000,000......................       1,517,650       1,817,941       2,149,293       2,509,320       2,895,065
30,000,000......................       1,821,180       2,181,529       2,579,152       3,011,184       3,474,078
35,000,000......................       2,124,710       2,545,117       3,009,010       3,513,048       4,053,091
40,000,000......................       2,428,240       2,908,706       3,438,869       4,014,912       4,632,104
45,000,000......................       2,731,770       3,272,294       3,868,728       4,516,776       5,211,117
50,000,000......................       3,035,300       3,635,882       4,298,586       5,018,640       5,790,130
----------------------------------------------------------------------------------------------------------------


                Table 5 in Section VII(B)(5)(a)--Annual Income Generated by a Forty Year Annuity
  [We assume that a lump sum upfront payment is invested in a forty-year annuity to generate annual income over
forty years. We calculate different annual incomes by varying the upfront payment from $5 million to $50 million
in $5 million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per annum in
                                                 2% increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
       Upfront payment        -------------------------------------------------------------------------------------
                                     2%              4%              6%              8%              10%       10%
------------------------------------------------------------------------------------------------------------- -----
$5,000,000...................        $181,695        $250,763        $330,128        $417,187        $509,488
10,000,000...................         363,391         501,526         660,256         834,374       1,018,975
15,000,000...................         545,086         752,289         990,385       1,251,561       1,528,463
20,000,000...................         726,782       1,003,052       1,320,513       1,668,748       2,037,950
25,000,000...................         908,477       1,253,815       1,650,641       2,085,935       2,547,438
30,000,000...................       1,090,172       1,504,578       1,980,769       2,503,122       3,056,925
35,000,000...................       1,271,868       1,755,342       2,310,897       2,920,309       3,566,413
40,000,000...................       1,453,563       2,006,105       2,641,025       3,337,496       4,075,900
45,000,000...................       1,635,258       2,256,868       2,971,154       3,754,683       4,585,388
50,000,000...................       1,816,954       2,507,631       3,301,282       4,171,870       5,094,875
----------------------------------------------------------------------------------------------------------------


[[Page 34741]]


                Table 6 in Section VII(B)(5)(a)--Annual Income Generated by a Sixty Year Annuity
  [We assume that a lump sum upfront payment is invested in a sixty-year annuity to generate annual income over
sixty years. We calculate different annual incomes by varying the upfront payment from $5 million to $50 million
in $5 million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per annum in
                                                 2% increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
         Upfront payment         -------------------------------------------------------------------------------
                                        2%              4%              6%              8%              10%
----------------------------------------------------------------------------------------------------------------
5,000,000.......................        $143,163        $220,042        $308,505        $403,373        $501,274
10,000,000......................         286,326         440,083         617,011         806,746       1,002,548
15,000,000......................         429,489         660,125         925,516       1,210,119       1,503,821
20,000,000......................         572,652         880,166       1,234,022       1,613,492       2,005,095
25,000,000......................         715,815       1,100,208       1,542,527       2,016,865       2,506,369
30,000,000......................         858,978       1,320,249       1,851,033       2,420,238       3,007,643
35,000,000......................       1,002,141       1,540,291       2,159,538       2,823,611       3,508,917
40,000,000......................       1,145,304       1,760,332       2,468,044       3,226,984       4,010,191
45,000,000......................       1,288,466       1,980,374       2,776,549       3,630,357       4,511,464
50,000,000......................       1,431,629       2,200,415       3,085,055       4,033,730       5,012,738
----------------------------------------------------------------------------------------------------------------


                   Table 7 in Section VII(B)(5)(a)--Annual Income Generated From a Perpetuity
 [We assume that a lump sum upfront payment is invested in a perpetuity to generate annual income in perpetuity.
    We calculate different annual incomes by varying the upfront payment from $5 million to $50 million in $5
  million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per annum in 2%
                                                   increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
         Upfront payment         -------------------------------------------------------------------------------
                                        2%              4%              6%              8%              10%
----------------------------------------------------------------------------------------------------------------
5,000,000.......................        $100,000        $200,000        $300,000        $400,000        $500,000
10,000,000......................         200,000         400,000         600,000         800,000       1,000,000
15,000,000......................         300,000         600,000         900,000       1,200,000       1,500,000
20,000,000......................         400,000         800,000       1,200,000       1,600,000       2,000,000
25,000,000......................         500,000       1,000,000       1,500,000       2,000,000       2,500,000
30,000,000......................         600,000       1,200,000       1,800,000       2,400,000       3,000,000
35,000,000......................         700,000       1,400,000       2,100,000       2,800,000       3,500,000
40,000,000......................         800,000       1,600,000       2,400,000       3,200,000       4,000,000
45,000,000......................         900,000       1,800,000       2,700,000       3,600,000       4,500,000
50,000,000......................       1,000,000       2,000,000       3,000,000       4,000,000       5,000,000
----------------------------------------------------------------------------------------------------------------

    The annuity figures in Tables 4 through 7 in Section VII(B)(5)(a) 
are consistent with our belief that the proposed $30 million floor 
should not negatively impact the overall pecuniary incentives faced by 
most potential whistleblowers considering whether to come forward to 
the Commission to report potential misconduct.\326\
---------------------------------------------------------------------------

    \326\ It is possible that the proposed rule could introduce 
uncertainty or ambiguity about the likely size of the whistleblower 
award, which may affect the incentives of individuals to report 
potential violations. See e.g., Itzhak Gilboa & David Schmeidler, 
Maxmin Expected Utility with Non-Unique Prior, 18 J. Mathematical 
Econ. 141 (1989) (proposing an axiomatic foundation of a decision 
rule based on maximizing expected minimum payoff of a strategy). See 
also infra note 330.
---------------------------------------------------------------------------

    In addition, to the extent that the costs associated with 
whistleblowing include social stigma and a possible job loss for the 
whistleblower, the employment anti-retaliation protections and 
confidentiality requirements (including, critically, the ability of 
whistleblowers to remain anonymous) can serve to reduce the costs 
associated with whistleblowing to some extent.\327\ Indeed, our 
experience to date has been that many company insiders have submitted 
their tips to the Commission anonymously.
---------------------------------------------------------------------------

    \327\ See 15 U.S.C. 78u-6(d) and (h); 17 CFR 240.21F-9(c).
---------------------------------------------------------------------------

b. Estimating Incentives To Provide Information
    The Commission has sought to provide a quantitative estimate of the 
incentives to provide information via the whistleblower program. We 
acknowledge that a rigorous approach to analyzing the potential impact 
of the proposed changes on whistleblower incentives, would be to 
compare the number of whistleblower tips that resulted in successful 
enforcement actions before and after the establishment of the 
Commission's whistleblower program. Such a comparison could elucidate 
changes in behavior due to the whistleblower program, including 
potentially those due to the provision of monetary awards. However, 
data on whistleblower tips that led to successful enforcement actions 
prior to the establishment of the Commission's whistleblower program is 
not available, thus rendering such a comparison infeasible. Even absent 
such data, the Commission has engaged in a limited comparison of a pre-
2011 awards program with the current whistleblower program. Section 
21A(e) of the Exchange Act, added in 1988, authorized the Commission to 
award a bounty to a person who provides information leading to the 
recovery of a civil penalty from an insider trader, from a person who 
tipped information to an insider traders, or from a person who directly 
or indirectly controlled an insider trader. Section 21A(e) also 
established a limit on bounties of 10% of the amount recovered.
    A March 2010 report by the SEC's Office of the Inspector General 
documented bounty applications and awards under the Commission's bounty 
program since its inception in 1989.\328\ Between 1989 and 2010, the 
program had paid a total of $159,537 to five claimants in seven insider 
trading cases, at the statutory limit of 10% of

[[Page 34742]]

recoveries.\329\ In contrast, since the inception of the whistleblower 
program in 2011 the Commission has ordered a single whistleblower 
payout related to an insider trading case, and that payout was less 
than $500,000.
---------------------------------------------------------------------------

    \328\ See U.S. Securities and Exchange Commission, Office of the 
Inspector General, Assessment of the SEC's Bounty Program, March 29, 
2010.
    \329\ Id at 5.
---------------------------------------------------------------------------

    Any comparison of the bounty program and the whistleblower program 
is limited by substantial differences between the bounty program and 
the whistleblower program in scope and process. Although the number of 
payments in insider trading cases has declined under the current 
program, the larger scope and breadth of the whistleblower program has 
resulted in a substantial increase in the number and magnitude of 
payments overall. Differences in measures of whistleblower incentives 
before and after the establishment of the whistleblower program likely 
will reflect a combination of changes to Commission processes that 
occurred simultaneously or very close in time, limiting our ability to 
identify the impact of any single change on whistleblower incentives. 
For example, while the 2011 rules implemented an increase in the 
maximum award percentage to 30% from the previous 10% maximum, they 
also established a 10% minimum award percentage.\330\ Further, the 2011 
rules also increased the scope of potential claims to include actions 
beyond insider trading and established an Office of the Whistleblower, 
actions that likely served to increase the prominence of the 
whistleblower program relative to the bounty program that preceded it. 
The implementing rules also set forth an updated process for the 
submission and evaluation of claims following criticisms that the 
bounty program was opaque and difficult for whistleblowers to navigate. 
Further, the statutory changes to the Exchange Act that established the 
whistleblower program also included explicit whistleblower protections. 
As we acknowledge that these factors limit the degree to which we can 
assess the potential impact on incentives of the proposed changes to 
the whistleblower program based on the transition from the bounty 
program to the whistleblower program, the Commission welcomes comment 
on changes to other whistleblower programs or alternative analytical 
methods that would permit more precise identification and 
quantification of the proposal's potential impacts.
---------------------------------------------------------------------------

    \330\ See S. Rep. No. 111-176 at 110-12 (2010) at 111 (noting 
the majority view that ``the critical component of the Whistleblower 
Program is the minimum that any individual could look towards in 
determining whether to take the enormous risk of blowing the whistle 
in calling attention to fraud'').
---------------------------------------------------------------------------

c. Alternatives
    The Commission has considered several alternatives to proposed Rule 
21F-6(d). We discuss each of those alternatives below.
    The first alternative is to set the floor at $5 million, and the 
second alternative is to set the floor at $50 million.
    We believe that a $5 million floor could potentially apply to 
awards that are not the focus of the proposed amendment. As indicated 
in Table 1 of Section VII(A)(3), approximately 16% of past 
whistleblower awards are at least $5 million. To the extent that the 
distribution of past awards is a reasonable estimate of the 
distribution of likely future awards, this floor could result in the 
enhanced review of awards that are aligned with the program's goals. 
Because the focus of the proposed rule is on large awards that are not 
reasonably necessary to achieve the program's goals and that could 
disproportionately diminish the IPF, the $5 million floor is not 
preferable to the proposed approach.
    A $50 million floor is not preferable to the proposed approach. We 
have not granted awards that are at least $50 million. Even if there 
were some cases where the proposed rule might be triggered, our 
discretion to make a meaningful and appropriate downward adjustment 
would be substantially reduced. Thus, the $50 million floor would 
likely not support the proposed rule's goal of ensuring that the likely 
total award payout to the whistleblower does not exceed an amount that 
the Commission determines is appropriate to further the goals of the 
whistleblower program. Because of this concern, we believe that the $50 
million floor is not preferable to the proposed approach.
6. Proposed Rule 21F-8(e)
    Under proposed Rule 21F-8(e), if an applicant submits three or more 
award applications that the Commission finds to be frivolous or lacking 
a colorable connection between the tip and the Commission action, the 
Commission may permanently bar the applicant from submitting any 
additional award applications (either for Commission actions or related 
actions) and the Commission would not consider any other award 
applications that the claimant has submitted or may seek to submit in 
the future.
    The proposed rule would expressly provide, however, that the Office 
of the Whistleblower shall as a preliminary matter advise any claimant 
of the Office's assessment that the claimant's award application for a 
Commission action is frivolous or lacking a colorable connection 
between the tip and the action for which the applicant has sought an 
award. If the applicant withdraws the application at that time, it 
would not be considered by the Commission in determining whether to 
exercise its authority to impose a bar.
    In addition, the proposed rule would generally codify the 
Commission's current practice with respect to applicants who violate 
Rule 21F-8(c)(7).\331\ That rule provides that an applicant shall be 
ineligible for an award if, in his or her whistleblower submission, his 
or her other dealings with the Commission, or his or her dealings with 
another authority in connection with a related action, the individual 
knowingly and willfully makes any false, fictitious, or fraudulent 
statement or representation, or uses any false writing or document 
knowing that it contains any false, fictitious, or fraudulent statement 
or entry with intent to mislead or otherwise hinder the Commission or 
another authority. The Commission has issued two final orders that have 
permanently barred the applicants from submitting any further 
whistleblower award applications based on violations of Rule 21F-
8(c)(7). The proposed rule would clarify and codify the Commission's 
authority to bar applicants by providing that if the Commission finds 
that a claimant has violated paragraph (c)(7) of Rule 21F-8, the 
Commission may permanently bar the applicant from making any future 
award applications, and shall decline to process any other award 
applications that the claimant has already submitted.
---------------------------------------------------------------------------

    \331\ 17 CFR 240.21F-8(c)(7).
---------------------------------------------------------------------------

    The proposed rule could increase the speed and efficiency of the 
award determination process.\332\ By permanently barring applicants 
that make three or more frivolous award applications, as well as not 
processing any future applications from these barred applicants, the 
proposed rule could help free up staff resources that could then be 
devoted to processing potentially meritorious award applications. In 
the Commission's experience to date, two individuals have submitted 
approximately 24% of all award applications in connection with 
Commission covered actions. All but one of the applications submitted 
by

[[Page 34743]]

these two individuals have been found by the Office of the 
Whistleblower to be entirely frivolous. To the extent that the agency's 
historical experience is informative about the likely behavior of 
applicants that submit multiple frivolous award applications in the 
future, the proposed rule would have a meaningful impact in terms of 
freeing up staff resources that could then be devoted to processing 
potentially meritorious award applications. This redeployment of staff 
resources in turn could expedite the processing of potentially 
meritorious award applications. More broadly, staff resources that are 
freed up as a result of the proposed rule could be devoted to other 
work related to the whistleblower program including, but not limited 
to, the posting of Notices of Covered Actions, determining potential 
payouts, and manning the whistleblower hotline.\333\ Further, as 
discussed in Section II(F), above, we have found that the repeat 
applicants that would be covered by proposed Rule 21F-8(e)(1) can 
significantly delay the processing of meritorious award applications 
and the eventual payment of awards by utilizing the procedural 
opportunities to object to an award. By barring such applicants, the 
proposed rule could reduce the delay in processing meritorious award 
applications and the eventual payment of awards.
---------------------------------------------------------------------------

    \332\ We acknowledge that this potential benefit rests, in part, 
on the premise that the applicants covered by the proposed rule 
would likely not change their behavior with respect to the overall 
award determination process. For example, an applicant that has been 
found to submit multiple frivolous award applications in the past 
would likely continue to do so in the future.
    \333\ To help promote the SEC's whistleblower program and 
establish a line of communication with the public, the Office of the 
Whistleblower operates a hotline where whistleblowers, their 
attorneys, or other members of the public with questions about the 
program may call to speak to the Office of the Whistleblower's 
staff. During FY 2017, the Office of the Whistleblower returned 
nearly 3,200 calls from members of the public, exceeding the number 
of calls returned the prior fiscal year. Since May 2011 when the 
hotline was established, the Office of the Whistleblower has 
returned over 18,600 calls from the public. See SEC Whistleblower 
Program 2017 Annual Report to Congress (Nov. 15, 2017), available at 
https://www.sec.gov/files/sec-2017-annual-report-whistleblower-program.pdf.
---------------------------------------------------------------------------

    The abovementioned benefit would also potentially arise from the 
proposed rule's deterrent effect to the extent that the proposed rule 
discourages individuals from submitting frivolous award applications 
because they recognize that the submission of frivolous award 
applications may ultimately permanently disqualify them from obtaining 
a whistleblower award.
    Overall, the proposed rule could increase the speed and efficiency 
of the award determination process by expediting the processing of 
potentially meritorious award applications, as well as the payment of 
awards. To the extent that faster award application processing and 
award payment motivate whistleblowing, individuals are more likely to 
come forward and report potential violations as a result of the 
proposed rule.
    The proposed rule could help protect investors and the public from 
potential harm (particularly where the misconduct concerns ongoing 
Commission actions) that may flow from the provision of false, 
fictitious, or fraudulent statement or representation, or false writing 
or document with intent of misleading or otherwise hindering the 
Commission or another authority. This benefit would potentially arise 
because the proposed rule would grant the Commission discretion to 
permanently bar applicants that violated Rule 21F-8(c)(7) from 
submitting any future award applications.\334\ This benefit would also 
potentially arise from the proposed rule's deterrent effect to the 
extent that the proposed rule discourages individuals from engaging in 
the conduct prohibited by Rule 21F-8(c)(7), particularly when they are 
submitting their award applications, because they should recognize that 
it may not only lead to a denial of their current award claim but may 
also permanently disqualify them from obtaining a whistleblower award.
---------------------------------------------------------------------------

    \334\ See supra text accompanying notes 184-189, 331.
---------------------------------------------------------------------------

    Individuals who are permanently barred under the proposed rule 
might subsequently have information about possible securities law 
violations that could be provided to the Commission. To the extent that 
these barred individuals' decision to report is based solely on the 
pecuniary motivation of obtaining a whistleblowing award, these 
individuals may decide not to report even if they have information 
about possible violations because they can no longer obtain a 
whistleblower award as a result of the proposed rule. We believe that 
this potential cost of the proposed rule could be mitigated by a number 
of factors.
    First, the number of individuals who may be permanently barred by 
the proposed rule for submitting three or more frivolous applications 
and who might subsequently have information about possible securities 
law violations that could be provided to the Commission is likely to be 
a small fraction of the population of award applicants. Based on our 
experience to date, we have found that individuals that submitted three 
or more award applications make up 6.6% of the population of covered 
action award applicants. This estimate constitutes an upper bound of 
the actual fraction of applicants that submitted three or more 
frivolous applications and subsequently had information about possible 
securities law violations that could be provided to the 
Commission.\335\ To the extent that our estimate is informative of the 
likely fraction of award applicants who may be permanently barred by 
the proposed rule, the potential cost associated with the proposed rule 
would be limited.
---------------------------------------------------------------------------

    \335\ To date, four applicants submitted three or more 
applications that were determined to be potentially meritorious and 
not frivolous.
---------------------------------------------------------------------------

    Second, as discussed above, the Commission has issued two final 
orders that have permanently barred the applicants from submitting any 
further whistleblower award applications based on violations of Rule 
21F-8(c)(7). The proposed rule would clarify and codify the 
Commission's authority to bar applicants by providing that if the 
Commission finds that a claimant has violated paragraph (c)(7) of Rule 
21F-8, the Commission may permanently bar the applicant from making any 
future award applications, and shall decline to process any other award 
applications that the claimant has already submitted. Given that the 
proposed rule codifies the Commission's current practice, we believe 
that individuals who have been barred on the basis of Rule 21F-8(c)(7) 
would have already taken such current practice into account when 
deliberating on whether to report, even in the absence of the proposed 
rule.
    Finally, as discussed in the adopting release that accompanied the 
original whistleblower rules, whistleblowing is an individual decision 
that is generally guided by a complex mix of pecuniary elements and 
non-pecuniary elements.\336\ Individuals that are permanently barred 
from applying for whistleblower awards may still come forward and 
provide information about possible violations if they are sufficiently 
motivated by non-pecuniary elements.\337\
---------------------------------------------------------------------------

    \336\ See Securities Whistleblower Incentives and Protections 
Adopting Release, 76 FR at 34355, note 433.
    \337\ Id. An example of a non-pecuniary element is a sense of 
``doing the right thing.''
---------------------------------------------------------------------------

    We also acknowledge the possibility that individuals who have made 
fewer than three frivolous award applications \338\ might be 
discouraged from reporting possible securities law violations because 
their next award application could be determined to be frivolous, which 
would increase the likelihood of a permanent bar from making any future 
award applications.

[[Page 34744]]

We believe that this potential cost of the proposed rule could be 
mitigated by a number of factors.
---------------------------------------------------------------------------

    \338\ These individuals include those who are considering 
reporting a possible violation for the first time, those who have 
made one frivolous claim, and those who have made two frivolous 
claims.
---------------------------------------------------------------------------

    First, as discussed above, the proposed rule would expressly 
provide that the Office of the Whistleblower shall as a preliminary 
matter advise any claimant of the Office's assessment that the 
claimant's award application for a Commission action is frivolous or 
lacking a colorable connection between the tip and the action for which 
the applicant has sought an award. If the applicant withdraws the 
application at that time, it would not be considered by the Commission 
in determining whether to exercise its authority to impose a bar. We 
believe that this aspect of the proposed rule should alleviate the 
concerns among those individuals who have made fewer than three 
frivolous award applications that their next award application could be 
determined to be frivolous, which would increase the likelihood of a 
permanent bar from making any future award applications. Second, the 
claims adjudication processes that are specified in Rule 21F-10 and 
Rule 21F-11 afford a whistleblower the opportunity to demonstrate the 
meritorious nature of her claim should her claim be preliminarily 
denied on the grounds of being frivolous. Thus, the claims adjudication 
processes should help ensure that potentially meritorious claims will 
be considered as such by the Commission. Third, as discussed above, 
whistleblowing is an individual decision that is generally guided by a 
complex mix of pecuniary elements and non-pecuniary elements.\339\ 
Individuals who are concerned about being permanently barred from 
applying for whistleblower awards may still come forward and provide 
information about possible violations if they are sufficiently 
motivated by non-pecuniary elements.\340\
---------------------------------------------------------------------------

    \339\ See Securities Whistleblower Incentives and Protections 
Adopting Release, 76 FR at 34355, note 433.
    \340\ Id. An example of a non-pecuniary element is a sense of 
``doing the right thing.''
---------------------------------------------------------------------------

7. Proposed Rule 21F-18
    Proposed Rule 21F-18(a) provides that the Office of the 
Whistleblower may use a summary disposition process to deny any award 
application that falls within any of the following categories: (1) 
Untimely award application; \341\ (2) noncompliance with the 
requirements of Rule 21F-9,\342\ which concerns the manner for 
submitting a tip to qualify as a whistleblower and to be eligible for 
an award; (3) claimant's information was never provided to or used by 
the staff handling the covered action or the underlying investigation 
(or examination), and those staff members otherwise had no contact with 
the claimant; (4) noncompliance with Rule 21F-8(b),\343\ which requires 
an applicant to submit supplemental information that the Commission may 
require \344\ and to enter into a confidentiality agreement; or (5) 
failure to specify in the award application the submission that the 
claimant made pursuant to Rule 21F-9(a) \345\ upon which the claim to 
an award is based. In addition, the proposed rule would provide that 
other defective or non-meritorious award applications could be subject 
to the summary disposition process under appropriate circumstances. 
Proposed Rule 21F-18(b) specifies the procedures that shall apply to 
any award application designated for summary disposition.
---------------------------------------------------------------------------

    \341\ The time periods for submitting an award application are 
specified in Rule 21F-10(b) and Rule 21F-11(b). See 17 CFR 240.21F-
10(b) & 11(b).
    \342\ 17 CFR 240.21F-9.
    \343\ 17 CFR 240.21F-8(b).
    \344\ The authority to require additional information of an 
applicant is delegated to the Office of the Whistleblower. See 17 
CFR 240.21F-10(d).
    \345\ 17 CFR 240.21F-9(a).
---------------------------------------------------------------------------

    The proposed rule could reduce the diversion of staff resources and 
time that it might otherwise take to process claims that may be 
rejected on straightforward grounds. An award application that is 
processed by the proposed summary disposition process would not require 
the Claims Review Staff to review the record, issue a Preliminary 
Determination, consider any written response filed by the claimant, or 
issue the Proposed Final Determination; these functions would be 
assumed by the Office of the Whistleblower. The summary disposition 
process incorporates two other modifications. First, the 30-day period 
for replying to a Preliminary Summary Disposition is shorter than the 
time period for replying to a Preliminary Determination provided for in 
Rules 21F-10(e)(2) \346\ and 21F-11(e)(2).\347\ This shorter period 
should be sufficient for a claimant to reply and that it is appropriate 
given that the matters subject to summary disposition should be 
relatively straightforward. Second, a claimant would not have the 
opportunity to receive the full administrative record upon which the 
Preliminary Denial was based. Instead, the Office of the Whistleblower 
would (to the extent appropriate given the nature of the denial) 
provide the claimant with a staff declaration that contains the 
pertinent facts upon which the Preliminary Summary Disposition is 
based. This modification from the record-review process specified in 
Rules 21F-10 and 21F-11 should still afford any claimant a sufficient 
opportunity to provide a meaningful reply to a Preliminary Summary 
Disposition. This should eliminate the delay that can arise when a 
claimant does not expeditiously request the record (which in turn 
delays the start of the 60-day period for a claimant to submit a 
response to a preliminary determination); elimination of these delays 
should help further expedite the summary adjudication process that we 
are proposing.
---------------------------------------------------------------------------

    \346\ 17 CFR 240.21F-10(e)(2).
    \347\ 17 CFR 240.21F-11(e)(2).
---------------------------------------------------------------------------

    As with Proposed Rule 21F-8(e), staff resources that are freed up 
as a result of the proposed rule could be devoted to processing 
potentially meritorious award applications. This, in turn, could 
expedite the processing of potentially meritorious award applications. 
To the extent that faster processing of potentially meritorious award 
applications motivates whistleblowing, individuals may be more likely 
to come forward and report potential violations as a result of the 
proposed rule. Further, as noted in the discussion of proposed Rule 
21F-8(e) above, staff resources that are freed up as a result of the 
proposed rule could be devoted to other work related to the 
whistleblower program.
    We acknowledge the potential that certain aspects of the proposed 
rule might make it more difficult for whistleblowers to respond to the 
denial of award applications. The proposed rule might reduce the 
whistleblowing incentives of those individuals who consider the ease of 
responding to award application denials when deciding whether to come 
forward and report potential violations.
    However, certain factors limit this potential for increased 
difficulties for whistleblowers. First, given that the matters subject 
to summary disposition should be relatively straightforward, we believe 
that the 30-day period for replying to a Preliminary Summary 
Disposition and the provision of a staff declaration (where applicable) 
should afford any claimant a sufficient opportunity to provide a 
meaningful reply to a Preliminary Summary Disposition. Second, as 
discussed above, the proposed rule may only be used to deny award 
applications that fall under certain restricted categories. Third, as 
discussed in the adopting release that accompanied the original 
whistleblower rules, whistleblowing is an individual decision that is 
generally guided by a complex mix of pecuniary elements and non-
pecuniary

[[Page 34745]]

elements.\348\ Individuals who may be concerned with the ease of 
responding to award application denials may still come forward and 
provide information about possible violations if they are sufficiently 
motivated by non-pecuniary elements.
---------------------------------------------------------------------------

    \348\ See Securities Whistleblower Incentives and Protections 
Adopting Release, 76 FR at 34355, note 433.
---------------------------------------------------------------------------

8. Proposed Interpretive Guidance Regarding the Meaning and Application 
of ``independent analysis'' as Defined in Exchange Act Rule 21F-4(b)(3) 
\349\
---------------------------------------------------------------------------

    \349\ 17 CFR 240.21F-4(b)(3).
---------------------------------------------------------------------------

    The proposed interpretive guidance helps to 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.'' As 
discussed earlier, a whistleblower's examination and evaluation of 
publicly available information does not constitute ``analysis'' if the 
facts disclosed in the public materials on which the whistleblower 
relies and in other publicly available information are sufficient to 
raise an inference of the possible violations alleged in the 
whistleblower's tip. In order for a whistleblower to be credited with 
``analysis,'' the whistleblower's examination and evaluation should 
contribute ``significant independent information'' that ``bridges the 
gap'' between the publicly available information and the possible 
securities violations. Assuming that a whistleblower's submission meets 
the threshold requirement that it constitutes ``independent analysis,'' 
for the whistleblower to be eligible for an award the ``information 
that . . . is derived from the . . . [whistleblower's] analysis'' must 
also be of such high quality that it leads to a successful enforcement 
action.
    The interpretive guidance could potentially reduce the 
whistleblowing incentives of those individuals who wish to satisfy the 
``independent analysis'' prong of the ``original information'' 
requirement by examining publicly available information and providing 
observations that do not go beyond the information itself and 
reasonable inferences to be drawn therefrom. In light of the 
interpretive guidance, these individuals may decide not to provide such 
public information knowing that such information would not be credited 
as ``independent analysis'' and therefore not eligible for a 
whistleblower award. To the extent that the provision of public 
information improves Commission enforcement or otherwise provides a 
benefit, any potential reduction in such provision would be a cost 
associated with the interpretive guidance. Nevertheless, individuals 
who are aware that public information would not be credited with 
``independent analysis'' may still come forward and provide public 
information to the Commission if they are sufficiently motivated by 
non-pecuniary elements.
    The interpretive guidance could increase the whistleblowing 
incentives of those individuals who possess ``significant independent 
information'' that ``bridges the gap'' between the publicly available 
information (and reasonable inferences therefrom) and the conclusion 
that possible securities violations are indicated, but may decide 
against reporting to the Commission because they do not fully 
understand the meaning of ``independent analysis'' in the absence of 
the interpretive guidance. To the extent that these individuals come 
forward and report such significant independent information to the 
Commission in light of the interpretive guidance, the quantity and 
quality of reported information might increase, which in turn might 
improve the Commission's ability to enforce Federal securities laws, 
detect violations and deter potential future violations. Further, the 
clarification afforded by the interpretive guidance might also reduce 
the number of award applications that are made solely on the basis of 
the provision of public information and do not meet the ``independent 
analysis'' threshold. To the extent that the number of such claims 
declines as a result of the interpretive guidance, staff resources 
could be freed up and devoted to processing potentially meritorious 
award applications and other work related to the whistleblower program 
as discussed earlier.\350\
---------------------------------------------------------------------------

    \350\ See supra Sections VII(B)(6) and VII(B)(7).
---------------------------------------------------------------------------

C. Effects of the Proposed Rules on Efficiency, Competition, and 
Capital Formation

    As discussed earlier, the Commission is sensitive to the economic 
consequences of its rules, including the benefits, costs, and effects 
on efficiency, competition, and capital formation. The Commission 
believes that the proposed amendments will make incremental changes to 
its whistleblower program. Thus, the Commission does not anticipate the 
effects on efficiency, competition, and capital formation to be 
significant.
    The proposed rules could have a positive indirect impact on 
investment efficiency and capital formation by increasing the 
incentives of potential whistleblowers to provide information on 
possible violations.\351\ Providing such information could increase the 
effectiveness of the Commission's enforcement activities More effective 
enforcement could lead to earlier detection of violations and increased 
deterrence of potential future violations, which should assist in a 
more efficient allocation of investment funds. Serious securities 
frauds, for example, can cause inefficiencies in the economy by 
diverting investment funds from more legitimate, productive uses.\352\
---------------------------------------------------------------------------

    \351\ See supra Section VII(B) for a discussion of how proposed 
Rules 21F-2(d)(1)(iii), 21F-4(d)(3), 21F-6(c), 21F-8(e), 21F-18, and 
the interpretive guidance could increase whistleblowing incentives.
    \352\ See Securities Whistleblower Incentives and Protections 
Adopting Release, 76 FR at 34362.
---------------------------------------------------------------------------

    Additionally, to the extent that the proposed rules increase 
deterrence of potential future violations, investors' trust in the 
securities markets would also increase. This increased investor trust 
will promote lower capital costs as more investment funds enter the 
market, and as investors generally demand a lower risk premium due to a 
reduced likelihood of securities fraud.\353\ This, too, should promote 
the efficient allocation of capital formation.
---------------------------------------------------------------------------

    \353\ See id. note 466, which explains the link between investor 
trust in the fairness of the market and capital cost (``If investors 
fear theft, fraud, manipulation, insider trading, or conflicted 
investment advice, their trust in the markets will be low, both in 
the primary market for issuance or in the secondary market for 
trading. This would increase the cost of raising capital, which 
would impair capital formation--in the sense that it will be less 
than it would or should be if rules against such abuses were in 
effect and properly enforced and obeyed.''). See also Ko, K. Jeremy, 
``Economics Note: Investor Confidence'', October 2017, available at 
https://www.sec.gov/files/investor_confidence_noteOct2017.pdf.
---------------------------------------------------------------------------

    At the same time, some proposed rules could reduce whistleblowing 
incentives in certain cases, although any such reduction in 
whistleblowing incentives--to the extent that it occurs--is justified 
in light of the positive indirect impact on investment efficiency and 
capital formation discussed earlier. Proposed Rule 21F-6(d) could 
reduce the whistleblowing incentives of those potential whistleblowers 
who anticipate receiving awards in excess of $30 million and make their 
reporting decision by trading off the expected size of the award 
against the expected costs associated with whistleblowing.\354\ 
Proposed Rule 21F-8(e) might reduce the whistleblowing incentives of 
(i) those individuals who are permanently barred under the proposed 
rule from submitting award applications and (ii)

[[Page 34746]]

those individuals who have made fewer than three frivolous award 
applications. Proposed Rule 21F-18 might reduce the whistleblowing 
incentives of those individuals who consider the ease of responding to 
award application denials when deciding whether to come forward and 
report potential violations. The interpretive guidance might reduce the 
whistleblowing incentives of those individuals who wish to rely on the 
provision of solely public information to satisfy the ``independent 
analysis'' prong of the ``original information'' requirement for a 
whistleblower award. These potential reductions in whistleblowing 
incentives may be limited for reasons discussed earlier.\355\ Further, 
we reiterate our belief that any such reduction in whistleblowing 
incentives--to the extent that is occurs--is justified in light of the 
positive impact on investment efficiency and capital formation 
discussed earlier.
---------------------------------------------------------------------------

    \354\ See supra SectionVII(B)(4).
    \355\ See supra Sections VII(B)(4), VII(B)(6), VII(B)(7), and 
VII(B)(8).
---------------------------------------------------------------------------

    The proposed rules that provide the Commission with additional 
considerations for awards may have opposite, albeit indirect, impacts 
on investment efficiency and capital formation by potentially altering 
the level of monetary incentives that whistleblower would expect at 
different recovery levels. On one hand, proposed Rule 21F-6(d) could 
reduce the whistleblowing incentives of those individuals who 
anticipate receiving awards in excess of $30 million by reducing their 
anticipated award to an amount of $30 million or greater; on the other 
hand proposed Rule 21F-6(c) could enhance the whistleblowing incentives 
of those individuals who anticipate receiving awards below $2 million 
by increasing their anticipated award to an amount of up to $2 million.
    The proposed rules could also improve other forms of efficiency. 
Proposed Rule 21F-3(b)(4) and proposed Rule 21F-6(d) could foster a 
more efficient use of the IPF by avoiding awards that are not 
reasonably necessary in light of the whistleblower program's goals and 
the interests of investors and the broad public interest. Further, 
certain proposed rules could promote efficiency in the processing of 
award applications. By permanently barring applicants that make 
frivolous or fraudulent award applications, proposed Rule 21F-8(e) 
could help free up staff resources that could be used to expedite the 
processing of potentially meritorious award applications as well as the 
payment of awards. Staff resources that are freed up as a result of 
proposed Rule 21F-18 could also expedite the processing of potentially 
meritorious award applications. As discussed in Sections VII(B)(6) and 
VII(B)(7) above, to the extent that faster award application processing 
and award payment motivate whistleblowing, individuals are more likely 
to come forward and report potential violations as a result of proposed 
Rule 21F-8(e) and proposed Rule 21F-18. To the extent that the proposed 
rules promote the timely reporting of possible violations by increasing 
whistleblowing incentives and prevent the provision of false, 
fictitious, or fraudulent statement or representation, or a false 
writing or document with intent of misleading or otherwise hindering 
the Commission or another authority,\356\ the efficiency in detecting 
violations would be enhanced in the sense that violations could be 
detected sooner, reducing losses associated with the misuse of 
resources. Greater efficiency in detecting violations could also speed 
up the public disclosure of such violations to securities markets. 
Price efficiency could be improved if earlier public disclosure of 
violations speeds up the incorporation of such news into security 
prices.
---------------------------------------------------------------------------

    \356\ See supra Section VII(B)(6).
---------------------------------------------------------------------------

    Similar to the effects on capital formation, the effects of the 
proposed rules on competition would be indirect, and would flow from 
their effects on whistleblowing incentives. To the extent that the 
proposed rules increase the likelihood of detecting misconduct by 
increasing whistleblowing incentives, the proposed rules could reduce 
the unfair competitive advantages that some companies can achieve by 
engaging in undetected violations.\357\ Conversely, to the extent that 
the proposed rules decrease the likelihood of detecting misconduct by 
reducing whistleblowing incentives, the proposed rules could increase 
the unfair competitive advantages that some companies can achieve by 
engaging in undetected violations.
---------------------------------------------------------------------------

    \357\ See 76 FR at 34362.
---------------------------------------------------------------------------

Request for Comment
    The Commission seeks commenters' views on all aspects of its 
economic analysis of the proposed amendments. In particular, the 
Commission asks commenters to consider the following questions:
    1. Are there costs and benefits associated with the proposed 
amendments that the Commission has not identified? If so, please 
identify them and if possible, offer ways of estimating these costs and 
benefits.
    2. Do, and if so at what point, awards become unreasonably large in 
light of the goals of the whistleblower program? Please explain and 
provide details.
    3. Are there effects on efficiency, competition, and capital 
formation stemming from the proposed amendments that the Commission has 
not identified? If so, please identify them and explain how the 
identified effects result from one or more amendments.
    4. How will lowering award amounts based on dollar figures impact 
the incentives of whistleblowers to provide the Commission with 
information on misconduct? Will potential whistleblowers view the $30 
million floor as a cap? Why or why not?
    5. Are there data sources or data sets that can help the Commission 
refine its estimates of the lost wages earned by whistleblowers from 
their previous jobs? Besides lost wages, are there other ways to 
determine the effectiveness of whistleblower awards?
    6. Are there alternatives to the proposed rules that the Commission 
has not identified? If so, please identify and describe them.

IX. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\358\ the Commission solicits data to 
determine whether the proposed rule amendments constitute a ``major'' 
rule. Under SBREFA, a rule is considered ``major'' where, if adopted, 
it results or is likely to result in:
---------------------------------------------------------------------------

    \358\ Public Law 104-121, tit. II, 110 Stat 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    Commenters should provide empirical data on (a) the potential 
annual effect on the economy; (b) any increase in costs or prices for 
consumers or individual industries; and (c) any potential effect on 
competition, investment or innovation.

X. Regulatory Flexibility Act Certification

    Section 603(a) of the Regulatory Flexibility Act \359\ requires the 
Commission to undertake an initial regulatory flexibility analysis of 
the proposed rules unless the Commission certifies that the proposed 
rules, if

[[Page 34747]]

adopted, would not have a significant economic impact on a substantial 
number of small entities.\360\
---------------------------------------------------------------------------

    \359\ 5 U.S.C. 603(a).
    \360\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    Small entity is defined in 5 U.S.C. 601(6) to mean ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction'' as defined in 5 U.S.C. 601(3)-(5). The definition of 
``small entity'' does not include individuals. The proposed rules apply 
only to an individual, or individuals acting jointly, who provide 
information to the Commission relating to the violation of the 
securities laws. Companies and other entities are not eligible to 
participate in the whistleblower program as whistleblowers. 
Consequently, the persons that would be subject to the proposed rule 
are not ``small entities'' for purposes of the Regulatory Flexibility 
Act.
    For the reasons stated above, the Commission certifies, pursuant to 
5 U.S.C. 605(b) of the Regulatory Flexibility Act, that the proposed 
rules would not have a significant economic impact on a substantial 
number of small entities.
    Solicitation of Comments: We encourage the submission of comments 
with respect to any aspect of this Regulatory Flexibility Act 
Certification. To the extent that commenters believe that the proposed 
rules might have a covered impact, we ask they describe the nature of 
any impact and provide empirical data supporting the extent of the 
impact. We will place any such comments in the same public file as 
comments on the proposed amendments themselves.

XI. Statutory Basis

    The Commission proposes the rule amendments, as well as the removal 
of references to various forms, contained in this document under the 
authority set forth in Sections 3(b), 21F, and 23(a) of the Exchange 
Act.

List of Subjects in 17 CFR Parts 240 and 249

    Securities, Whistleblowing.

Text of the Proposed Amendments

    For the reasons set out in the preamble, title 17, chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and 
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602, 
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Section 240.21F is also issued under Pub. L. 111-203, Sec.  
922(a), 124 Stat. 1841 (2010).
* * * * *
0
2. Section 240.21F-2 is revised to read as follows:


Sec.  240.21F-2  Whistleblower status, award eligibility, and 
confidentiality and retaliation protections.

    (a) Whistleblower status. (1) You are a whistleblower for purposes 
of Section 21F of the Exchange Act (15 U.S.C. 78u-6) as of the time 
that, alone or jointly with others, you provide the Commission with 
information in writing that relates to a possible violation of the 
federal securities laws (including any law, rule, or regulation subject 
to the jurisdiction of the Commission) that has occurred, is ongoing, 
or is about to occur.
    (2) A whistleblower must be an individual. A company or other 
entity is not eligible to be a whistleblower.
    (b) Award eligibility. To be eligible for an award under Section 
21F(b) of the Exchange Act (15 U.S.C. 78u-6(b)) based on any 
information you provide that relates to a possible violation of the 
federal securities laws, you must comply with the procedures and the 
conditions described in Sec. Sec.  240.21F-4, 240.21F-8, and 240.21F-9. 
You should carefully review those rules before you submit any 
information that you may later wish to rely upon to claim an award.
    (c) Confidentiality protections. To qualify for the confidentiality 
protections afforded by Section 21F(h)(2) of the Exchange Act (15 
U.S.C. 78u-6(h)(2)) based on any information you provide that relates 
to a possible violation of the federal securities laws, you must comply 
with the procedures and the conditions described in Sec.  240.21F-9(a).
    (d) Retaliation protections. (1) To qualify for the retaliation 
protections afforded by Section 21F(h)(1) of the Exchange Act (15 
U.S.C. 78u-6(h)(1)), you must satisfy all of the following criteria:
    (i) You must qualify as a whistleblower under paragraph (a) of this 
section before experiencing the retaliation for which you seek redress;
    (ii) You must reasonably believe that the information you provide 
to the Commission under paragraph (a) of this section relates to a 
possible violation of the federal securities laws; and
    (iii) You must perform a lawful act that meets the following two 
criteria:
    (A) First, the lawful act must be performed in connection with any 
of the activities described in Section 21F(h)(1)(A)(i) through (iii) of 
the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)(i) through (iii)); and
    (B) Second, the lawful act must relate to the subject matter of 
your submission to the Commission under paragraph (a) of this section.
    (2) To receive retaliation protection for a lawful act described in 
paragraph (d)(1)(iii) of this section, you do not need to qualify as a 
whistleblower under paragraph (a) of this section before performing the 
lawful act, but you must qualify as a whistleblower under paragraph (a) 
of this section before experiencing retaliation for the lawful act.
    (3) To qualify for retaliation protection, you do not need to 
satisfy the procedures and conditions for award eligibility in 
Sec. Sec.  240.21F-4, 240.21F-8, and 240.21F-9.
    (4) Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), 
including any rules promulgated thereunder, shall be enforceable in an 
action or proceeding brought by the Commission.
0
3. Section 240.21F-3 is amended by:
0
a. Revising paragraph (b)(1); and
0
b. Adding paragraph (b)(4).
    The revision and addition read as follows:


Sec.  240.21F-3  Payment of awards.

* * * * *
    (b) * * *
    (1)(i) A related action is a judicial or administrative action that 
is brought by one of the entities listed in paragraphs (b)(1)(i)(A) 
through (D) of this section, that is based upon information that either 
the whistleblower provided directly to the entity or the Commission 
itself passed along to the other entity pursuant to the Commission's 
procedures for sharing information, and which is 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.
    (A) The Attorney General of the United States;
    (B) An appropriate regulatory authority;
    (C) A self-regulatory organization; or
    (D) A state attorney general in a criminal case.

[[Page 34748]]

    (ii) The terms appropriate regulatory authority and self-regulatory 
organization are defined in Sec.  240.21F-4.
* * * * *
    (4)(i) Notwithstanding paragraph (b)(1) of this section, 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.
    (ii) 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 will consider the nature, 
scope, and impact of the misconduct charged in the potential related 
action, and its relationship to the federal securities laws. This 
inquiry may include consideration of, among other things:
    (A) The relative extent to which the misconduct charged in the 
potential related action implicates the public policy interests 
underlying the federal securities laws (such as investor protection) 
versus other law-enforcement or regulatory interests (such as tax 
collection or fraud against the Federal Government);
    (B) 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
    (C) 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.
    (iii) If the Commission does determine 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. Additionally, if the Commission makes an award before an award 
determination is finalized by the authority responsible for 
administering the other award scheme, the Commission shall condition 
its award on the meritorious whistleblower making a prompt, irrevocable 
waiver of any claim to an award from the other award scheme.
0
4. Section 240.21F-4 is amended by:
0
a. Revising paragraph (c)(2);
0
b. In paragraph (d)(2), removing the period from the end of the 
paragraph and adding in its place ``; and'';
0
c. Adding paragraph (d)(3); and
0
d. Revising paragraph (e).
    The revisions and addition read as follows:


Sec.  240.21F-4  Other definitions.

* * * * *
    (c) * * *
    (2) You gave the Commission original information about conduct that 
was already under examination or investigation by the Commission, the 
Congress, any other authority of the federal government, a state 
Attorney General or securities regulatory authority, any self-
regulatory organization, or the PCAOB (except in cases where you were 
an original source of this information as defined in paragraph (b)(5) 
of this section), and your submission significantly contributed to the 
success of the action.
* * * * *
    (d) * * *
    (3) For purposes of making an award under Sec. Sec.  240.21F-10 and 
240.21F-11, the following will be deemed to be an administrative action 
and any money required to be paid thereunder will be deemed a monetary 
sanction under paragraph (e) of this section:
    (i) A non-prosecution agreement or deferred prosecution agreement 
entered into by the U.S. Department of Justice or a state attorney 
general in a criminal case; or
    (ii) 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.
    (e) 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.
0
5. Section 240.21F-6 is amended by adding paragraphs (c), (d) and (e) 
to read as follows:


Sec.  240.21F-6  Criteria for determining amount of award.

* * * * *
    (c) Additional considerations in connection with certain smaller 
awards. When considering any meritorious whistleblower award 
application where the Commission--after applying the award factors 
specified in paragraphs (a) and (b) of this section--determines that 
the resulting payout to that whistleblower for the original information 
that he or she provided that led to one or more successful covered or 
related action(s), collectively, would be 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 as provided for in this paragraph (c).
    (1) The Commission may make an upward adjustment that it determines 
is appropriate to ensure that the total payout to the whistleblower 
more appropriately achieves 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;
    (2) The Commission shall not adjust an award upward under this 
paragraph (c) if any of the negative award factors specified in 
paragraph (b) of this section were found present with respect to the 
whistleblower's award claim, or if the award claim triggers Sec.  
240.21F-16 (concerning awards to whistleblowers who engage in culpable 
conduct);
    (3) In no event shall the Commission make an upward adjustment 
under this section to raise a potential 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); and
    (4) The total amount awarded to all whistleblowers in the aggregate 
may not be greater than 30 percent of the total monetary sanctions 
collected, or likely to be collected, in any action (as assessed by the 
Commission at the time it makes the award determination).
    (d) Additional considerations in connection with certain large 
awards where the monetary sanctions collected would equal or exceed 
$100 million. When considering any meritorious whistleblower award 
application where the whistleblower's original information led to one 
or more successful covered or related action(s), collectively, that

[[Page 34749]]

resulted in the collection of $100 million or more in monetary 
sanctions or will likely result in such collections (as assessed by the 
Commission at the time it considers the award application(s)), the 
Commission shall determine the award amount as specified in paragraphs 
(d)(1) through (4) of this section. (For purposes of this rule, the 
Commission may adjust the $100 million threshold upward through 
publication of an order in the Federal Register.)
    (1) When applying the award factors in paragraphs (a) and (b) of 
this section, the Commission shall make any upward or downward 
adjustments by considering the impact of the adjustments on both the 
award percentage and the approximate corresponding dollar amount of the 
award. If the resulting payout would be below $30 million (or such 
greater alternative amount that the Commission may periodically 
establish through publication of an order in the Federal Register), 
then the downward adjustment provided for in paragraph (d)(2) of this 
section shall not be applicable.
    (2) After completing the award analysis required by paragraph 
(d)(1) of this section and determining the total dollar amount of the 
potential award for any action(s) based upon the whistleblower's 
original information, the Commission shall consider whether that amount 
exceeds what is reasonably necessary to reward the whistleblower and to 
incentivize similarly situated whistleblowers. If the Commission finds 
that the total payout for any action(s) based upon the whistleblower's 
original information would exceed an amount that is reasonably 
necessary, it may adjust the total payout for the action(s) downward to 
an amount that it finds is sufficient to achieve those goals. As is the 
case with every aspect of any award determination under this section, 
the Commission shall not consider the balance of the Investor 
Protection Fund (``IPF'') when determining whether to make an 
adjustment to an award under this paragraph (c).
    (3) Any downward adjustment to a whistleblower's award for any 
actions based upon the whistleblower's original information under 
paragraph (d)(2) of this section shall under no circumstances yield a 
potential total payout on all the actions, collectively, (as assessed 
by the Commission at the time that it makes the award determination) of 
less than either $30 million or such greater alternative amount that 
the Commission may periodically establish through publication of an 
order in the Federal Register.
    (4) Further, any adjustments under paragraph (d)(2) of this section 
shall in no event result in the total amount awarded to all meritorious 
whistleblowers, collectively, for each covered or related action 
constituting less than 10 percent of the monetary sanctions collected 
in that action.
    (e) Future adjustments. Finally, in any order that adjusts any of 
the dollar amounts specified under paragraph (c) or (d) of this 
section, 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 any 
adjustment might have on the IPF.
0
6. Section 240.21F-7 is amended by revising the introductory text of 
paragraph (a) to read as follows:


Sec.  240.21F-7  Confidentiality of submissions.

    (a) Pursuant to Section 21F(h)(2) of the Exchange Act (15 U.S.C. 
78u-6(h)(2)) and Sec.  240.21F-2(c), the Commission will not disclose 
information that could reasonably be expected to reveal the identity of 
a whistleblower provided that the whistleblower has submitted 
information utilizing the processes specified in Sec.  240.21F-9(a), 
except that the Commission may disclose such information in the 
following circumstances:
* * * * *
0
7. Section 240.21F-8 is amended by:
0
a. Revising the section heading.
0
b. Adding paragraphs (d) and (e).
    The revision and addition read as follows:


Sec.  240.21F-8  Eligibility and forms.

* * * * *
    (d)(1) The Commission will periodically designate on the 
Commission's web page a Form TCR (Tip, Complaint, or Referral) that 
individuals seeking to be eligible for an award through the process 
identified in Sec.  240.21F-9(a)(2) shall use.
    (2) The Commission will also periodically designate on the 
Commission's web page a Form WB-APP for use by individuals seeking to 
apply for an award in connection with a Commission-covered judicial or 
administrative action (15 U.S.C. 21F(a)(1)), or a related action (Sec.  
240.21F-3(b)(1)).
    (e) Submissions or applications that are frivolous or fraudulent, 
or that would otherwise hinder the effective and efficient operation of 
the Whistleblower Program may result in the Commission issuing a 
permanent bar as part of a final order in the course of considering a 
whistleblower award application from you. If such a bar is issued, the 
Office of the Whistleblower will not accept or act on any other 
applications from you, in the following circumstances:
    (1) If you make three or more award applications for Commission 
actions that the Commission finds to be frivolous or lacking a 
colorable connection between the tip (or tips) and the Commission 
actions for which you are seeking awards; or
    (2) If the Commission finds that you have violated paragraph (c)(7) 
of this section. Before any Preliminary Determination or Preliminary 
Summary Disposition is issued, the Office of the Whistleblower shall 
advise you of any assessment by that Office that your award application 
is frivolous or lacking a colorable connection between the tip and the 
action for which you have sought an award. If you withdrawal your 
application at that time, it will not be considered by the Commission 
in determining whether to exercise its authority under paragraph (e)(1) 
of this section. The Commission will consider whether to issue a 
permanent bar in connection with an award application that would 
trigger such a bar; the Preliminary Determination or Preliminary 
Disposition must state that a bar is being recommended and the 
applicant would thereafter have an opportunity to submit a response in 
accordance with the award processing procedures specified in Sec. Sec.  
240.21F-10(e)(2) and 240.21F-18(b)(3).
0
8. Section 240.21F-9 is amended by:
0
a. Revising paragraphs (a) and (b);
0
b. In paragraphs (c) and (d), removing the parenthetical phrase 
``(referenced in Sec.  249.1800 of this chapter)'' wherever it appears; 
and
0
c. Adding paragraph (e).
    The revisions and addition read as follows:


Sec.  240.21F-9  Procedures for submitting original information.

    (a) To submit information in a manner that satisfies Sec.  240.21F-
2(b) and (c) you must submit your information to the Commission by any 
of these methods:
    (1) Online, through the Commission's website located at 
www.sec.gov, using the Commission's electronic TCR portal (Tip, 
Complaint or Referral);
    (2) Mailing or faxing a Form TCR to the SEC Office of the 
Whistleblower at the mailing address or fax number designated on the 
SEC's web page for making such submissions; or
    (3) By any other such method that the Commission may expressly 
designate on

[[Page 34750]]

its website as a mechanism that satisfies Sec.  240.21F-2(b) and (c).
    (b) Further, to be eligible for an award, you must declare under 
penalty of perjury at the time you submit your information pursuant to 
paragraph (a)(1), (2), or (3) of this section that your information is 
true and correct to the best of your knowledge and belief.
* * * * *
    (e) You must follow the procedures specified in paragraphs (a) and 
(b) of this section the first time you provide the Commission with 
information that you rely upon as a basis for claiming an award. If you 
fail to do so, then you will be deemed ineligible for an award in 
connection with that information (even if you later resubmit that 
information in accordance with paragraphs (a) and (b) of this section). 
Notwithstanding the foregoing, the Commission, in its sole discretion, 
may waive your noncompliance with paragraphs (a) and (b) of this 
section if the Commission determines that the administrative record 
clearly and convincingly demonstrates that you would otherwise qualify 
for an award and you demonstrate that you complied with the 
requirements of paragraphs (a) and (b) of this section within 30 days 
of the first communication with the staff about the information that 
you provided.
0
9. Section 240.21F-10 is amended by revising paragraphs (b), (c), and 
(d) to read as follows:


Sec.  240.21F-10  Procedures for making a claim for a whistleblower 
award in SEC actions that result in monetary sanctions in excess of 
$1,000,000.

* * * * *
    (b) To file a claim for a whistleblower award, you must file Form 
WB-APP, Application for Award for Original Information Provided 
Pursuant to Section 21F of the Securities Exchange Act of 1934. You 
must sign this form as the claimant and submit it to the Office of the 
Whistleblower by mail or fax (or any other manner that the Office 
permits). All claim forms, including any attachments, must be received 
by the Office of the Whistleblower within ninety (90) calendar days of 
the date of the Notice of Covered Action in order to be considered for 
an award.
    (c) If you provided your original information to the Commission 
anonymously, you must disclose your identity on the Form WB-APP, and 
your identity must be verified in a form and manner that is acceptable 
to the Office of the Whistleblower prior to the payment of any award.
    (d) Once the time for filing any appeals of the Commission's 
judicial or administrative action has expired, or where an appeal has 
been filed, after all appeals in the action have been concluded, the 
staff designated by the Director of the Division of Enforcement 
(``Claims Review Staff'') will evaluate all timely whistleblower award 
claims submitted on Form WB-APP in accordance with the criteria set 
forth in these rules. In connection with this process, the Office of 
the Whistleblower may require that you provide additional information 
relating to your eligibility for an award or satisfaction of any of the 
conditions for an award, as set forth in Sec.  240.21F-8(b). Following 
that evaluation, the Office of the Whistleblower will send you a 
Preliminary Determination setting forth a preliminary assessment as to 
whether the claim should be allowed or denied and, if allowed, setting 
forth the proposed award percentage amount.
* * * * *
0
10. Section 240.21F-11 is amended by revising paragraphs (b) and (d) to 
read as follows:


Sec.  240.21F-11  Procedures for determining awards based upon a 
related action.

* * * * *
    (b) You must also use Form WB-APP to submit a claim for an award in 
a potential related action. You must sign this form as the claimant and 
submit it to the Office of the Whistleblower by mail or fax (or any 
other manner that the Office permits) as follows:
    (1) If a final order imposing monetary sanctions has been entered 
in a potential related action at the time you submit your claim for an 
award in connection with a Commission action, you must submit your 
claim for an award in that related action on the same Form WB-APP that 
you use for the Commission action. For purposes of this paragraph 
(b)(1) and paragraph (b)(2) of this section, a final order imposing 
monetary sanctions is entered on the date of a court or administrative 
order imposing the monetary sanctions; however, with respect to any 
agreement covered by Sec.  240.21F-4(d) (such as a deferred prosecution 
agreement or a nonprosecution agreement entered by the Department of 
Justice), the Commission will deem the date of the entry of the final 
order to be the date of the earliest public availability of the 
instrument reflecting the arrangement if evidenced by a press release 
or similar dated publication notice; otherwise, the date of the last 
signature necessary for the agreement.
    (2) If a final order imposing monetary sanctions in a potential 
related action has not been entered at the time you submit your claim 
for an award in connection with a Commission action, you must submit 
your claim on Form WB-APP within ninety (90) days of the issuance of a 
final order imposing sanctions in the potential related action.
* * * * *
    (d) Once the time for filing any appeals of the final judgment or 
order in a potential related action has expired, or if an appeal has 
been filed, after all appeals in the action have been concluded, the 
Claims Review Staff will evaluate all timely whistleblower award claims 
submitted on Form WB-APP in connection with the related action. The 
evaluation will be undertaken pursuant to the criteria set forth in 
these rules. In connection with this process, the Office of the 
Whistleblower may require that you provide additional information 
relating to your eligibility for an award or satisfaction of any of the 
conditions for an award, as set forth in Sec.  240.21F-8(b). Following 
this evaluation, the Office of the Whistleblower will send you a 
Preliminary Determination setting forth a preliminary assessment as to 
whether the claim should be allowed or denied and, if allowed, setting 
forth the proposed award percentage amount.
* * * * *
0
11. Section 240.21F-12 is amended by:
0
a. Revising the introductory text of paragraph (a);
0
b. In paragraph (a)(2), removing the parenthetical phrase ``(referenced 
in Sec.  249.1800 of this chapter)''; and
0
c. Revising paragraphs (a)(3) and (6).
    The revisions read as follows:


Sec.  240.21F-12  Materials that may form the basis of an award 
determination and that may comprise the record on appeal.

    (a) The following items constitute the materials that the 
Commission, the Claims Review Staff, and the Office of the 
Whistleblower may rely upon to make an award determination pursuant to 
Sec. Sec.  240.21F-21F-10, 240.21F-11, and 240.21F-18:
* * * * *
    (3) The whistleblower's Form WB-APP, including attachments, any 
supplemental materials submitted by the whistleblower before the 
deadline to file a claim for a whistleblower award for the relevant 
Notice of Covered Action, and any other materials timely submitted by 
the whistleblower in response either:
    (i) To a request from the Office of the Whistleblower or the 
Commission; or
    (ii) To the Preliminary Determination or Preliminary Summary 
Disposition;
* * * * *
    (6) Any other documents or materials from third parties (including 
sworn declarations) that are received or

[[Page 34751]]

obtained by the Office of the Whistleblower to resolve the claimant's 
award application, including information related to the claimant's 
eligibility. (Neither the Commission, the Claims Review Staff, nor the 
Office of the Whistleblower may rely upon information that the third 
party has not authorized the Commission to share with the claimant.)
* * * * *
0
12. Section 240.21F-13 is amended by revising paragraph (b) to read as 
follows:


Sec.  240.21F-13  Appeals.

* * * * *
    (b) The record on appeal shall consist of the Final Order, any 
materials that were considered by the Commission in issuing the Final 
Order, and any materials that were part of the claims process leading 
from the Notice of Covered Action to the Final Order (including, but 
not limited to, the Notice of Covered Action, whistleblower award 
applications filed by the claimant, the Preliminary Determination or 
Preliminary Summary Disposition, materials that were considered by the 
Claims Review Staff in issuing the Preliminary Determination or that 
were provided to the claimant by the Office of the Whistleblower in 
connection with a Preliminary Summary Disposition, and materials that 
were timely submitted by the claimant in response to the Preliminary 
Determination or Preliminary Summary Disposition). The record on appeal 
shall not include any pre-decisional or internal deliberative process 
materials that are prepared exclusively to assist the Commission and 
the Claims Review Staff in deciding the claim (including the staff's 
Draft Final Determination in the event that the Commissioners reviewed 
the claim and issued the Final Order). When more than one claimant has 
sought an award based on a single Notice of Covered Action, the 
Commission may exclude from the record on appeal any materials that do 
not relate directly to the claimant who is seeking judicial review.
0
13. Add Sec.  240.21F-18 to read as follows:


Sec.  240.21F-18  Summary disposition.

    (a) Notwithstanding the procedures specified in Sec. Sec.  240.21F-
10(d) through (g) and in 240.21F-11(d) through (g), the Office of the 
Whistleblower may determine that an award application that meets any of 
the following conditions for denial shall be resolved through the 
summary disposition process described further in paragraph (b) of this 
section:
    (1) You submitted an untimely award application;
    (2) You did not comply with the requirements of Sec.  240.21F-9 
when submitting the tip upon which your award claim is based;
    (3) The information that you submitted was never provided to or 
used by the staff handling the covered action or the underlying 
investigation (or examination), and those staff members otherwise had 
no contact with you;
    (4) You did not comply with Sec.  240.21F-8(b);
    (5) You failed to specify in the award application the submission 
pursuant to Sec.  240.21F-9(a) upon which your claim to an award is 
based; and
    (6) Your application does not raise any novel or important legal or 
policy questions and the Office of the General Counsel concurs that the 
matter is appropriate for summary disposition.
    (b) The following procedures shall apply to any award application 
designated for summary disposition:
    (1) The Office of the Whistleblower shall issue a Preliminary 
Summary Disposition that notifies you that your award application has 
been designated for resolution through the summary disposition process. 
The Preliminary Summary Disposition shall also state that the Office 
has preliminarily determined to recommend that the Commission deny the 
award application and identify the basis for the denial.
    (2) Prior to issuing the Preliminary Summary Disposition, the 
Office of the Whistleblower shall prepare a staff declaration that sets 
forth any pertinent facts regarding the Office's recommendation to deny 
your application. At the same time that it provides you with the 
Preliminary Summary Disposition, the Office of the Whistleblower shall, 
in its sole discretion, either:
    (i) Provide you with the staff declaration; or
    (ii) Notify you that a staff declaration has been prepared and 
advise you that you may obtain the declaration only if within fifteen 
(15) calendar days you sign and complete a confidentiality agreement in 
a form and manner acceptable to the Office of the Whistleblower 
pursuant to Sec.  240.21F-8(b)(4). If you fail to return the signed 
confidentiality agreement within fifteen (15) calendar days, you will 
be deemed to have waived your ability to receive the staff declaration.
    (3)(i) You may reply to the Preliminary Summary Disposition by 
submitting a response to the Office of the Whistleblower within thirty 
(30) calendar days of the later of:
    (A) The date of the Preliminary Summary Disposition; or
    (B) The date that the Office of the Whistleblower sends the staff 
declaration to you following your timely return of a signed 
confidentiality agreement.
    (ii) The response should identify the grounds for your objection to 
the denial (or in the case of paragraph (a)(5) of this section, correct 
the defect). The response must be in the form and manner that the 
Office of the Whistleblower shall require. You may include 
documentation or other evidentiary support for the grounds advanced in 
your response.
    (4) If you fail to submit a timely response pursuant to paragraph 
(b)(3) of this section, the Preliminary Summary Disposition will become 
the Final Order of the Commission. Your failure to submit a timely 
written response will constitute a failure to exhaust administrative 
remedies.
    (5) If you submit a timely response pursuant to paragraph (b)(3) of 
this section, the Office of the Whistleblower will consider the issues 
and grounds advanced in your response, along with any supporting 
documentation that you provided, and will prepare a Proposed Final 
Summary Disposition. The Office of the Whistleblower may supplement the 
administrative record as appropriate. (This paragraph (b)(5) does not 
prevent the Office of the Whistleblower from determining that, based on 
your written response, the award claim is no longer appropriate for 
summary disposition and that it should be resolved through the claims 
adjudication procedures specified in either Sec.  240.21F-10 or Sec.  
240.21F-11).
    (6) The Office of the Whistleblower will then notify the Commission 
of the Proposed Final Summary Disposition. Within thirty (30) calendar 
days thereafter, any Commissioner may request that the Proposed Final 
Summary Disposition be reviewed by the Commission. If no Commissioner 
requests such a review within the 30-day period, then the Proposed 
Final Summary Disposition will become the Final Order of the 
Commission. In the event a Commissioner requests a review, the 
Commission will consider the award application and issue a Final Order.
    (7) The Office of the Whistleblower will provide you with the Final 
Order of the Commission.
    (c) In considering an award determination pursuant to this rule, 
the Office of the Whistleblower and the Commission may rely upon the 
items specified in Sec.  240.21F-12(a). Further, Sec.  240.21F-12(b) 
shall apply to summary dispositions.

[[Page 34752]]

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
14. The general authority citation for part 249 continues to read as 
follows and sectional authorities for Sec. Sec.  249.1800 and 249.1801 
are removed:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *

Subpart S--[Removed and Reserved]

0
15. Remove and reserve subpart S.

    By the Commission.

    Dated: June 28, 2018.
Brent Fields,
Secretary.
[FR Doc. 2018-14411 Filed 7-19-18; 8:45 am]
BILLING CODE 8011-01-P